Dollar Sustains Strength in Light Trading

The Usd is off slightly from yesterday's levels due to a light trading session in Europe. The EurUsd is trading with a 1.58 handle, while the UsdJpy rose to the high 106 price. The GbpUsd broke its previous support level trading lower at 1.99, it held ground at 2.00 most of the week. Equity markets are flat in the US, but positive in Europe, overall activity is light after a very volatile week of news in the market. Commodities are mixed, with oil toggling around 130, while gold continues to selloff trading lower at 955. Bonds continue to decline across the treasury curve, as risk appetite is slowly returning to the market.

The ECB seems to be shifting to a more dovish tone, according to comments by Trichet published overnight. The central bank noted that the possibility for a major market correction is becoming more possible, signaling a rate hike may be on pause if string of negative economic data persists in the Eurozone. The BoE cited inflationary risks in the economy, but seemed to be more concerned with potential downside risks. The economic climate in the UK suggests a recession cannot be ruled out, and after three rate cuts since 2007, the monetary policy adjustments are becoming ineffective. We should look for the cable to slide to the 1.94-1.96 range, as the fundamentals point to weakness in the UK economy.

US Financial markets were quiet, after Citigroup posted a smaller than expected quarterly loss of $2.5 billion. Rather than a major rally the market reacted very quietly to the Citigroup numbers. Volatility is light today with the VIX trading as low as 23 today. The Usd maintained its recent strength against most of the G-10, as traders found relief to a close of an eventful week. We expect housing data to imply that the weakness in the US economy continues to challenge the possibility for a long term rally in the dollar. We need a certain degree of consistency in the form of several consecutive weeks of better than expected data out of the US to seriously expect the Usd to breakthrough the 1.55-1.57 range.

MG Financial Group
http://www.mgforex.com

Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

Legal disclaimer and risk disclosure

MG Financial Group, or any of its related companies, will not be held responsible for the reliability or accuracy of the information available on this site. The content provided is put forward in good faith and believed to be accurate, however, there are no implicit guarantees of accuracy or timeliness.