Wednesday August 5, 2009 - 13:11:32 GMT
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Weaker Equity Markets May Trigger Rally in U.S. Dollar
U.S. equity markets are beginning to show signs of weakness which could be signaling an end to the current weak Dollar scenario. Trader appetite for risk may be waning as investors look to take their funds out of risky assets while they wait out a possible short-term decline in equity prices.
Better than expected overnight reports out of the United Kingdom should solidify speculation that the Bank of England is prepared to temporarily end its asset buyback program. Overnight it was reported that U.K. industrial production was up as well as U.K. house prices. Economists had expected both reports to be flat to lower. These reports serve as additional signs that the country is emerging from its recession.
The Bank of England next meeting is August 6th. At this meeting BoE officials are expected to keep interest rates unchanged at near 0% while announcing that its program to purchase of government bonds served its purpose and should be temporarily shutdown.
The EUR USD is beginning to feel downside pressure as traders appear to be lightening up on long positions ahead of the European Central Bank meeting on August 6th.
Look for a follow-through to the upside in the USD CAD after yesterdayâ€™s daily closing price reversal bottom. Overnight this pattern was confirmed which should help trigger a short-covering rally or lead to possible counter-trend buying.
Higher yielding currencies like the Australian and New Zealand Dollars may see downside pressure today if equity markets start to show signs of a top and begin to weaken.
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