Monday July 27, 2009 - 12:51:48 GMT
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Higher Equities and Crude Oil Weaken Dollar
The U.S. Dollar is trading weaker overnight. Last weekâ€™s bull run in equity markets is helping to maintain the strength in the foreign currency markets. Traders are also looking forward to positive economic reports from the U.S. this week.
Foreign currency futures traders will be watching New Home Sales today. Pre-report estimates are for an increase of 352K. This is up from 342K last month. If traders get the increase they are looking for then this will be yet another sign that the housing slump may begin stabilizing.
Later in the week, U.S. Secondary Preliminary GDP will be released. Guesses are for the U.S. economy to show a decline of 1.5%. This will be down from the 5.5% contraction reported in the first three months of the year
China and the U.S. will meet this week to discuss the direction of the U.S. Dollar and the U.S. economy. Fed Chairman Bernanke is also expected to chime in at the meeting with his explanation on how the Fed is prepared to keep inflation at bay. The meeting is not expected to be one-sided as the U.S. wants answers on what China expects to do to maintain a flexible Yuan. Discussions this week could have effects on Treasury markets and the Dollar especially if talk of a new super-currency gets introduced.
Besides friendly reports which should pressure the Dollar, the Treasury is going to begin a $115 billion government debt auction this week. Today will feature the initial offering of $6 billion of 20-year TIPS. Traders are expected to put pressure on the Dollar because the increased debt is expected to put a burden on the U.S. budget deficit.
Last week it was reported that German Consumer Confidence rose for the third month while climbing to a 14 month high. This news is helping the EUR USD. There are also signs coming out of Europe that credit quality may be improving.
The bullish move in the equity markets last week may be signaling a global economic recovery that will lead to increased demand for crude oil. This is helping to boost prices this morning despite the fear that increased gasoline inventories will limit these gains. Higher crude oil prices are also contributing to the weakness in the Dollar and the strength in the Euro. The USD CAD is also trading weaker because of the rally in equities and energy.
Traders are supporting the GBP USD overnight on increased demand for higher risk assets. Fundamentally, the British Pound is weak because of the wide budget deficit and a generally weak economy, but speculators must feel it is on the brink of recovery.
Traders seeking more return and less safety are selling the Japanese Yen overnight. This move is likely to continue unless the overbought equity markets top out and begin to sell-off.
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