Term Paper: Currency Markets the Currency Exchange

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[. . .] USD/EUR: During the 19-25 July week, the traders took the pair to a low of 0.8025, before finally closing at.0,8034. Moving averages may indicate a weakness in the overall trend.

USD/JPY: Dollar bears did not manage to break a long-term support line, which now floats around 108.00. The moving averages indicate that the trend is possibly to the upside.

USD/GBP: After breaking the 0.5405 figure, bears took control for the rest of the week.

Investors were waiting at the end of the week for the U.S. interest rate picture. The fear that inflationary pressure could make the Fed to raise rates sooner than planned diminished. Due to lower gasoline prices, producer prices declined by -0.3% in June. After a slower than expected U.S. industry growth in June, two surveys (the Empire State Manufacturing Survey and the Philadelphia Federal Reserve Survey) greatly exceeded market expectations and signaled healthy expansion in July, by estimating 36.54 points, instead of the usual market figure of 27.80 (for NY), and 36.1 instead 25. (for Philly). Analyzing the surveys, it would seem that the manufacturing market is reviving, an increase in shipments and average weekly hours worked being mentioned by the two releases.

12-18 July

USD/EUR: Traders went low this week and sent Euro supporters on a visit to the 4-month low of 0.8050, closing at 0.8057.

USD/JPY: Traders explored the 107.92-109.71 range, closing almost exactly on the open at 108.29/108.31. Bulls may be encouraged by near recent lows in the proximity of the 107.00 figure, as long-term resistance remains near the 115.00 level.

USD/GBP: Bears took control in the 12-18 July week. A head and shoulders pattern is now emerging with a neck line near the 0.5434 figure. The slow moving averages are a sign of strength, while the fast ones show weakness.

The U.S. Trade Deficit decreased in May from $48.09 billion to $45.95 billion, which is a surprise, being the first time half a year that the trade balance has an ascending trend. Led by a boom in aircrafts, exported goods this month went up by 4.2%. Overall exports reached record highs, being supported by a surge in foreign demand for telecom equipment and civilian aircraft Import growths of 15.9% are being outpaced by yearly export growths of 17.6% During May, the dollar index declined over 2%, which determined an increase in exports. Imports also went to a record high, which was not a surprise, considering that oil prices increased and domestic demand generally rose.

The Bank of Japan did not change its monetary policy on the 13th of July, which was a widely expected outcome. The assessment of economy was favorable, based on signs of a "solid recovery" in the household sector. According to chairman Takenaka, "the job market is improving and household income levels have established a strong base line."

German Industrial Production came was high at 1.1%, with growth estimates of 0.2% in May. Notwithstanding the surprisingly high figure, the previous day's release of factory orders spoiled most of the thrill. After the release of Germany's industrial general image, annualized growth forecasts went up 0.2, from 1.6% to 1.8%. Overall German economic situation remains uncertain, although the industry seems to be recovering, and exports are high as usual. The unemployment rate did not move from 9.8% in June and improvements in the near future are not expected.

The Bank of England's Monetary Policy Committee kept its repo at 4.50%, which was an expected move, considering the fact that rates were raised 4 times since November by a total of 1%. As a reaction to strong consumer spending and healthy industrial and manufacturing production reports, the Bank of England raised rates in May and June. After the two consecutive increases, it is only natural for the Bank to wait and see the results of their actions. The inflation target is now at 2% and the central bank, is expected to raise rates in August by another 25bp if it wants to keep the target when faced with wage growth and rising housing prices. 5.25% is a realistic figure markets expect before the end of the year.

5-11 July

USD/EUR During this week's trading session, the pair went as low as 0.8113, before closing near at 0.8116 The moving averages indicated an overall weakness in the trend.

USD/JPY Starting the week off at 107.55, USD/JPY climbed to a high of 109.57, finally closing at 108.31.

USD/GBP Bears may continue to sell until the 0.5405 figures, which represented previously a serious resistance line. The slower moving averages are signs of an uptrend, while the faster moving averages indicate a recent sell off.

UK GDP grew more than expected, by 0.7%, with an annualized rate of 3.4%, which represents a 3-year high.. UK's growth rate moves twice as fast as its correspondents in euro-zone countries Manufacturing is still weaker than the service and retail sectors. Retail sales have grown by 7.4% in April, while manufacturing moved slow at 1.2% because of low export levels.

The Federal Reserve raised interests by 25bp to 1.25% on the 7th of July. The Fed announced, "underlying inflation is still expected to be relatively low" as such elevated signs were caused by transitory factors. As believed. Japanese Tankan Manufacturers Index, which measures confidence was released at 22 versus an expected 17 points.

The 14 June - 4 July period

USD/EUR The pair continued to squeeze in a general triangle consolidation pattern. The USD/EUR price shows indecision. During the first week the lowest level was a surprising 0.8097.

USD/JPY A significant sell-off occurred during this period. The breakdown of support is an open invitation for bears to gain control. A long-term triangle in taking shape.

USD/GBP The pair faces a state of indecision, at least for the time being. The USD/GBP seems to be joining the club and continue the triangles-tradition.

During this period, the U.S. GDP suffered a downward revision, German consumer confidence seems to have improved, the U.S. current account deficit continues to widen, UK is riding the wave with low unemployment and strong retail sales, inflation was the main concern of the markets, while the Bank of England raised its rates and the Bank of Japan increased its economic assessment.





1. Lien K., Dyess P., and Rosen A., "Daily FX Weekly Market Reports" in June, July and August 2004, www.dailyfx.com

2.Currency Trading Overview - The Currency Exchange Market www. oanda.com

3.Weekly Market Commentary 30 July… [END OF PREVIEW]

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