Dollar Falls after Beige Book Signals Recession May Be Over
The U.S. Dollar tried to regain some strength late in the
trading session following the release of the Fedâ€™s Beige Book but major buyers
were noticeably absent driving the Dollar down into the close. Record low
borrowing costs are contributing to the weakness in the Dollar and the strength
in higher yielding assets. Investors have been selling the Dollar to fund their
appetite for risk.The U.S. Dollar is currently
the cheapest funding currency.
Today the Fed reported in its monthly Beige Book that the U.S. economy
was stabilizing or improving.This
positive report was a strong sign that the worst recession in decades was over
and that the economy may have turned the corner.
While the Fed remains â€ścautiously positiveâ€ť about the
economy, the road to recovery is expected to remain rocky primarily due to flat
retail sales and a weak labor market.The biggest concern for many of the worldâ€™s central banks is when to put
an end to the stimulus plans which have supported their economies.This presents the next challenge for the
central banks because waiting too long could be inflationary while acting too
swiftly could curtail gains.
The EUR USD continued its strong rally despite recent weak
economic news.In addition, European
Central Bank President Trichet reiterated his belief that the economic crisis
is not over and that financial powers should develop a strategy to exit from
their stimulus plans.With the ECB
interest rate set at 1% and not likely to drop further and the U.S. rate likely
to stay at or near zero, traders have been primarily attracted to the higher
yields offered by the Euro Zone.
The GBP USD closed higher ahead of tomorrowâ€™s Bank of
England monetary policy announcement.Traders expect the BoE to leave interest rates unchanged.The market moving news will be any new
developments dealing with the BoEâ€™s asset buyback program.Last month the BoE decided to increase the
amount of money available for this program.This news shocked the market and triggered an almost month long decline
in the Pound.Although a minority of
traders believes the BoE may ease a bit on its aggressiveness to fight the U.K.
recession, most traders believe that the BoE will leave its quantitative easing
The USD JPY remained under pressure as investors continue to
seek the higher yielding Japanese Bonds.Todayâ€™s action took out the July low at 91.73 but the market was able to
regain this price on the close.Although
a closing price reversal bottom was not actually formed, the action indicates
that the buying may be greater than the selling at current levels.The daily swing chart indicates that a move
through 93.30 will turn the main trend to up.
The USD CAD traded sideways to lower today following
yesterdayâ€™s closing price reversal bottom.The strong rally in the equities and the firm crude oil market lent some
support to the Canadian Dollar but the technical picture may be indicating that
the USD CAD may be getting ready to mount a short-covering rally.Traders may be hesitating at current price
levels because of the previous warnings from the Bank of Canada regarding the
rapid rise in the Canadian Dollar and its negative effect on Canadian exports.
Appetite for risk continued to help boost the AUD USD and
NZD USD to new highs for the year despite possible negative fundamental
announced that retail sales were down.This news could cause the Reserve Bank of Australiaâ€™s rate hike to be
postponed until later this year.
Gains were limited in the NZD USD because of tomorrowâ€™s
Reserve Bank of New Zealand
meeting.Traders believe the RBNZ will
leave rates unchanged and may reiterate its desire to keep rates low until
2010.Technically, the closing price
reversal top at .7006 may be an indication that a major top is forming.Technical traders will want to see a
follow-through break to the downside to confirm the potentially bearish action.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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