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Dollar and Yen Bid Underlying Safety Concerns

Posted by Joseph Trevisani on Jan 5, 2016 2:13:59 PM

The U.S. Dollar hit a one month high against the euro but was one day beyond a three month low versus the Japanese Yen as safe haven concerns and the collapsing yen crosses dominated trading. 

The European currency fell as low as 1.0710 in New York, its weakest against the dollar since December 3rd, a day when the euro soared over four big figures to close at 1.0940.  At the same time the Yen touched 118.79 against the greenback, its strongest level bar yesterday’s 118.70 bottom, since October 15th.  

The euro was also weakened by EMU inflation data for December, which at 0.2 percent annually and 0.9 percent core was below the respective forecasts of 0.3 percent and 1.0 percent and far beneath the ECB's 2.0 percent target for headline inflation.

The combined downward move in the euro/yen components has product a, 2.5 percent two-day plunge in the euro/yen, from a high of 130.82 yesterday to a low of 127.52 today. It was the weakest quote for this cross since April last year.

Other resource and emerging market currencies also took heavy losses. The dollar traded above 1.4000 against the Canadian Dollar, the poorest showing for the U.S's Northern neighbor since August 2002.

The Mexican Peso was changing at 17.3422 against the dollar, within a hundred odd points of its all-time low of 17.4381 on December 11th. Likewise the Russian Ruble was at 73.2732 against the U.S. currency, within a figure of its year-and-half half bottom  of 74.3525 which came just three sessions ago on December 31st. 

The dollar index surged to a one month high at 99.534 and the 'broad dollar', a trade weighted basket of currencies was at 122.9770, within 50 pints of its best level in over a dozen years.

Since trading began for the New Year on Monday, markets have sought the seeming stability of the United States and Japanese economies as a sharp 7 percent selloff in Chinese equites yesterday led to massive global losses in stocks.

Emerging markets have been hard hit by the combination of a revived U.S. dollar, support by the Federal Reserve’s first tightening cycle in almost a decade and a collapse in commodity prices, itself partially caused by the soaring dollar combined with a worldwide oversupply of many industrial resources and the gathering slowdown in global economic growth. 

Chinese stock fell again on Tuesday, though the losses we limited by the government’s intervention in the mainland exchanges.

U.S equities were marginally lower at 1:45 pm. Most European bourses closed with small gains. 


Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg













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