The Dollar Haves and Have-Not's

We are still seeing a definitive split between the haves, and the have-nots, in Usd based currency trading. The Swissy and Cad have dollar buyers, the other major pairs have not. The sideways consolidation is creating a potential cause (volume) and effect (price breaks) set-up that looks as though may test the dollar buyer's resolve. We have been asking for over a week whether any of the major economic regions are going to be able to stand up to the flood of dollar buying that has come as a consequence of the Federal Reserve's mandate (one of five mandates that it is currently pursuing) of lending out the extra dollars that were placed with them. Those reserves snowballed in number after the decision to stop being the only major central bank not to pay interest on reserves held, and created a huge swath of deposits from commercial and regional banks that the Fed has chosen to put to work themselves.

The fact that the world can be flooded with dollars that are not hot off the press frees up the Fed to concentrate on printing Treasury Notes in an effort to cover the impending fiscal short-fall that will run as the new economic year gets underway. However, taking dollars that are placed as Reserve Assets means that the dollar liquidity that is now available at your local Central Bank will have to be repaid and returned at some stage, the Fed are bridging a shortfall in growth via an excess of Reserves, and counting on economic growth to support it all. The real test will come from this week's economic calendar, and whether the have-nots show the desire to continue to ignore the dollar as they have done over the last week.

If the dollar is not getting bought on weak equity days it may signal that as soon as stocks find buyers that are willing to commit to more than holding for a day, the greenback may get slammed. Until then, the waiting game continues, but just note how the dollar buying interest is contained to swissy and cad in the near-term.

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