The Forex Daily Digest – September 25, 2009

The USD gained against major currency rivals yesterday following a report that showed U.S. sales of existing homes unexpectedly fell in August for the first time in five months. The National Association of Realtors reported that sales of existing U.S. homes dropped 2.7% in August to a seasonally adjusted annual rate of 5.10 million. The median forecast was for a small gain to a 5.40 million annual rate from 5.24 million in July. The USD remained higher after the Labor Department reported first-time filings for state unemployment benefits fell sharply in the latest week to the lowest level since July.

Analysts expect worries about the strength of the global economic recovery will force leaders of the Group of 20 to search for common ground on stimulus measures and reform of the international financial system during their two-day meeting in Pittsburgh that began last night. This is the third meeting of G20 since the collapse of the financial system a year ago. An April meeting of G20 leaders brought an agreement on efforts to provide fiscal and monetary stimulus, protect the financial sector in an effort to initiate lending, and curtail a rising tide of international protectionism. German Chancellor Angela Merkel warned that a U.S. effort to rebalance the global economy risked distracting the G20 from a more urgent need for market regulation at this week’s summit.

Japanese Finance Minister Hirohisa Fujii and Treasury Secretary Geithner agreed that domestic demand-led growth is good for Japan and the world economy. Fujii also told Geithner he was against manipulating the JPY's value or seeing any currency devalued "intentionally." Japan's new finance minister said a strong yen could be good for the Japanese economy, but later distanced himself from the comments.

The USD gained against the EUR after central banks announced they will scale back some emergency programs that have injected trillions of dollars into banks as financial markets begin to stabilize. Sterling fell to a six-month low and experienced its worst one-day percentage loss since late April against the EUR after Bank of England Governor Mervyn King said a weak pound was helping U.K. exporters and the economy to cope with a sharp downturn.
Taiwan’s central bank advised lenders to cut their bets against the USD after its currency reached a three-month high. An official at the Central Bank of the Republic of China (Taiwan) called and advised against taking too many USD short positions. Increasing overseas investment in local equities has helped drive Taiwan’s currency up 4.3 percent against the USD in the past six months.

The CAD fell by the most since June as crude oil, the nation’s biggest export, dropped below $66 a barrel and as the currency broke through key technical barriers. Bank of Canada Deputy Governor Longworth repeated the bank’s pledge to leave borrowing costs unchanged through the middle of next year, depending on the inflation outlook. The bank left rates unchanged at 0.25 percent at its last meeting and it is schedule to meet next on Oct. 20th.

The Fed Board Governor Kevin Warsh said yesterday that the Federal Reserve may have to increase interest rates from their currently ultra-low setting near zero percent before the need to take action is apparent. Warsh also said the U.S. central bank was at "a critical transition period.” Meantime, the Federal Reserve's balance sheet grew for an eighth straight week due to the central bank's ongoing purchases of Treasuries and mortgage securities.

Economic reports schedule for release today include the August Durable Goods report, The University of Michigan Consumer Sentiment Index for September and New Home Sales for August. Earnings today include KB Home, AZZ Inc, Founder Holdings Ltd, and Qualstar Corp.

Happy Trading,

James Dicks