The Forex Daily Digest - July 9, 2009

Forex traders watched the Group of Eight summit being held in Italy very closely. Analysts are anticipating the G8 leaders to center their attention on ending the global recession, while improving credit and trade instead of focusing on the status of the USD. International reports out of the summit said the final statement from the G8 will detail factors that are hoped to stabilize the current economic situation.

Through it all, questions about the role of the USD as the world's primary reserve currency simply will not disappear. The issue isn't even on the agenda for G8 leaders, but government representatives from Russia say it will be discussed when the primary G8 heads of state are joined today by the leaders of some of the most powerful emerging economies, including China, India and Brazil.

Currency dealers contend that the news that Chinese President Hu Jintao cancelled his intentions to attend the G8 summit because of continued unrest in China's Xinjiang Uighur Autonomous Region had no direct effect on the currency markets. Most Forex investors already expected that the G8 would not formally take up proposals, some of which have come from China, for debate on creation of a new global reserve currency to replace the dollar.

The Bank of England stunned global financial markets and economists today, after it decided not to increase its 125 billion pound ($202 billion) quantitative-easing program at its July meeting as it kept interest rates at a record low of 0.5%. Numerous economists expected the BOE's Monetary Policy Committee to increase the bank’s asset purchase program by an another 25 billion pounds.

The USD fell to its lowest point in nearly five months against the JPY as concerns about the global economy distressed markets globally. Over the past few months, the JPY the JPY has seen most of the interest from investors hoping to find the safest assets in the middle of this economic and financial-market downturn. Still, the USD has a tendency to profit when traders leave the euro and higher-yielding currencies.

The CAD hit a seven-week low and Canadian government bonds advanced as investors lost their desire for risk on speculation growth that the global economy will continue to be sluggish. The CAD lost earlier profits as Canada’s largest export, crude oil, dropped for a sixth consecutive day. The yield on Canada’s 10-year government note dropped to the lowest level since the end of May.

Today there are a couple of significant economic reports scheduled for release. You can expect the weekly Initial Jobless Claims report which came in at 614 thousand last week – it’s expected to drop to 603 thousand this week. Also, look for May’s Wholesale Inventories report which was a negative 1.4 percent last month. The street is expecting a negative 1.0 percent in this report.

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