U.S. Dollar Up; Investors Scaling Back Appetite for Risk
The U.S. Dollar is trading higher against all major
currencies except the Japanese Yen as risk sentiment has shifted back toward
safety.Investors are buying the Dollar
and the Yen as they scale back their appetite for more risky investments.
traders will focus on the S&P Case-Shiller HPI and Consumer Confidence
Reports. Economists are predicting that home prices probably declined at the
slowest pace since May 2007. The Consumer Confidence Report could show a
decline as consumers may be reacting to the current bleak employment outlook.
The lack of jobs growth most likely also contributed to a drop in confidence.
It is believed that the strength of the U.S. economic recovery will depend on
improvements in the labor market. Housing prices are expected to remain down as
long as consumer confidence is down.
The EUR USD rallied overnight, but has since backed down as
more concerns have been raised over Greeceâ€™s ability to handle its ballooning
budget deficit. This market has reversed course after retracing into a
resistance zone at 1.3615 to 1.3656. A new two-day main bottom has been formed
at 1.3443. The main top and change in trend point remains 1.3788.
News that German Business Confidence unexpectedly weakened
in February also pressured the Euro along with reports that the outlook for Spain remains
bleak following reports that bad loans are likely to continue to rise as the
labor situation deteriorates. And the hits just keep on coming!
The GBP USD is down sharply this morning. This weakness is
expected to continue into the New
York session. The charts are indicating more downside
potential is likely. Combined with the weak fundamentals, the Pound remains one
of the weakest currencies.
The signs are there that the U.K. economy is still at risk for a
protracted recovery. Additional pressure is coming from dovish comments from
the Bank of England during its testimony before Parliament.
Overnight, BoE Governor Mervyn King said that the BoE stands
ready to take appropriate measures to shore up the economy. He also stated that
there still are downside risks to the economy. Finally, he reiterated that
inflation was likely to fall below 2%.Many traders feel that this indicates the BoE is leaning toward
expanding and extending its quantitative easing program.
Treasury adviser Roger Bootle said the U.K. economy is
entering a â€śvery grave stageâ€ť and the Bank of England should expand its
bond-buying program. According to BoE Deputy Governor Charles Bean â€śa weaker
currency will boost exportsâ€ť.
Both of these statements pointed toward a lower British
Pound. This bearish scenario is likely to continue throughout the day.
The USD CHF is mounting a strong rally overnight. Talk is
circulating that the Swiss National Bank intervened once again when the Euro
weakened. The SNB is trying to prevent appreciation in the Franc. A higher
priced Swiss France hurts exportersâ€™ sales abroad. This could be crippling to
the economy since exports make up at least half of Switzerlandâ€™s GDP.
The USD JPY is faltering as aversion to risk is up. Traders
are jittery about holding on to higher risk assets and are seeking shelter in
the lower yielding Japanese Yen.
The commodity-linked Canadian Dollar is feeling pressure because
of the drop in gold and crude oil. Both precious metals and energy make up a
large portion of the Canadian GDP so lower prices will adversely affect the
economy. The overall picture indicates the currency is likely to remain
Falling demand for higher risk is pressuring the higher
yielding Australian and New Zealand Dollars. Overnight both currency pairs
rallied, only to run into resistance and selling pressure. Both are also in
positions to post daily closing price reversal tops which could trigger 2 to 3
day corrections of at least 50% of the last major rally.
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