Usd - Eur - Looking at Important Financial Issues

Looking at Important Financial Issues

Table of Contents:

1. USD/EUR Study

a. Analysis

b. Reasons for the shift

c. Outlook

2. USD/JPY Study

a. Analysis

b. Outlook

3. S&P 500 Study

a. Analysis

b. Outlook

4. Conclusion

5. Appendix

a. USD/EUR, Jan 16 to April 26

b. USD/JPY, Jan 16 to April 26

c. Golden Rule affects

d. S&P 500, Jan 16 to April 26

6. Works Consulted

USD/EUR:

Analysis:

From the initial time period that this report is supposed to take place the USD/EUR was on a downward spiral. The initial report and analysis is supposed to take place on January 16 of 2007 to the present standing which this is reported. On January 16, 2007 the USD/EUR stood at an open price of 1.2917 and closed that day at 1.2936 which gained momentum of 0.0019. When reviewing the graph created from these dates in shows, (please refer to Figure 1) that the USD/EUR has steadily increased to the current price of 1.3646. Even though the climb has been extremely rocky, when momentum drops of -0.0103 as on March 04, but has seen significant positive momentum shifts such at 0.0082 has on March 11 and just recently on April 09 which the price rose 0.0085. Just by initial view of the Figure 1 it shows a pretty constant trend as there are a few days of positive momentum, follow by a few days where it drops, plus there have only been two days where that has been no momentum shifts, these days include, March 15 and March 22, ( 8 & 11).

Reasons for the shift:

In December of 2006 the Daily FX team gave their outlook for the First Quarter of 2007 and the remained very cloudy even though aspects had improved on the euro side. Experts said that improvements would really rely on further compression of interest rate differentials of both the Federal Reserve and European Central Bank. At the time of this report in latter 2006, experts were hoping that the Fed would not remained sidelined by slow economic growth, while the opposite was at the time experiencing steady growth and expanding labor markets, (4).

Even though our assignment was asked to start at the beginning of January 16, 2007 I thought it would important to include these important first quarter facts. Taking a more extended look at the charts it showed according to DailyFX that the USD/EUR is up 200 points since the beginning of the year, however a closer look at the price action during the first quarter revealed that USD/EUR saw a impressive 500 pip rebound after hitting a low of 1.2944 on the January 12 of 2007. The dollar’s rally at the beginning of this push was triggered so to speak by solid data from manufacturing and service sectors of the market, (4).

Unfortunately, the EUR/USD consolidated the rest of January into the beginning of February, evidence of U.S. economic weakness began to emerge. Another problem regarding the USD/EUR included U.S. sub prime lending sector intensified worries on a possible recession prompt the EUR/USD ascent to a price they have not seen in over two years, (4).

Outlook for the Second Quarter 2007:

As the currency market enters the second quarter of 2007, the main driver of the price action in the EUR/USD will be determined by the depth any housing market downturn in the US. If the problems in the sector are contained only to sub prime mortgages, then the Federal Reserve may keep interest rates unchanged at 5.25 percent, which will spur continued demand for dollars. If, at the same time, the ECB signals an end to their tightening cycle, it could exacerbate any moves lower in the EUR/USD. On the other hand, if US consumer spending contracts significantly as a result of a more major downturn in the housing market, then the Federal Reserve may have no choice but to deliver the rate cut that the market has been anticipating. In that case, we could see the dollar head to fresh lows against the Euro, (5).

USD/JPY:

Analysis:

On the opening day of classes for spring semester the USD/JPY had opened at 120.64, which surprising