Monday, August 1, 2011

Traders Rushed into the Safe Haven Currencies

Previous session overview
Traders rushed into the safe-haven currencies of the Swiss franc and yen Monday after a proposed U.S. debt deal failed to quell concerns over the fiscal state of the debt-laden U.S., which also squashed an overnight risk rally. 

Notably, despite Congress and President Barack Obama reaching a tentative debt deal over the weekend, there is still no guarantee that the plan could keep the U.S. credit rating from being cut. Meanwhile, investors have been loath to bid up the euro too much higher from its current levels based on fiscal concerns over periphery countries like Spain and Italy. 

The dollar fell to a fresh record low of CHF0.7777 and reversed direction against the Japanese currency, as the dollar turned negative on the session. The riskier, growth-sensitive euro meanwhile fell to a new low of CHF1.1165 and gave back all modest gains against the dollar and yen while turning negative against both its main rivals. 

The euro recently traded at USD1.4350 from USD1.4397 late Friday in New York. The dollar was at JPY76.71 from JPY76.75.

Earlier, it was reported activity at euro zone factories slowed to a near-standstill in July, recording its weakest growth rate in almost two years, according to a closely watched survey. Also, China's manufacturing activity continued to slow in July due to Beijing's tightening measures, while small and medium-sized enterprises likely experienced a sharper slowdown due to funding shortages, survey results showed.
Market expectation
EURCHF risk is now towards CHF1.11, say analysts. Analysts say the cross has just breached its CHF1.1275 Fibonacci extension target, and the next prop is the April to July support line at CHF1.11. Psychological support is at CHF1.10, and then until CHF1.0775.

This Friday's U.S. non-farm payrolls data could be key, after two months of markedly disappointing numbers. The manufacturing Institute for Supply Management index later Monday and service sector ISM Wednesday will also be in focus.