The Forex Daily Digest – November 12, 2009

The USD rebounded against the EUR, pulling an index on the dollar away from a new 15-month low, as U.S. equity markets pared some of the strong gains earlier in the session and led traders to reconsider bets on riskier assets. The GBP was the big mover, falling more than 1% versus the dollar as officials talked down the currency and hinted at the possibility of further quantitative easing.

China will probably let the yuan start rising against the dollar in early 2010 after the central bank signaled it may pursue a more flexible currency policy. The People’s Bank of China said the exchange rate will be guided in a “proactive, controlled and gradual manner and based on international capital flows and movements in major currencies.” The yuan strengthened 21 percent in the three years after a dollar peg was scrapped in July 2005, before China intervened to keep the currency at about 6.83 per dollar as a global recession battered exports.

President Obama leaves today for a trip to Asia, his first visit to the region since he took office. Obama will stop first in Tokyo, where he will deliver a major speech on his Pacific Rim policy and also meet with Prime Minister Yukio Hatoyama. Other countries on the itinerary are China, Singapore and South Korea. Obama will use the weeklong trip to strengthen ties to Asian leaders and send a strong message that the U.S. is "an Asia-Pacific nation and we are there for the long haul.”

U.S. Treasury Secretary Timothy Geithner said Asia-Pacific nations need “market-oriented” currencies that are in line with their economic fundamentals to encourage new sources of growth. Members of the Asia-Pacific Economic Cooperation group, which make up more than half of the world’s gross domestic product, must focus on strategies to boost private demand as policy makers start unwinding stimulus measures.

According to IMF economists, policymakers should consider ways of shifting from a dollar-centric global monetary system to one with a wider range of reserve assets and some form of insurance that would reduce reserve accumulation. The economists believe that the worst economic downturn in 70 years has revived concerns over a monetary "non-system" where the weaknesses have amplified as emerging economies built up reserves to self-insure against capital account crises in recent years.

On the U.S. economic calendar on Friday watch for the Export and Import Price report for the month of October, September’s Trade Balance and the November preliminary University of Michigan Consumer Sentiment report.
Scheduled earnings on Friday will come from Agilent Technologies, JC Penney, Swissco International Ltd., URS Corp, and Texas Petrochemicals.

Happy Trading,

James Dicks