Tuesday September 14, 2010 - 04:48:59 GMT
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Forex Hound - www.forexhound.com
Dollar Sinks on Change in Banking Regs, Chinese Economy
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 investors liquidated their positions in U.S
Treasury and Gold markets, indicating that traders were beginning to lean
toward an investment in higher yielding assets. This action was partially
responsible for the strong rally in equity markets and the higher yielding
currencies overnight and throughout todayâ€™s U.S. trading session.
The U.S. Dollar traded sharply lower on increased demand for
risky currencies following the announcement of an agreement by global banking
regulators to increase capital requirements. Traders celebrated the
announcement because it was much softer than banks anticipated and removed some
of the uncertainty that had been lingering in the banking community.
The key to sustaining the rally in the higher yielding
currencies today was the strong rally in the U.S. equity markets. Although there
was a sharp sell-off at midday, aggressive investors bought the dip, helping to
under pin the Australian, New
Zealand and Canadian Dollars.
The Euro was up over 1% against the Dollar as an agreement
by global regulators on the size of a bankâ€™s capital reserves fueled trader
appetite for risk.
The EUR USD traded sharply higher after piercing a
downtrending Gann angle which has been holding the market back since August 6.
Upside momentum was strong but has to continue to build in order to reach the
next chart objective at 1.2960.
The size of the support base built recently and the three
bottom formation at 1.2587, 1.2625 and 1.2644 suggests this market has a strong
chance to break out over the last swing top at 1.2919 and reach a .618 price
level target by September 16.
The GBP USD traded higher, but not as strong as the Euro or
the higher yielding currencies. The British Pound continued to find resistance
on a downtrending angle from the 1.5997 top at 1.5465 tomorrow. 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.
The USD JPY sold off despite last weekâ€™s daily closing price
reversal bottom which indicated a chance for a breakout to the upside to 84.62.
A rally in U.S.
equity markets this morning failed to trigger renewed interest in the carry
trade which couldâ€™ve be bullish for the Dollar/Yen. Traders were 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 strong rally in the Treasury Bond market despite greater
demand for risky currencies and equities may be an indication that investors
are still uncertain about the U.S.
economy. This may be the reason why the Japanese Yen showed strength today.
Besides the threat of an intervention, the equity markets
remain rangebound. Until these markets can break out of this range, traders may
be skeptical about reviving the carry-trade. This will keep the pressure on the
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