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 Return Analysis
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Currency Market Summary for the week of October 29th – November 2nd, 2007.
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So the FRB has decreased the rate by 0.25%, as expected. After insignificant corrections the dollar continued a decrease against the Euro, the pound, the Swiss franc and the Canadian dollar. As expected, such actions of the USA monetary authorities will lead to a steady weakening of the dollar against all major currencies. The Canadian dollar is again an exception, which is constantly strengthening on the background of growing crude oil prices. The mark of 0.95 has already been passed, just like the level of 0.94. The level of 0.93 is the next to follow.
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The end of the last week was marked by new highs for the Euro and the pound - 1.4530 and 2.09 correspondingly. The summer high level for the pound - 2.0653 was confidently broken through even before the FRB meeting. The stops resulted in the rate of 2.0820.
On Thursday, November 8th, the resolution of the CEB and the Bank of England on the rates will be made public. Until then trading is expected in the range of 1.4380 - 1.4520 for the Euro and broader range for the pound - 2.0720 - 2.0920. Both banks’ resolutions are expected to be neutral, which will affect the Euro and the pound in different ways. The latter may be corrected much stronger than the Euro. However, the data on the British economy already show their downward pressure.
The abundance of statistical information which will be announced this week, will have a different influence on the rates of the major currency pairs, but on the whole strong changes until the resolutions on the rates are not expected as surprises are possible, especially from the Bank of England, which has grounds for a slight reduction of the rate.
The previous summary contained the forecast in relation to the Japanese yen, which was completely realized. The rate slightly exceeded 115.80 (the high was 115.94) for a short time. Just after that the price dropped sharply by almost 150 points and is now being traded at 114.50, which indicates a possible exit from the trading range downwards with the goal of testing 113.80.
Analyzing the trend of the last few weeks, one can see that there have been no corrections for the Euro, pound and Canadian dollar connected with the profit taking. It may happen by the middle of November. It is obvious that the positions against the dollar are being strengthened in spite of the positive information and technical factors. In case these movements are not connected with big-time policies, major institutional investors will start buying the dollar at the possible bottom in anticipation of the coming change of power in the USA.
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