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Dollar Whipsaws in Light Trade

Last updated 12/9/2009 6:03 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• China plans to cap lending at $1 Trillion for 2010
• UK's Darling may tax bankers on bonuses
• Asia falls -1.3% Europe follows to decline -0.7%
• Oil rebounds to $73.50/bbl
• Gold slightly lower to $1143/oz.

Overnight Eco

• AUD Westpac Consumer Sentiment -3.8% vs. -2.6%
• JPY Final GDP 0.3% vs. 0.8%
• GPB Nationwide Consumer Confidence 73 vs. 71
• GBP BRC Shop Price Index 0.2% vs 0.0 last
• AUD Home Loans -1.4% vs. -1.9%
• AUD Trade Balance wider -2.38B vs. -1.75B eyed
• NZD Retail Sales (Core) 0.5% vs. 0.0%
• CHF Unemployment Rate 4.1% vs. 4.2% forecastt
• GBP German Final CPI -0.1% vs. -0.2%
• GBP Trade Balance -7.1B vs. -6.9B

Event Risk on Tap

• USD Wholesale Inventories expected at -0.6%

Price Action

• USD/JPY slides to 87.30 on risk aversion but recovers to 87.80 by early Europe
• AUD/USD finds a bid and climbs to .9100 despite lackluster trade data
• GBP/USD weakness persists as 6200 level tested risk aversion but short squeeze takes it back to 6300
• EUR/USD recovers to hold 1.4750 in Europe as macro supply pours in

Whipsaw  action in the currency market tonight as Asian session sold high beta currencies and bought yen and the dollar on continuation of risk aversion flows after yesterday’s downgrade of Greece only to see the trade reverse completely on massive short squeeze in early morning European dealing. Cable was the prime mover overnight  first dropping to a low of 1.6173 only to recover all of its losses and trade above yesterday New York session close of 1,6300 by 11:00GMT.

The gyrations are a sign that liquidity is clearly leaving the market as end of the year holidays approach and volatility could increase considerably over the next several weeks  if the market faces any further exogenous shocks. Meanwhile on the economic front the UK data was mixed with Nationwide  consumer confidence climbing to 73 from 71 eyed but the Trade Balance once again missing expectations as it printed at -7.1 Billion vs. -6.9 Billion eyed.

All eyes will be focused on the UK pre budget report due at 13:30 GMT with traders especially keen on seeing if UK Chancellor Alistair Darling will propose any additional tax hikes  including  a possible new tax on banker’s bonuses. The UK economy remains the laggard in the G-20 with growth still negative as of  Q3 2009 and we believe that these structural problems will continue to weigh on  sterling into the year end. However, the unit remains very volatile and  any fresh wave of risk assumption creates vicious short squeezes in the pair.  Nevertheless, the trend in GBP/USD& nbsp; remains to the downside unless  the longs can recapture the 1.6500 figure with force.  

In North America today another near empty calendar session with Wholesale inventories the only event risk on tap. Equities continue to consolidate but for the time being the 10.500 level in the Dow and 1130 in the S&P appear to be the near term top for the year. If we continue to stall in this zone, the urge to take profits  could escalate as the year end approaches and the resulting risk aversion flows could push high beta FX lower once again.

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Comments (2)

BW

December 09, 2009 at 03:40 PM ET

Today was a roller coaster. I made a successful trade early morning, just assumed we were going to get whiplashed on a sideways market, and stayed out of everything for the rest of the trade day. As a new fx enthusiast can anyone recommend some good reading of how to act as a trader in a volatile trade session. Thanks Boris for your articles. Thank you FX360.

bschlossberg

December 09, 2009 at 03:53 PM ET

Generally the more volatile the market the less capital you want to use in order to minimize risk

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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.