EURUSD breaks above 1.3880, fresh all-time hi
Overnight the dollar hit a new record low against the euro after Fed Chairman Bernanke warned that foreign appetite for dollar assets may fall. The dollar index is now at a 15-year low, solidly below the 80.0 level that was a double bottom over the summer. With most market participants believers in a lower dollar but not yet significantly positioned for it, this should have more room to run. The EURUSD breakout opens the way to 1.40 and beyond, with exotic barriers along the way. Our traders look to buy dips, targeting 1.3920. Even as the market's focus has shifted from credit market woes to the US slowdown as a dollar driver, however, the effective over-hedge of dollar assets by European SIVs should continue to be dollar-supportive. A European SIV investing in US assets would normally have hedged the full book value of its implied long-dollar position back to the euro. With many assets now worth significantly less than book value, these dollar hedges are now too large. Cable followed EURUSD higher, and was further boosted this morning by a strong UK labour market report. Look for a test of 2.0390-2.0400, where it topped out on Aug. 8 and 9. Ahead of the Swiss National Bank rate decision tomorrow - for which 30bp of tightening is already priced in - USDCHF is holding above its 1.1815 low from Aug. 6 and EURCHF is sbelow trend resistance from its July 25 high of 1.6687, which currently intersects at 1.6470. The yen and the Nikkei have been weighed down today by the surprise resignation of Japanes Prime Minister Abe, as he had just appointed a BoJ-friendly cabinet. His successor will likely be chosen Sept. 19; Foreign Minister Aso is seen as the most likely replacement.
Overnight the dollar hit a new record low against the euro after Fed Chairman Bernanke warned that foreign appetite for dollar assets may fall. The dollar index is now at a 15-year low, solidly below the 80.0 level that was a double bottom over the summer. With most market participants believers in a lower dollar but not yet significantly positioned for it, this should have more room to run. The EURUSD breakout opens the way to 1.40 and beyond, with exotic barriers along the way. Our traders look to buy dips, targeting 1.3920. Even as the market's focus has shifted from credit market woes to the US slowdown as a dollar driver, however, the effective over-hedge of dollar assets by European SIVs should continue to be dollar-supportive. A European SIV investing in US assets would normally have hedged the full book value of its implied long-dollar position back to the euro. With many assets now worth significantly less than book value, these dollar hedges are now too large. Cable followed EURUSD higher, and was further boosted this morning by a strong UK labour market report. Look for a test of 2.0390-2.0400, where it topped out on Aug. 8 and 9. Ahead of the Swiss National Bank rate decision tomorrow - for which 30bp of tightening is already priced in - USDCHF is holding above its 1.1815 low from Aug. 6 and EURCHF is sbelow trend resistance from its July 25 high of 1.6687, which currently intersects at 1.6470. The yen and the Nikkei have been weighed down today by the surprise resignation of Japanes Prime Minister Abe, as he had just appointed a BoJ-friendly cabinet. His successor will likely be chosen Sept. 19; Foreign Minister Aso is seen as the most likely replacement.