The Forex Daily Digest – June 23, 2009

The equities markets experienced their most volatile trading day in two months on Monday. Big decliners were Bank of America and Alcoa and, among other things, the weak showing had a definite impact on the global confidence in the dollar. The World Bank announced today that the world’s economy will contract 2.9% this year which is a sharper decline than the 1.7% tightening it predicted back in March. The World Bank also said that the world “has entered an era of slower growth that will require tighter and more effective oversight of the financial system.” Earlier this year, the Bank said the slowdown represents "nothing less than an emergency" for economic and social development in low-income countries.

Uncertainty surrounding the outcome of the U.S. Federal Reserve's Open Market committee announcement is undoubtedly contributing to an uncertain mood among investors, which is in turn weighing on stocks and other riskier asset classes. The much anticipated FOMC announcement is slated for Wednesday afternoon at 2:15 pm (Eastern Time).

Tomorrow (Wednesday) look for the latest Mortgage Bankers’ Association Index which tracks the increase or decrease in purchase and refinance activity at major lenders. The recent increase in rates has dramatically reduced the refinance activity while the purchase index has shown some signs of improving. Durable Goods Orders will also be released, reflecting new orders placed with manufactures for goods they produce. Following April’s revised increase in orders of 1.7% (March posted a drop of -2.2%), economists are expecting a decline of negative 0.5%. If factory orders are increasing, that suggests a belief that sales will be increasing. And the New Home Sales report, which measures the number of newly constructed homes with a contract for sale, is also slated for release on Wednesday. These are not necessarily sales that have already closed but rather new homes that a contract has been placed.

The dollar was broadly higher on Monday morning as it advanced against all major currencies except the yen. The Canadian dollar was noticeably lower as weakness in commodities pressures the currency along with the U.S. dollar's general rally.

The JPY strengthened against all of its major counterparts after Iran’s government reported at least 17 people were killed during protests over this month’s disputed election. And the AUD fell against the dollar and yen as the World Bank warned a flight of capital from developing nations will increase the jobless ranks. Analyst forecasts about the dollar have become the most “scattered” in two years, driving up foreign exchange price swings and increasing risks that trading strategies and corporate hedges may backfire.

There are reports that the euro will almost certainly widen its decline against the USD as it approaches a point with an area of support. The EUR dropped the most in a week as the World Bank’s prediction of a deeper global contraction in 2009 added to demand for the safety of dollar-denominated assets.

Beware the major news events that are looming this week. The FOMC Meeting which starts today, the major economic reports that are scheduled for release and the news events of the day, which could most certainly affect your currency trading. As always, listen to the JDfn professional traders and get their take on the upcoming day’s activities and then make your educated decisions concerning your trading direction. And as always –

Happy Trading –

James Dicks