The dollar continues to be pressured by U.S. subprime woes. New York session saw a fall in U.S. equities on rumors that a German bank will be reporting large subprime losses and also talk that Standard and Poor's could be downgrading European mortgages. This spurred an unwinding of carry trades. USD/JPY traded to a low of 120.88 on risk aversion. Overnight, AUD/USD traded to a low of 0.8755 whilst NZD/USD traded to a low of 0.7936. However losses were brief as markets took the chance to buy on dips. The pound however held steady on stronger second quarter GDP growth, growing 3.0% y/y.
Strong commodity prices continue to support the AUD, NZD and gold. Gold continues its rally to 686.00
A further fall in equities could trigger yet another bout of risk aversion. With the subprime sector being watched so closely, next week's reports of existing, new and pending home sales will be particularly market moving.
Sell USD/JPY at 121.90 for 120.77. Stops at 122.49.
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