Why USD On A Tear ?

Why is the U.S. Dollar on a Tear?
Last updated 3/27/2009 9:28 AM EST (GMT -5)

Tags: u.s. dollar, global reserve currency

Kathy Lien
Director of Currency Research, GFTlastchangevolumeLast Updated: 10 min ago
With the rally in the stock market and recent economic data invigorating hope for a U.S. recovery, traders needed a good reason to continue selling dollars. The big story this past week was the possibility of the dollar being replaced by the a global reserve currency but reports that this topic will not be discussed at the upcoming G20 summit has provided some relief. A confluence of factors have driven the U.S. dollar higher today. U.S. economic data was mixed which means that it did not contribute the rally. According to the latest reports, personal spending has slowed, personal income dropped to the lowest level in nearly a year while inflation ticked modestly higher.

There are 5 different reasons why the dollar has staged a sharp rally this morning.

1) Comments from German Finance Minister

Most importantly, the rally in the U.S. dollar began when the German Finance minister issued a critical warning about the negative consequences that fiscal irresponsibility in Europe could have on the Euro. Although the market chose to react to his comment, it was nothing groundbreaking. All countries with a growing budget deficit will struggle to make ends meet and there is no question that the lagging monetary policies of the Eurozone will put a greater strain on the region.

2) ECB Expected to Cut Interest Rate

Secondly, at a time when many countries have reported stronger inflation pressures, incoming data from Germany suggests that inflation in the Eurozone's largest country is still slowing. Weaker economic data and softer inflation pressures could push the European Central Bank to cut interest rates to 1.00 percent next week.

3) Global Reserve Currency Not a Topic at G20

Investors are also relieved that a global reserve currency to replace the dollar would not be discussed at the upcoming G20 summit according to senior Japanese and Russian officials.

4) Japanese Repatriation

The Japanese are buying Yen and selling all of the other major currencies ahead of their March 31st fiscal year end and finally,

5) U.S. Equity Futures Down

U.S. equity futures are down suggesting that the improvement in risk appetite witnessed yesterday is fading.

Dollar To Be Replaced !!!

UN and PBOC Call For Dollar To Be Replaced By Single World Currency
by Larry Edelson on March 26, 2009

It’s starting, just like I predicted it would over 10 years ago. And it’s on time. By 2011 — which I have pointed out several times, is what I call a ‘panic cycle’ year in the currency markets — the dollar should be gone as a reserve currency.



See articles below, both the U.N. and the PBOC are now calling for the dollar to be replaced. — Larry

U.N. Will Recommend that the World Should Ditch the Dollar

By Jeremy Gaunt, Special to Salem-News.com



UN Currency specialist Avinash Persaud has long argued that the dollar would give way to the Chinese yuan as a global reserve currency within decades.



(LUXEMBOURG (Reuters) ) — A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.



Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.



Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.



“It is a good moment to move to a shared reserve currency,” he said.



Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value — though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.



Some analysts said news of the U.N. panel’s recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.



“Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar’s slide between 2002 and mid-2008,” CMC Markets said in a note.



Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.



It has significantly reduced the dollar’s share in its own reserves in recent years.



Good Time



Persaud said that the United States was concerned that holding the reserve currency made it impossible to run policy, while the rest of world was also unhappy with the generally declining dollar.



“There is a moment that can be grasped for change,” he said.



“Today the Americans complain that when the world wants to save, it means a deficit. A shared (reserve) would reduce the possibility of global imbalances.”



Persaud said the panel had been looking at using something like an expanded Special Drawing Right, originally created by the International Monetary Fund in 1969 but now used mainly as an accounting unit within similar organizations.



The SDR and the old Ecu are essentially combinations of currencies, weighted to a constituent’s economic clout, which can be valued against other currencies and indeed against those inside the basket.



Persaud said there were two main reasons why policymakers might consider such a move, one being the current desire for a change from the dollar.



The other reason, he said, was the success of the euro, which incorporated a number of currencies but roughly speaking held on to the stability of the old German deutschemark compared with, say, the Greek drachma.



Persaud has long argued that the dollar would give way to the Chinese yuan as a global reserve currency within decades.



A shared reserve currency might negate this move, he said, but he believed that China would still like to take on the role.



Special thanks to Jeremy Gaunt, European Investment Correspondent, for this report. (editing by Patrick Graham)

GBP/USD

Sterling:

Confidence in the economy will remain very weak in the short term with expectations of a further deterioration and deep recession. The near-term Sterling trends will also be influenced strongly by trends in risk appetite with a particular focus on the UK banking sector. The UK currency will come under further pressure if confidence in the sector continues to deteriorate while any reassurance over the banks could trigger a sharp corrective rally for the UK currency. In this environment, trading volatility is likely to remain at elevated levels with good buying support on retreats towards 1.35. The Euro looks to offer little short-term value above the 0.95 level against Sterling.


Sterling remained under pressure on Friday and weakened to a fresh 23-year low near 1.35 against the dollar. Sterling also dipped to three-week lows around 0.9470 against the Euro following the UK data. Overall confidence in the economy will remain extremely weak in the short term, especially with budget fears increasing

There will still be some scope for a correction from over-sold conditions, especially after a weekly decline against the dollar of close to 8% and Sterling recovered back to near 1.38 later in US trading. Given the lack of confidence, rallies quickly attract selling pressure and Sterling retreated again towards 23-year lows on Monday with a test of support below the 1.36 level before a rebound to above 1.37 as UK banking shares rallied.

GBP/USD Pair @ 11.00 am (Malaysia)

SELL Area : 1.4485(First Target : 1.4400. Second : 1.4350 Third : 1.4292)

BUY Area : 1.4527(First Target : 1.4606)

Salam and Hi....

Yesterday Sell area met at 1.4577 and met my second target at 1.4467 and stop at 1.4422.

So price at 1.4350 still hold and candle bounce back this morning to test Mr. Pivot at 1.4505. As long as 1.4350 not broken candle possible to test 1.4779.

Trading Range is between 1.4350 to 1.4779 as 1.4779 will be initial resistance.

Allah Hu

GBP/USD Pair @ 11.00 am (Malaysia)

SELL Area - 1.4577 (First Target : 1.4514 Next : 1.4467 Next : 1.4350)

BUY Area - 1.4629 (First Target : 1.4729 Next : 1.4850)

Salam and Hi,

Yesterday the Sell area met at 1.4656 and easily break my target at 1.4575 and stop at 1.4514 - fail to reach my second target at 1.4452. From here candle rebound back at 1.4600 area.

At this moment candle in consolidations mood. Trading Range is between 1.4394 to 1.4779 area. As long as 1.4394 hold and not broken, candle will test again 1.4850 and if success candle may test 1.5000 area within few days.

Let see this happen and happy trading.


Allah Hu

EU presidency: US stimulus is 'the road to hell'

BRUSSELS (AP) -- The head of the European Union slammed President Barack Obama's plan to spend nearly $2 trillion to push the U.S. economy out of recession as "the road to hell" that EU governments must avoid.


The blunt comments by Czech Prime Minister Mirek Topolanek to the European Parliament on Wednesday highlighted simmering European differences with Washington ahead of a key summit next week on fixing the world economy.

It was the strongest pushback yet from a European leader as the 27-nation bloc bristles from U.S. criticism that it is not spending enough to stimulate demand.

Shocked by the outburst, other European politicians went into damage control mode, with some reproaching the Czech leader for his language and others reaffirming their good diplomatic ties with the United States. The leaders of EU's major nations -- France, Britain and Germany, among others -- largely ignored Topolanek and his remarks.

Obama pays his first official visit to Europe next week, aiming to thrash out reforms to the global financial system with the Group of 20 nations and call on NATO allies to commit more troops to the U.S. war in Afghanistan.

Europeans leaders hope the new U.S. administration will agree with them on tightening oversight over the global financial system -- which they see as crucial to fixing the global economy.

Instead, the United States is focusing its efforts on economic stimulus and plans to spend heavily to try and lift itself out of recession with a $787 billion plan of tax rebates, health and welfare benefits, as well as extra energy and infrastructure spending.

To encourage banks to lend again, the U.S. government will also pump $1 trillion into the financial system by buying up treasury bonds and mortgage securities in an effort to clear some of the "toxic assets" -- devalued and untradeable assets -- from banks' balance sheets.

Obama insisted Tuesday that his massive budget proposal will put the ailing U.S. economy back on its feet. "This budget is inseparable from this recovery," he said, "because it is what lays the foundation for a secure and lasting prosperity."

But Topolanek took aim at Washington's deficit spending.

"All of these steps, these combinations and permanency is the road to hell," Topolanek said. "We need to read the history books and the lessons of history and the biggest success of the (EU) is the refusal to go this way."

"Americans will need liquidity to finance all their measures and they will balance this with the sale of their bonds but this will undermine the liquidity of the global financial market," Topolanek said.

Topolanek spoke the day after he was ousted by his own parliament. The Czech Republic currently holds the six-month rotating EU presidency but its leadership is in question, with Topolanek hanging on to a caretaker government at home after losing a "no confidence" Tuesday.

In Washington, State Department spokesman Gordon Duguid said he did not expect the Czech poltical turmoil to affect Obama's upcoming trip to Prague because the president was traveling to attend an EU event.

Analyst Nicolas Veron, a research fellow at the Bruegel think tank, said Topolanek's view is not widely shared by EU leaders.

"I don't think the damage can be as large as the very strong wording of this would lead one to think," he said. "Many people have doubts about the U.S. plan but what he said is much stronger."

Veron said European leaders worry that the U.S. plan may not work or could cost taxpayers heavily -- but he did not doubt the U.S.' "fiscal robustness" or that it still had extra room to maneuver to stoke economic growth.

Martin Schulz, leader of the Socialist group in the European parliament, immediately chided Topolanek, saying his comments were "not the level on which the EU ought to be operating with the United States."

"You have not understood what the task of the EU presidency is," he told the Czech premier.

EU Commission President Jose Manuel Barroso also said it was "not helpful ... to try to suggest that Americans and Europeans are coming with very different approaches to the crisis."

"On the contrary, what we are seeing is increased convergence," he told the parliament.

But Europe's resistance to the U.S. call for new stimulus measures is starting to weaken despite Germany's fierce opposition to any new spending program this year.

French President Nicolas Sarkozy said Tuesday he is prepared to support the economy with a new spending package. EU officials say they can't rule anything out -- even an EU-wide stimulus that could help nations like Ireland and Spain, which can't afford any extra stimulus.

British Prime Minister Gordon Brown has also supported U.S. calls to ramp up fiscal stimulus -- government spending and tax cuts -- although the Bank of England has warned that Britain's swelling public deficit may make it unable to afford new spending.

Associated Press writers Raf Casert in Strasbourg, France, Jane Wardell in London and Desmond Butler in Washington contributed to this report.

INILAH DIA KEMUSNAHAN ECONOMI CAPITALIST -----

ALLAH HU

GBP/USD Pair @ 11.00 am (Malaysia)

SELL Area - 1.4656 (First Target : 1.4575. Second Target : 1.4452).

BUY Area - 1.4677 (First Target : 1.4779. Second Target : 1.4850).

Salam and Hi........

Yesterday as aspected my buy area met and achived my second target at 1.4750 and close at 1.4779. From there candle drop back to 1.4636 and at this moment still in consolidations move from that drop. Looks like market is still testing 1.4850 today. Anyway fail to do so, candle may drop back to find 1.4350. From here maybe candle will test yesterday high at 1.4779. Good Luck.

Trading Range is between 1.4350 - 1.4850.

Breaking 1.4850 candle may test 1.5000 area.

Salam and Allah Hu.