Greenback Finding Some Support into European Trade

Greenback Finding Some Support into European Trade

The USD has managed to recover somewhat after being beaten down in Monday trade, led by an Australian Dollar that surged to fresh 2009 highs above 0.9400. However, some USD supportive comments from Fed Chair Bernanke have resonated with investors and have concurrently helped to prop the buck in the interim, while currencies have come off some more in Asia as interest rate expectations are pared back following a more dovish than expected RBA Minutes.

Key Overnight Developments

• RBA comes out with some more dovish than expected Minutes; weighs on Aussie
• Japan’s Tertiary Index unexpectedly drops to -0.5% after the market was looking for a positive print
• Bernanke supports Greenback after saying that Fed will help ensure Dollar strength
• Fed Kohn says that current asset prices in US markets aren’t out of line with economic prospects
• President Obama welcomes China’s move to a more market based currency



Critical Levels




The USD has managed to recover somewhat after being beaten down in Monday trade, led by an Australian Dollar that surged to fresh 2009 highs above 0.9400. However, some USD supportive comments from Fed Chair Bernanke have resonated with investors and have concurrently helped to prop the buck in the interim, while currencies have come off some more in Asia as interest rate expectations are pared back following a more dovish than expected RBA Minutes. Fed Kohn has tempered the USD rally by saying that current asset prices in the US are not out of line with economic and business prospects, but it seems as though the buck has managed to still hold its own with some lower equity futures and softer commodity prices also supporting the flight to safety bid attraction. Elsewhere, the topic of the Yuan has been making headlines with President Obama saying that he welcomes China’s move to a more market based currency over time. EU Almunia also addresses the topic after commenting that he already sees signs of China’s decoupling from the USD. Meanwhile, in the UK, BOE Sentance has been propping the Pound after saying that the recession is officially over.

It will be interesting to see how the markets continue to digest the latest Bernanke comments which seem to be the ultimate driver of price action for now. Will the markets give more weight to the USD supportive comments from the Fed Chair, or will they once again dismiss this as another bout of US rhetoric, while paying more attention to the reality that interest rates are still expected to remain exceptionally low for an extended period of time? For now, it seems as though the markets have been clearly more focused on the expectation that rates in the US will continue to remain low, thereby weighing on the Greenback. In order for the USD to mount a material rally, the market will either need to undergo another round of risk aversion and flight to safety trade, or market participants will start to finally price in a more aggressive Fed on the back of a continued recovery within the global economy, which should start to narrow yield differentials back in favor of the buck. Until then, it continues to be a game of sell the Dollar until proven otherwise.

Looking ahead, Swiss retail sales are due at 8:15GMT, followed by the UK retail price index (215.8 expected) and more highly anticipated UK CPI (0.1% expected) at 8:30GMT. Eurozone trade balance then caps things off at 10:00GMT. European equity futures point to a lower open, while commodities are also offered following a day in which gold prices once again raced to fresh record highs into the $1140’s.


Asia Session Highlights



Euro Session: What to Expect