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Dollar Down on Data, QE2 Expectations

QE2 Expectations Push Dollar Index Lower

the basket of currencies that the Greenback is measured against probed multi-month lows overnight. As of the time of writing, the DXY got as low as 77.58, a level not seen since January 2010, before stabilizing. the weakness was once again driven by expectations that Bernanke and the US Federal Reserve will institute a fresh round of quantitative easing, perhaps as early as the next FOMC meeting in November.

The big Dollar is having a tough time catching a break with the threat of QE2 looming. Despite Mondays better than expected Pending Home Sales and yesterdays better than expected ISM Non-Manufacturing PMI, the USD has been soft all week. This mornings ADP Non-Farm Payrolls, an indicator for the broader government numbers, which will be released at the end of the week, hasnt made the situation any better. Given the importance of labour numbers in any economy, and the difficulties that the American government has been having with theirs, employment related data is generally scrutinized very carefully. Printing a worse than expected -39K, and highlighting the strain in the private sector, this mornings ADP data is likely to fuel the QE2 fire.

The latest USD weakness has seen the EURUSD touch an eight-month high in the upper 1.3800 region. the rally was muted however when ratings agency Fitch downgraded Irelands credit rating. from here the 1.3895 level, the 61.8% Fibonacci Retracement from the common currencys free-fall from 1.5100 to below 1.1900, is the next obstacle. Broad based dollar selling has been a benefit to the euro, but solvency issues for the peripheral euro-zone members making headlines again acts as a reminder of the risks associated with the currency.

USDJPY Breaks 15-Year Low

with the USD out of favour, the yen was once again testing the resolve of the Bank of Japan overnight. During the European trading session the yen broke through its pre-September 15th intervention low of 82.87. the USDJPY dipped as low as 82.77 in the interbank market during a bout of volatility as yen bulls ran into stop orders in the market. However, as of yet, no action has been seen from Japanese policymakers. While the pair has since pulled back, the downside risks now seem to be stronger than ever.

Now that the old intervention trigger has been breached without response from the Japanese government, traders are no doubt re-assessing the levels that their market orders are at. with the threat of intervention from Japanese officials and host monetarily accommodative policy initiatives in place, its hard to believe that global demand for the yen is still so strong. However, given the state of the global economy, the markets appetite for the safety of the yen appears insatiable. Risks of intervention in the 82 handle still exist, and traders will be looking over their shoulders regularly for any hint of government intervention to ensure that they are not caught off-side.

Loonie Tests 1.0100

the Canadian Dollar was along for the ride as USD weakness drove markets overnight. the USDCAD chewed through some support in the mid-1.0100 area from various historical points over the last six months. but the pair couldnt quite break the figure and remains in the lower band of the trading range. from here support from the August low of 1.0102 will be a crucial barrier for any serious move towards parity versus the Greenback. with the Canadian economy, in particular the labour sector, outperforming that of its southern neighbour, the tide looks to favour the Loonie. However, buyers beware: given the trade relationship between the two countries, prolonged weakness in the United States doesnt bode well for Canada or the Loonie.

By David Starkey, FX Trader Send a message

<a href="http://www.howestreet.com/articles/index.php?article_id=14770tag:news.google.com,2005:cluster=http://www.howestreet.com/articles/index.php?article_id=14770Wed, 06 Oct 2010 15:07:33 GMT 00:00″>Dollar Down on Data, QE2 Expectations


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Be the first to comment - What do you think?  Posted by - October 8, 2010 at 11:00 am

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Could the Tories destroy the benificial payments to the elderly?

If the Tories were ever elected into power they might possibly destroy Labour’s helping hand to the Elderly (winter home fuel payments and TV licences). the Tories have always been on the side of the rich and business , yet they keep saying that they would ring fence these payments , I simply DO NOT believe them. They also done some dangerous financial stuff to our beloved NHS the last time they were in. I simply DO NOT believe them. What the hell is the ‘Big Society’ that they are pushing?

Could the Tories destroy the benificial payments to the elderly?


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Be the first to comment - What do you think?  Posted by - May 12, 2010 at 7:00 am

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