Updated Thu Oct 1 16:16 ET
US FX Review: Dlr/mark dives to 20-mo low on hedge funds fears
By Cornelius Luca, Bridge News
New York--Oct 1--Dollar/mark plummeted to a 20-month low as traders
sought refuge from fears that further hidden hedge fund losses are about to
surface. The dollar's weakness was so widespread, it even fell against the
yen, despite a horrendous "tankan" economic survey out of Japan.
* * *
At 1600 ET, the dollar was bid at 135.68 yen, down from Wednesday's
136.47 yen, and at 1.6471 marks, down from 1.6683 marks. The global ranges
were 135.04 to 136.90 for dollar/yen, and 1.6452 to 1.6728 for dollar/mark.
The market has been flooded with rumors that 2 more major hedge funds
were on the ropes, with traders still shell-shocked by the historical near-
collapse of Long-Term Capital Management LLC last week, which will
undoubtedly embellish business textbooks for decades to come.
Federal Reserve Chairman Alan Greenspan defended the New York Fed's
action to keep Long-Term Capital from collapsing, saying it was an effort
to prevent "serious" market disruptions in the US and around the globe in
an extremely fragile financial environment. (Story .13560).
Greenspan also asserted the Fed's action wasn't a bailout because no
public funds were used. But he did not alleviate traders' worries of
further hedge funds losses. In fact, it is possible that more hedge funds
could blow up in the future, Greenspan said while testifying to the House
Banking Committee.
In a different venue, US Treasury Secretary Robert Rubin promised
specific steps to deal with the emerging markets' woes.
The Dow Jones industrial average weighed on the dollar today, with the
index closing on a bearish tone, below the 7740 support line.
news.bridge.com
Dollar/yen fell under the pressure of dollar/mark, although at a
fraction of the magnitude. Not even the "tankan" survey for the September
quarter, which displayed dismal results for the depressed Japanese economic
climate, was able to sink the yen today. The US traders got dollar/yen on
the rebound from 135.09, and bid it up to 135.90. After 3 failed
consecutive efforts to reach 136.00, dollar/yen drifted lower to 135.60 in
a thin market.
"I haven't seen much interest today," lamented a senior corporate
trader with a Japanese bank today.
Economists and traders have been forecasting a weaker yen at the end of
1998, but the currency continued to gain steadily. "There is a general
perception in the market that the US equity market is headed lower, and
that the US economy is heading to financial trouble in 1999," said Jeff Yu,
senior trader at Sanwa Bank.
For Bridge and Telerate users, please double click for the following
chart: Media://analytics::/cmd=$$USDJPY/CH/HZ2/NVO
Dollar/Deutsche mark dropped 2 1/2 pfennigs in Europe, and US traders
were left to pick up the pieces. Profit-taking lifted the pair to 1.6540,
but the unwavering weakness of the Dow poked holes in dollar/mark's half-
hearted rebound efforts, and sank it back to 1.6453. In effect, technicians
had their way today, pushing and pulling the pair 50 pips above and below
the pivot price at 1.6490.
"I've had a lot of sell-stops on the downside, but yet I didn't see a
major collapse," said a senior trader.
For Bridge and Telerate users, please double click for the following
chart: Media://analytics::/cmd=$$USDDEM/CH/HZ2/NVO
Mark/yen was bid up aggressively and steadily to 82.43, a new nearly 6-
year high, with a New York money-center spearheading the efforts. The
advance was only lightly dented by reported profit-taking sales from a
Swiss bank. Good support at 80.29 is expected to prop up the cross Friday.
"With the Group of Seven meeting coming up, and with the worsening
financial crisis around the world, you've got to stay long mark/yen," said
a senior trader.
The cross ended higher, at 82.36 from 81.79, and traded in a global
range of 81.34 to 82.48.
For Bridge and Telerate users, please double click for the following
chart: Media://analytics::/cmd=$$DEMJPY/CH/HZ2/NVO
Dollar/Swiss franc plunged to a 21-month low today, along with the
crashing dollar/mark, and the end is nowhere in sight. The break of the
1.3666 support line triggered a wave of sell-stops.
"This pair is headed down to 1.30, as we are witnessing a global
meltdown of the paper markets," said a senior corporate trader. The pair
ended at 1.3585, from Wednesday's 1.3778. The global range was 1.3576 to
1.3823.
For Bridge and Telerate users, please double click for the following
chart: Media://analytics::/cmd=$$USDCHF/CH/HZ2/NVO
Sterling pound was pulled up above $1.7000 by the falling dollar. Yet,
traders called the currency "tired," and they were looking for levels to
sell it. This view was exacerbated after the pair's advance to $1.7130 on
Tuesday, a 10-month high, was repelled by a resistance line which
originated in December 1996. The key to cable's new direction is in the
hands of the Bank of England. Next week, they will decide on whether to cut
rates to emulate their US, Canadian and Japanese counterparts.
Cable ended at $1.7050, up from Wednesday's $1.6998. The global range
was $1.6936 to $1.7090.
For Bridge and Telerate users, please double click for the following
chart: Media://analytics::/cmd=$$GBPUSD/CH/HZ2/NVO
Elsewhere, the International Monetary Fund supports not only floating
currency systems, but also systems in which weaker currencies are pegged to
a stronger currency, said IMF First Deputy Managing Director Stanley
Fischer said today. Speaking about the Russian crisis, Fischer said it was
caused by strong opposition to economic reforms. End |
