Currency Pair Overview: Dollar Strengthens As Equities Plummet

Overall As has been the case recently, global equity markets have dictated the direction of the dollar and the overall currency market. On Monday, U.S. markets plummeted, led by financial shares such as Bank of America and Citigroup. Anticipation of banks stress test results coupled with earnings from major companies has pushed equities lower and strengthened the dollar in the broad market. The greenback strengthened the most against the pound and the commodity currencies, the Australian and Canadian dollars. Regional news, equity markets and commodities such as oil helped force the majors lower with most dollar based pairs either breaking below or testing major support or resistance areas. There were no red flagged U.S. economic releases on Monday to influence the dollar; however, the CB leading index came in below expectations at -0.3%. There are no U.S. economic releases scheduled for tomorrow which means the dollar should be able to move freely in either direction.

The Euro (Eur/Usd) A combination of equity markets moving lower, pushing traders to buy the dollar and gold as safe havens, and continued insider wrangling within the European Central Bank on measures that need to be taken on monetary policy issues, pushed the euro below the 1.2900 level before the pair recovered to close just above that level. The pair crashed through the 50 day simple moving average and now trades below all of the daily SMA’s. German PPI along with the ZEW economic sentiment will be released in the morning. On the day, the pair lost 130 pips, closing near the low of the day.

The Pound (Gbp/Usd) The Confederation of British industry (CBI) said today that the economy will contract 3.9% in 2009 and the Center for Economics and Business Research Ltd. Said financial services firms may cut 29,000 jobs this year. The FTSE lost 2.5% today led by bank shares and the pound sank, not just against the dollar but also the euro, Japanese yen and Swiss franc. Cable lost 260 pips on the day and dropped well below the 20 day simple moving average and tested the 100 day SMA, as support, at the close. The U.K. will release CPI data in the morning that is expected to show a decline in inflation.

The Aussie (Aud/Usd) Despite gold prices rising sharply on the day, the aussie dropped significantly as equity markets in Europe and the U.S. declined forcing traders to exit higher yielding assets and seek shelter in the relative safety of the dollar. The aussie followed the euro and cable lower overnight as disagreement among ECB officials is leading to speculation the global economic downturn will continue and after quarterly PPI figures came in at -0.4%, well below the 0.6% that was expected. Tonight, RBA Governor Stevens will speak after the release of the latest monetary policy meeting minutes which may cause further volatility in the pair. On the day, the pair declined almost 300 pips, plunging below the 20 day simple moving average, closing just above the 0.6950 level.

The Cad (Usd/Cad) Equity and commodity markets played a major role in the cad moving higher on Monday. U.S. equities moved much lower as the Dow lost almost 290 points and the S&P shed 37 points. Oil prices closed below $46 a barrel after losing more than $4.60 on demand concerns. The Canadian dollar weakened against the dollar in response, and the pair gained 260 pips, but on light volume. The pair moved above the 20 day simple moving average and tested the 100 day SMA at the close of the U.S. session. Activity in the pair may be tempered overnight ahead of the Bank of Canada’s interest rate decision tomorrow morning.

The Swissy (Usd/Chf) The swissy moved higher on Monday but closed well below the highs of the day, within 35 pips of the Sunday Asian session opening price, and in line with Friday’s high. The pair has stair-stepped higher since March 26th, retracing its steps to test the 200, 20, and 100 day simple moving averages, as support, gaining almost 500 pips during that time. The Swiss economic calendar is light this week with only trade balance numbers scheduled for release on Thursday morning.

The Yen (Usd/Yen) European and U.S. equity markets moved lower on Monday, strengthening the Japanese currency as traders became more risk averse and moved into lower yielding, safer assets. The Japanese yen strengthened against all of the other major currencies. The yen lost 125 pips on the day, breaking and holding below the 20 and 200 day simple moving averages, and closing below the 98.00 level. There are no Japanese economic releases scheduled for tonight’s Asian session.