Dollar Holds on to Gains during Lackluster Session
The U.S. Dollar managed to hold on to its overnight gains
despite a lackluster trading session. Following a couple of overnight events
and intra-day economic reports, the Dollar remained range-bound as many large
traders stood aside ahead of tomorrowâ€™s Fed FOMC announcement.Traders are looking for the Fed to leave
interest rates alone and to continue to leave them low for â€śa prolonged period
The Dollar surged overnight, driven by bearish news out of Asia. The Dollar rallied sharply overnight after a couple
of negative economic events drove traders to the safety of the Greenback.The Dollar was up today against European and Pacific Rim nations while falling against the lower
yielding Japanese Yen. The initial move to the upside was triggered by Japanese
debt issues and more evidence that China was beginning a tight
corporate earnings reports coupled with a better than expected U.S. consumer
confidence helped weaken the Dollar at one point during the day because of an
increase in demand for higher risk assets. Investors didnâ€™t turn outright
bearish on the Dollar, but instead realized that the new data was sufficient
enough to warrant a lightening of positions. The Dollar also got a boost from
the new Obama proposal to freeze the budget in certain areas for three
years.This sent a sign to traders that
was serious about its burgeoning debt situation.
Greater demand for lower-yielding assets helped to drive the
USD JPY lower this morning.Most of the selling
pressure took place early last night after the S&P debt rating service put
a negative spin on Japanâ€™s
AA credit rating.Talk is circulating
that S&P may cut the rating to -AA after expressing concerns about Japanâ€™s ability
to gain control of its growing debt levels as well as stave off the
deflationary pressures haunting the economy.Technically, the USD JPY reached a key downside target at 89.30 before
profit-taking drove it off the low.
The Bank of Japan voted to keep interest rates unchanged at
its last meeting, but reiterated its commitment to fighting deflation. In the
meantime, it raised its deflationary forecast from a predicted drop of 0.8% to
In addition to Japanâ€™s
debt rating concerns, China
singled out the banks required to raise their reserve ratios for excessive
lending while telling others to stop lending. Both events are signs that the
Chinese government is serious about shoring up its finances and cooling down
the economy.This action is expected to
keep pressure on demand for commodities.
General weakness in higher risk assets helped to pressure
the EUR USD. This market traded weaker but held above last weekâ€™s low at
1.4029. A failure at this price could trigger a further decline to 1.3800.Losses may have been limited because of the
possibility that Greeceâ€™s
debt problems may be resolved by a new bond issuance.
The GBP USD traded sharply lower after the U.K. GDP report
showed the economy grew slower than expected. The low figure of 0.1% was
smaller-than-forecast and showed that the economy narrowly avoided prolonging
the recession.This report confirms that
economy is lagging behind the rest of worldâ€™s recovery and could signal that
additional stimulus may be needed to revive the economy. Technical retracement
areas prevented this market from collapsing.
Lower crude oil and gold continued to provide support for
the USD CAD while threatening to weaken the Canadian economy. Upside momentum
indicates that 1.0745 is the next target. Recent action by the Bank of Canada
to provide stimulus to the economy is also helping to weaken the Canadian
Dollar. Technically, this market is overbought, but will remain steady to
better unless a support angle at 1.5044 is violated.
News that China
took a major step toward tightening its monetary policy helped to pressure the
AUD USD and NZD USD.A slowdown in the
Chinese economy will have a direct negative effect on the Aussie and Kiwi
economies. Demand for raw materials could drop drastically in the near futures
because of Chinaâ€™s
tighter monetary restrictions.
In addition to the news from China, global investors are
becoming more risk averse. This is putting more pressure on higher yielding
assets. Losses were limited by the stronger than expected U.S. equity
markets. On Wednesday, the Reserve Bank of New Zealand is likely to leave
interest rates unchanged while remaining committed to leaving rates low until the
middle of 2010.
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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
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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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