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Dollar Rally - One Day Wonder?

Last updated 11/18/2009 3:50 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Risk FX stabilizes after yesterday's jawboning
• BoE Minutes could spoil cable rally
• Asia sllighly off on weak HSBC after bank warns on capital ratios
• Oil back to $80/bbl after huirricane cuts supplies
• Gold continues climb to $1140/oz.

Overnight Eco

• AUD MI Leading Index 0.9% vs. 1.1%
• AUD Wage Price Index 0.7% asexpected
• EUR Current Account n/a
• GBP MPC Meeting Minutes n/a
• GBP CBI Industrial Order Expectations n/a

Event Risk on Tap

• CAD CPI expected at 0.2%
• USD Building Permits expected at 0.59M
• USD CPI expected at 0.2%
• USD Housing Starts expected at 0.61M

Price Action

• USD/JPY hovers near 89.00
• AUD/USD takes out .9300 as risk trade comes back
• GBP/USD holds 1.6800 ahead of the BoE
• EUR/USD recovers 1.4900 as risk holds ground

Apologies for the early print, but we are in Dubai all week and meeting commitments prevent us from covering the European open. In Asian  trade risk FX regained some  ground against the buck with EUR/USD recapturing the 1.4900 handle while Aussie climbed above the .9300 figure as jawboning by both Bernanke and Trichet appears to have had only temporary impact on the currency market.

Despite call for a stronger dollar from the heads of the two most powerful central banks in the world  the greenback was unable to extend its gains as FX traders consider the  unit to be the  weakest link in the G-20 universe and continue to believe that US rates will remain stationary for the better part of 2010.   

The BoE minutes will be the key event risk for the start of the European session with markets anticipating  a 0-9 vote on the QE issue. Cable has been gunned higher on the assumption that the QE program will soon wind down as monetary stimulus will no longer be necessary given the improving fundamentals on the data front. If the minutes confirm market expectations cable could make a run to 1.7000 especially if  risk flows resume.

However, as we’ve noted several times in the past, the risk trade is clearly losing momentum at these levels and seasonality argues for further consolidation as many FX traders begin to close out their books for the year.  There is always a risk of an exogenous shock especially in thin markets, but for now volatility looks to compress   while the anti-dollar skew remains in place but is capped at current levels.

In North American trading the CPI release will be the pivot event risk for the open with markets looking for another tame print of 0.1%. The increase in energy prices could  result in a hotter than expected print but overall the CPI data should be tepid given the muted final demand. One possible surprise today could be the housing data which could disappoint the market given the decline in builder sentiment survey.  USD/JPY continues to hover near the 89.00 level and the data misses it could  break that figure making a run to 88.50  if risk aversion flows kick in.

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Comments (2)

meetrader

November 18, 2009 at 05:36 PM ET

usd/jpy moved opposite to your projection.

bschlossberg

November 19, 2009 at 12:23 AM ET

Yes yesterday was a very illogical reaction but markets can often trade that way as traders focus on other concerns. However as you can see yen is strengthening this morning as risk aversion flows take hold so 89.00 may give way yet

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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.