Monday November 23, 2009 - 18:42:56 GMT
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U.S. Dollar Bottoms after Existing Home Sales Report
After early morning weakness plunged the Dollar toward last weekâ€™s low at 74.75, shorts began covering their positions when the U.S. reported better than expected existing home sales.
The Dollar was trading sharply lower overnight and had retraced more than 50% of last weekâ€™s rally following bearish comments over the weekend by St. Louis Fed President James Bullard who restated his case for extending the central bankâ€™s mortgage buyback program. Bullard said, â€śunemployment is high, and labor markets are lagging.â€ť This comment triggered a sell-off in the Dollar because it strongly supported the Fedâ€™s stance that interest rates would remain low for a â€śprolonged periodâ€ť.
The EUR USD once again took a run at the psychological resistance at $1.5000 before sellers stepped in. The rally in the Euro is being triggered by Bullardâ€™s bearish Dollar comments and last Fridayâ€™s news that European Central Bank would take steps to make it tougher for banks to make loans.
Traders are starting to look at the fundamentals which drive currency markets, namely the interest rate differential. If the ECB is getting ready to exit its stimulus programs then this is a sign that interest rates will remain at 1% and possibly move higher by early next year. This would make the Euro a more attractive investment than the Dollar because the Fed is not set to raise interest rates until at least mid-2010.
This morningâ€™s U.S. existing home sales report came out better than expected. This stopped the decline in the Dollar as it indicated the economy may be stronger than previously thought.
This friendly report triggered selling in the GBP USD, AUD USD and NZD USD. At the same time the Dollar strengthened as traders lightened up short positions in the USD CAD, USD CHF and USD JPY.
Although this morningâ€™s turnaround is not a change in trend, it is making speculators think twice about aggressively shorting the Dollar. Technically, last weekâ€™s closing price reversal in the Dollarâ€™s futures index is still intact, but it is going to take a rally through last weekâ€™s high to confirm that a short-term bottom has been formed.
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