Thursday October 28, 2010 - 03:38:11 GMT
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Emerging Market Activity Sets Up U.S. Dollar for Rally
News surfaced on Wednesday that emerging market central
banks may have begun activity to slow down the pace of acceleration in their
currencies against the U.S. Dollar and capital inflows into their economies.
Although these central banks pledged earlier in the month
not to manipulate their currencies and to let the market determine their own
levels, this concerted effort seems to indicate that something is being done
behind the scenes that may help boost the Greenback.
Based on the December Dollar Index chart, this market seems
poised to breakout over the last swing top at 78.61. This move will turn the
main trend up on the daily chart and could trigger an acceleration into a
downtrending Gann angle at 79.06, then a 50% zone at 79.58.
The U.S. Dollar received additional support from a
better-than-expected Durable Goods report and a favorable Wall Street Journal
On Wednesday, the U.S. government reported a 3.3%
rise in September Durable Goods orders. The jump caused traders to pare equity
and risky commodities positions.
The U.S. Dollar traded higher across the board throughout
the day after a Wall Street Journal article suggested the Fed â€śmay opt for a
more measured dose of QE this time around rather than the shock-and-awe version
which characterized QE1â€ť.
Traders cut long positions against the Greenback as they
seemed to believe that the Fed was giving in to some G20 criticism regarding
their aggressively expansionary monetary policy. A few G20 members believe that
the Fedâ€™s aggressive spending has been driving up assets in the past, but that
todayâ€™s global economic conditions warrant a more conservative approach to
stimulating the economy.
The article goes on to further state that the Fed is likely
to purchase a few hundred billion dollars of Treasury Bonds rather that the
previous estimate of $1 trillion. This
speculation led investors who aggressively shorted the Dollar to lighten up on
their positions, triggering a short-covering rally in the Greenback.
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