Post by forexmasters on Oct 17, 2011 0:14:19 GMT 2
There was no silver lining in the dollar’s performance this past week. Behind the greenback’s hefty selling pressure against most of its benchmark counterparts, we were reminded of a fundamental reality: we need a real, fundamental reason to hold the US currency – much less bid it higher. So, where did the strength through August and September come from? The spread of the European crisis was enough to stoke fears surrounding the stability of the global financial market and leverage demand for liquidity. At the same time, the euro’s own troubles stirred the need for an alternative currency that can supply comparable market depth. However, through the past week, we have seen fear retreat and the euro recover some of its lost ground. Sentiment hasn’t turned higher; rather, it has stabilized. And, when conditions are level, the high requirements for attractive interest naturally weighs the dollar lower.
Following the line of thought to the dollar’s bullish performance up until the beginning of October; we know what needs to happen for the currency to regain its foot and what conditions will keep the reversal on track. Looking ahead to Monday, the Dow Jones FXCM Dollar Index (ticker = USDollar) will be coming off a 2.6 percent weekly decline – its biggest drop since the capital markets instigated their post-Subprime crisis reversal back in the first quarter of 2009. Similarly, we note that EURUSD posted its biggest rally since March 2009, AUDUSD back to February 2009 and the S&P 500 back in July 2009. Furthermore, each ended Friday off near the very extreme of their respective anti-dollar trends. That said, the correction from extreme dollar positioning and low volume in this risk-positive move suggest momentum behind price will start flagging soon.
For fundamental catalysts to risk trends and the dollar next week, the first concern is the G20 developments over that we see over the weekend. Preliminary headlines from the meeting suggest the US has rejected calls to double the size of the IMF to boost its ability to support the Euro-Zone. Perhaps this will remind market participants that the Euro financial crisis will not have a clean or happy conclusion; but few are naïve enough to believe this is a possibility to begin with. Considering the tumult in the region, Europe’s capital and credit markets pose the greatest risk to global stability and thereby offer the greatest hope for a dollar rally. There is a decent possibility that its troubles make a clean jump to the US; and 3Q earnings exacerbate the issue. Monday starts with Wells Fargo and Citigroup with many other important institutions scheduled to report later in the week. It is also worth taking note of the Chinese 3Q GPD figures which will benchmark the US release on the 27th
Following the line of thought to the dollar’s bullish performance up until the beginning of October; we know what needs to happen for the currency to regain its foot and what conditions will keep the reversal on track. Looking ahead to Monday, the Dow Jones FXCM Dollar Index (ticker = USDollar) will be coming off a 2.6 percent weekly decline – its biggest drop since the capital markets instigated their post-Subprime crisis reversal back in the first quarter of 2009. Similarly, we note that EURUSD posted its biggest rally since March 2009, AUDUSD back to February 2009 and the S&P 500 back in July 2009. Furthermore, each ended Friday off near the very extreme of their respective anti-dollar trends. That said, the correction from extreme dollar positioning and low volume in this risk-positive move suggest momentum behind price will start flagging soon.
For fundamental catalysts to risk trends and the dollar next week, the first concern is the G20 developments over that we see over the weekend. Preliminary headlines from the meeting suggest the US has rejected calls to double the size of the IMF to boost its ability to support the Euro-Zone. Perhaps this will remind market participants that the Euro financial crisis will not have a clean or happy conclusion; but few are naïve enough to believe this is a possibility to begin with. Considering the tumult in the region, Europe’s capital and credit markets pose the greatest risk to global stability and thereby offer the greatest hope for a dollar rally. There is a decent possibility that its troubles make a clean jump to the US; and 3Q earnings exacerbate the issue. Monday starts with Wells Fargo and Citigroup with many other important institutions scheduled to report later in the week. It is also worth taking note of the Chinese 3Q GPD figures which will benchmark the US release on the 27th