Online Forex Trading: Dollar Plummets From High After Job Cut Report Issued

The American dollar, which has been enjoying a more than three week high against the euro, has fallen after a private report that was released showed that the American job market deteriorated in December 2008. Analysts and investors are even more convinced that there will be a protracted recession as they originally expected. The dollar also depreciated against the yen and the British pound thanks to Fed policy makers stating they saw ‘substantial’ risks to the slumping economy and that they ‘pledged’ to expand emergency loans if they needed to.

“For the first time in a while, economic data is becoming important,” said Richard A. Gluck, who is the principal at Trilogy Global Advisors LLC in New York. The company manages close to $10 billion in assets. “Until we see either real signs of economic resurgence in the U.S. or further deterioration in other regions, it’s hard to see the dollar appreciate versus the euro,” Gluck continued.

According to the reports by ADP Employer Services American companies laid off 693,000 jobs in December, the biggest layoff of jobs since records began in 2001. The median forecast from a Bloomberg News survey of 24 different economists was for a reduction in jobs of about 495,000. Even stocks have declined against six major trading partners, dropping 0.8%, the biggest drop in two weeks. Foreign exchange strategists at BNP Paribas feel that protection from stock market declines is coming to an end as economic growth becomes the main focus of the American currency.

The stall in the dollar’s rally started in the middle of December with investors selling Treasuries for higher yielding assets. The American dollar lost 7 percent against the New Zealand and Australian dollars and the South African rand. Merrill Lynch & Co. Inc. believes that the American dollar will ‘re-assert’ itself as the deterioration of the global economy will lead investors to sell overseas assets and send money back to the States.

“It seems to be somewhat courageous to adopt a pro high yield or commodity linked currency stance on what is most likely to be a dead cat bounce in some data amid a severe rise in global unemployment,” the strategists wrote. “We expect repatriation and re-balancing demand for the U.S. dollar to re- build over the first quarter, while recent euro strength looks over-extended.” The company recommended that investors sell the euro versus the dollar through options, selling the pound versus the dollar and the euro versus the Swiss franc. They expect the dollar to rise to $1.15 per euro by the end of March.

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