U.S. Dollar Gains as Traders Flee Higher Yielding Assets
On Monday the U.S. Dollar posted strong gains against most
major Forex markets with the exception of the Japanese Yen as investors exited
higher yielding assets following an overnight sell-off in the Chinese equity
Early this morning Japan reported economic growth in
the second quarter that was below expectations but nonetheless signaled an end
to the recession.This news wasnâ€™t good
enough for investors as they want to see sustainable evidence that a recovery
is indeed taking place.
Asian markets sold off after the news from Japan with the
Chinese market leading the way.Traders
have also become concerned about the Chinese economy.For months China has been used as a barometer
for global economic growth.Their
stimulus plan has led to increased demand for commodities as well as increased
stock market and loan activity.Problems
could arise if Chinese regulators decide to tighten up lending and curtail
economy begins to decline and the U.S. recovery progresses at a
slower pace than estimated then look for investors to continue to curtail
demand for higher yielding assets.Based
on how the Australian Dollar performed today, traders may already be lightening
up positions in anticipation of this scenario taking place.
The EUR USD fell sharply lower as traders renewed selling
pressure on the Euro which began following the last European Central Bank
meeting on August 6th.Last weekâ€™s news
that the French and German economies posted gains during the second quarter has
been largely ignored by investors who instead have chosen to become more averse
to higher yielding assets.
News that U.K.
homeowners were lowering asking prices helped pressure the already weak British
Pound.The GBP USD has been selling off
since the Bank of England decided to expand its quantitative easing program at
its last meeting on August 6th.Furthermore comments from BoE Governor King have not been very
positive.Most of them have centered on
the existence of the global recession.All of this is encouraging selling of the Pound as traders are losing
confidence that the U.K.
economy is on the path to recovery.
Lower equity and energy prices continued to pressure the
Canadian Dollar.News that Chinaâ€™s economy
may be slowing could hurt Canadian exports.The USD CAD once again rallied sharply higher in a continuation of the
move which began the week ending August 7th when the Canadian government
announced a surprise increase in the number of unemployed.Technical and fundamental factors are both
exerting a bullish influence on the USD CAD.
The sell-off in the AUD USD was the strongest sign that
demand for higher yielding assets may be coming to an end.Late last week the Australian Dollar posted a
new high for the year without any follow-through.In addition, this market closed lower for the
week, setting up a bearish closing price reversal top.When Chinaâ€™s market collapsed overnight,
the closing price reversal formation was confirmed.The charts indicate there is plenty of room
on the downside.
The USD JPY lost ground today as Japanese investors pulled
money out of higher risk assets and repatriated their funds.Investment firms that borrowed in Yen to
finance the rally in the stock market also used sales proceeds to repay these
loans.Look for the Yen to continue to
post gains as long as investors remain averse to risk.Gains could be limited however if the Bank of
Japan decides a high priced Yen will curtail demand for Japanese exports.
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