Monday September 13, 2010 - 13:44:56 GMT
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Forex Hound - www.forexhound.com
Dollar Sinks on Change in Banking Regs, Chinese Economy
The U.S. Dollar is trading sharply lower on increased demand
for risky currencies following the announcement of an agreement by global
banking regulators to increase capital requirements. Traders are celebrating
the announcement because it was much softer than banks anticipated and has
removed some of the uncertainty that has been lingering in the banking
Over the week-end, global banking regulators agreed to close
to triple the size of capital reserves that banks must hold against losses. The
requirement, however, is not expected to kick-in until 2019 which took the
pressure off banks to begin increase capital immediately. The new regulation
also gives the banks time to raise the new capital requirement through earnings
rather than through the shifting of current capital.
On Saturday, China
posted a report which showed industrial production was stronger-stronger than
expected. Chinese retail sales also rose while August inflation of 3.5% was
reported at the pre-report estimate. This helped squelch rumors of another
round of monetary policy tightening by the Chinese central bank.
Last week money left the U.S Treasury and Gold markets
indicating that traders were beginning to lean toward an investment in higher
yielding assets. This action is partially responsible for the strong rally in
equity markets and the higher yielding currencies overnight.
The key to sustaining the rally in the higher yielding
currencies will be whether U.S.
investors chase the equity markets higher from the opening or if they wait for
a pull-back. The sharp up move in the equity markets has put stocks in a
short-term overbought position rather quickly which may indicate a round of
early weakness this morning.
The EUR USD is trading sharply higher this morning after
piercing a downtrending Gann angle which has been holding the market back since
August 6. Upside momentum is strong but has to continue to build in order to
reach the next chart objective at 1.2960.
The GBP USD is trading higher, but not as strong as the Euro
or the higher yielding currencies. The British Pound continues to find
resistance on a downtrending angle from the 1.5997 top at 1.5477 today.
Continue to look for downside pressure as long as the market remains below this
angle. Look for an acceleration to the upside once this angle is penetrated.
There has been very little movement in the USD JPY despite
last weekâ€™s daily closing price reversal bottom which indicates a chance for a
breakout to the upside to 84.62. A rally in U.S. equity markets this morning
may trigger renewed interest in the carry trade which could be bullish for the
Dollar/Yen. Traders are also waiting for some news from the Japanese government
and the Bank of Japan regarding an intervention. The uncertainty regarding this
matter may be keeping traders on the sidelines.
Overall, the theme today is bullish which should help
underpin the Australian, New
Zealand and Canadian Dollars. Watch for an
early session set-back if U.S.
equity markets pull-back after the opening.
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