GBP/USD Analysis

GBP/USD 15m

Double bottom at 1.5575 is now support. Current analysis would point to another bounce from 1.5450 (see graph above). Currently retracing from today's high of 1.5750.

Weekly Update

Japanese yen rallies against U.S. dollar; greenback extends gains against Euro and pound. The Japanese yen rose to its highest levels against the euro since May 2002 and traded near 13-year highs against the U.S. dollar as a decline in global stock markets prompted investors to continue retreating from the carry trade. The carry trade is the practice of borrowing money in countries with low interest rates for investment in higher yielding assets. With heightened anxiety about the prospect of a slowing U.S. and global economy, investors are continuing to exit holdings in higher yielding assets and repatriating those funds to Japan.

There had been some speculation that G7 countries might intervene to weaken the yen, but this speculation fell by the wayside after French Finance Minister Christine Lagarde did a Bloomberg interview where she said the G7 does not plan to intervene in the market despite concerns that volatility in the currency markets could threaten financial stability.

The Reserve Bank of Australia did intervene in the currency markets, selling its currency for a second day to defend the value of a weakening currency. The Australian dollar has fallen sharply in value as commodity prices coupled with the exodus from the carry trade exert downward pressure on the Australian dollar.

The British pound fell 3.2% against the U.S. dollar this morning, approaching give year lows. The value of residential property in England and Wales fell 7.3% from a year earlier, cementing views that the British economy is in trouble and interest rate cuts are likely. Sterling fell 1.7% against the euro today.

- contributed by Christopher Empett
Associated Foreign Exchange

Weekly Update

The euro suffered its biggest single session drop against the Japanese yen since it was launched in 1999, and it extended losses against the U.S. dollar as the credit crisis prompted European governments to step into the marketplace and promise to shore up beleaguered European financial institutions. The euro is currently plumbing 14-month lows against the U.S. dollar.

Over the weekend, the German government hobbled together a bailout package worth EUR 50 billion for Hypo Real Estate Holding AG, France's BNP Paribas SA, the largest French bank, took over the Belgian segment of Fortis Bank after the Belgian government's efforts to bail the bank out faltered.

The expansion of the credit market crisis has translated into a heightened state of risk aversion which has in turn led to a virtual drying up of the carry trade. (Carry trade is the practice of borrowing money in a country with low interest rates, such as Japan, to invest in higher yielding assets elsewhere). With diminished access to liquidity, investors are exiting those higher yielding assets and repatriating funds to the source currencies, which has been a massive benefit to the Japanese yen, one of the main currencies used for financing the carry trade.

The Canadian dollar fell to its lowest levels against the U.S. dollar since May 2007 as commodity prices fell. Commodities account for over half of Canadian exports, so dips in commodity prices often impact the loonie's fortunes. In particular, oil prices fell below USD 90.00 a barrel for the first time since February. As a net exporter of oil, Canada's currency is especially sensitive to movements in the price of crude.

Cash is King

Much has occurred since last week. The EU system is now showing signs of a breakdown as member countries are having difficulties deciding how to best deal with the global economic crisis. With Ireland now insuring consumer deposits and Germany helping their banking system with a bail out of their own, investors are wary and have begun moving their money back to safe haven assets.

My first target on the Euro was reached; however, I did miss the aftermath of the U.S. bail-out bill. I'm surprised gold has not topped $1k as it is the first "go-to" safe haven asset. If current sentiment continues, I'll be looking for further Yen purchases and higher gold prices.