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Dollar Dumped as Week Begins

Last updated 11/9/2009 5:51 AM ET (GMT -5) 4 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• G-20 -stimulus to stay in place
• German Trade Balance declines to 10.6B but exports rise 3.8%
• Asian and European bourses higher
• Oil at $78.3/bbl
• Gold remains above $1100/oz at $1107oz. last

Overnight Eco

• AUD Home Loans 5.1% vs. 3.1%
• AUD ANZ Job Advertisements-1.7% vs. 4.4%
• EUR German Trade Balance 9.9B vs. 11.B
• EUR Sentix Investor Confidence n/a
• EUR German Industrial Production n/a

Event Risk on Tap

• CAD Housing Starts expected at 157K

Price Action

• USD/JPY trades to 90.00 on broad dollar weakness
• AUD/USD target .9300 as risk flows remain strong
• GBP/USD runs through 1.6800 as high beta remains bid
• EUR/USD targeting 1.5000 once again

The risk trade was on in full force at the start of the week in the currency market as euro cleared the 1.5000 barrier, Aussie came within a few pips of .93000 and cable rallied to 1.6840. The weekend meeting of the G-20  provided some nice support as finance ministers signaled that they will continue to maintain expansionary fiscal policies in support of the global recovery.

The dollar was driven lower across the board as it became evident last week that US monetary policy will remain uber-dovish while the majority of the G-20  asserts a less accommodative posture. As we noted earlier, “The Fed is unable to help the dollar, hampered in its policy choices by the weak US labor market conditions. US monetary authorities have never raised rates until the unemployment rate has peaked and with Friday’s NFP data showing the jobless rate breaching double digits for the first time in 26 years, the currency market remains convinced that the Fed will be stationary for at least the next six months.”

The broad pro risk environment was also helped tonight by the smattering of eco data including the sharp rise in Australian Home loans to 5.1% from 3.1% eyed and surprising increase in German exports which rose 3.8% in September despite the high exchange value of the euro. Still, despite the continued evidence of global economic activity, there may be some clouds on the horizon. Today’s ANZ job advertisements dropped -1.7% from 4.4% the period prior, signaling some possible weakness in Australian labor markets.

We believe that this Wednesday Australian employment data could disappoint to the downside and if it does so the enthusiasm for the Aussie - which has been the poster child for the recovery trade - could very quickly evaporate leading to a broader sell off in risk assets. For the time being Dow at 10,000, S&P 500 at 1100 and EUR/USD at 1.5000 continue to be the key resistance points for the risk trade and unless those barriers are broken with conviction the dollar’s weakness may be limited by risk aversion flows.

In North America trade today, the calendar is barren and flows are likely to be dominated by equity markets. If US stocks are unable to hold their pre market gains and begin to retreat as the day progresses, the overnight gain in risk FX could evaporate as well as 1.5000 remains key resistance for the time being.

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Comments (4)

FXDragon

November 09, 2009 at 08:14 AM ET

uk ppi data last week had a wide gap between the input and output. Arent they supposed to move accordingly? How do you explain that Boris?

bschlossberg

November 09, 2009 at 08:31 AM ET

Producers were willing to absorb the increase in order to make sales

ozen

November 09, 2009 at 10:49 AM ET

Boris dont you see a possible intervention from the ECB and Fiji in support of a weaker Euro and yen?

bschlossberg

November 09, 2009 at 03:40 PM ET

Not at this time. ECB tends to stay out of the FX market

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.