Dollar Freefall Continues on Unclear Growth Data and Rising Inflation Expectations

The trend of dollar weakness continues to dominate FX markets, with the Jpy being the only currency to decline against it. The EurUSd surged 125pips breaking a major resistance point of 1.40, while the UsdJpy trades sideways hovering near the previous session’s close. The GbpUsd rose 66pips establishing a new target of 1.5950, despite yesterday’s concern regarding a possible downgrade of UK sovereign credit. Equity markets are positive in the US and Europe, with the Dow and FTSE both higher by less than 1.00%. Bond yields continued to climb following strong selling pressure in the 10 and 30yr points of the curve and speculation that the US sovereign credit may be subject to some level of scrutiny following the UK’s situation. Commodities are mixed with oil trading at $61bbl, and gold prices higher at $957oz, both moves were minimal on a percentage basis.

In the UK, GDP data came out in line with expectations with growth contracting 4.1% on an annual basis and 1.9% (QoQ). Both exports and imports declined illustrating the severity of the downturn in the UK economy, both data points were at or better than expected not having a substantial effect on the cable. The GbpUsd is likely to breakout higher if the 1.5972 resistance level can be broken, otherwise we see support at 1.5785 in the near-term. There were no economic data releases out of the US or Europe, some speculators are anticipating that the Euro will reach a target of 1.47, an estimate which may be a bit aggressive from our perspective. From a technical perspective, the current price of the Euro retraced 50% back to its all time high of 1.6038. This is a signal we are at a crossroads where support and resistance points will be increasingly significant to determine ranges.

AC Markets
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