Printer Friendly

US Dollar Forecast Bearish on Clear Downward Momentum.

US Dollar Forecast Bearish on Clear Downward Momentum Fundamental Outlook for US Dollar: Bullish - US Dollar hits new lows, but do fundamentals support declines? - Greenback falls against Euro for six consecutive trading days - Forex sentiment points to further US Dollar declines The US Dollar dropped like a stone on its way to fresh 2009 highs against nearly all major forex counterparts, breaking its long-standing trading range against the Euro in fairly dramatic fashion. The first full week of post-summer trading finally brought the sustained price moves we have long been waiting for. FX Trading volume increased notably through mid-week trade and fueled US Dollar losses, but fundamental "justification" for renewed US Dollar weakness was far less clear. According to FXCM execution desk data, open interest in the Euro/US Dollar jumped by as much as 20 percent before the week was through. A busy economic calendar in the week ahead suggests that the US Dollar may remain volatile, and it will be critical to see whether its recent downtrend may be sustained. Demand for the safe-haven US Dollar dropped sharply on the week as the US S&P 500 and other major risk barometers reached fresh year-to-date peaks, and overall momentum favors USD losses. Indeed, forex options markets show that option traders are betting on further US Dollar weakness against almost all major counterparts. Yet those same options prices show short-term volatility expectations have dropped to their lowest levels in the past year. The fact that US Dollar weakness has not coincided with a general rise in forex volatility expectations suggests that currencies could return to sideways trading, but this will likewise depend on developments in financial market risk appetite. The 20-day correlation between the Euro/US Dollar and S&P 500 currently trades almost exactly at record-highs. To that effect, traders should keep close tabs on S&P 500 reactions to the coming week of key US event risk. Highlights will likely include the historically market-moving Advance Retail Sales, Consumer Price Index, and Treasury International Capital System reports. Consensus forecasts call for a noteworthy pickup in domestic Retail Sales, but the expected surge is mostly a function of the highly-publicized "Cash for Clunkers" program that strongly boosted Auto Sales. Traders should instead watch for surprises out of the "Ex Autos and Gasoline" figure-predicted to gain a paltry 0.1 percent on the month. If numbers prove better than expected, the S&P will likely rally and the US Dollar may actually decline. The following day's Consumer Price Index numbers are less likely to force major US Dollar volatility, but traders should nonetheless keep an eye out for any especially large deviations from consensus expectations. The true fireworks may come on subsequent Treasury International Capital System (TICS) data. Analysts have long argued that massive US fiscal deficits could harm the US Dollar as the government floods markets with debt securities. Yet recent data shows that foreign demand for US Treasury bonds remains robust, and the US Dollar has thus far averted disaster. It remains important to watch for continued demand for Treasuries, and any disappointments could further fuel dollar losses. Momentum plainly favors further US Dollar weakness, but key event risk in the week ahead could prove pivotal in deciding near-term direction for the downtrodden currency. - DR For more timely FX market analysis, visit our newly-launched Forex Stream Service. .

2009 Al Bawaba (

Provided by an company
COPYRIGHT 2009 Al Bawaba (Middle East) Ltd.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2009 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Mena Report
Date:Sep 12, 2009
Previous Article:US Dollar Under Pressure Despite Rise in US Consumer Confidence, Wholesale Sales.
Next Article:Japanese Yen Domination Highlights Lingering Risk Aversion as Equities, Carry Trades, Commodities Fall.

Related Articles
Forex Trading Forecast: US Dollar to Weaken Before Further Rallies.
EUR/GBP Short-Term Technical Outlook.
USDJPY Bearish Sentiment Forecast at Odds with Technicals.
Euro Surges Versus US Dollar, but Outlook May Shift on CPI Results.
Euro / US Dollar Stalls at Key Resistance, Positions to Reverse Lower.
US Dollar Forecast Bearish on Sentiment, but Range Levels Critical.
US Dollar Forecast Turns Bullish on Forex Sentiment.
US Dollar Forecast Moderates on Forex Sentiment.
British Pound Forecast to Fall versus Japanese Yen.
US Dollar Forecast Bearish on Forex Sentiment Extremes.

Terms of use | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters