Currency Pair Overview: Dollar Weakens As Equities Rise On Geithner’s Comments

Overall The dollar reversed direction on Tuesday, halting at least three days of upward momentum as U.S. equities rallied after Treasury Secretary Timothy Geithner said the “vast majority” of U.S. banks have more capital than needed. Activities such as regional economic releases, movement in equity markets and commodity markets and testimony by the U.S. Treasury Secretary influenced individual currencies with the overall movement of the dollar being lower. There were no U.S. economic releases on Tuesday but Treasury Secretary Timothy Geithner’s comments in testimony to a congressional oversight panel initiated a rally in the U.S. equity market. The Dow posted triple digit gains while the S&P added almost 18 points. The surge in the stock market stoked the Australian dollar as well as the Canadian dollar, which had been weaker after the Bank of Canada cut interest rates by 25 basis points this morning. The dollar did rise against the Japanese yen as the correlation between the S&P and the yen remained in place.

The Euro (Eur/Usd) At the end of the day, the euro posted a minimal gain after trading in a range of 100 pips and testing the 1.3000 level intra-day. The euro had strengthened ahead of the U.S. session open after the German ZEW economic sentiment came in at a whopping 13.0, much higher than the 1.8 that was expected. The euro zone ZEW economic sentiment also blew away expectations with an 11.8 read. Economists had expected 1.0. The trend for the euro, however, continues to be to the downside as traders continue to focus on the internal tug-o-war being played within the European Central Bank and what course to take regarding monetary policy.

The Pound (Gbp/Usd) Cable gained ground on Tuesday as the pound strengthened against the dollar after earnings from Tesco Plc and Burberry Group Plc gave hope that the current economic plight may be easing. The U.K. consumer price index declined in March to 2.9% from 3.2% one month earlier, as expected, however, the core number which excludes volatile items rose for a fourth month to 1.7% from 1.5% in February. On the day, cable gained 135 pips, bouncing off the 100 day simple moving average that provided support and closed just above the 20 day SMA, which had given way as support on Monday.

The Aussie (Aud/Usd) The aussie moved much higher on Tuesday, erasing more than 50% of Monday’s losses as U.S. Treasury Secretary Timothy Geithner’s comments boosted equity markets giving traders confidence to buy higher yielding assets. The minutes from the latest monetary policy meeting, released last night and the speech from RBA Governor Stevens that followed, were essentially non events as far as the currency was concerned. The Australian dollar showed very little movement after both events and only moved significantly after the U.S. session was in full swing. Later tonight, the Australian Bureau of Statistics will release CPI numbers which are expected to post a read of 0.5%, up from -0.3% for the fourth quarter of 2008.

The Cad (Usd/Cad) The cad spent much of the overnight sessions trading in a tight range, trying to break above the 100 day simple moving average and Monday’s high, but a lack of volume and momentum gave the pair very little chance. The cad advanced after the Bank of Canada lowered interest rates by 25 basis points this morning, surprising the market which expected the BoC to hold steady. However, the move higher was short lived as equity markets surged after Treasury Secretary Timothy Geithner said that banks are well capitalized. On the day, the pair traded in a wide range of 180 pips and closed lower by 30 pips. The pair is hemmed in by the 20 day simple moving average which is providing support and the 50 and 100 day SMA’s which are providing resistance.

The Swissy (Usd/Chf) The swissy closed the day virtually unchanged after trading in a range of 115 pips. There were no economic reports from Switzerland on Tuesday, but it was reported that the Swiss National bank (SNB) purchased 4.52 billion euros in the first quarter in an attempt to weaken the Swiss currency against Switzerland’s trading partners. The SNB’s euro holdings rose to 20.2 billion from 15.7 billion, while its dollar holdings increased to $13.1 billion from $13 billion at the end of 2008. The pair continues to hold below the 1.1700 level and remains trading above all of the major daily simple moving averages.

The Yen (Usd/Yen) The yen traded in a defined range during the overnight sessions, between Monday’s low and the neutral pivot point (98.35). The pair came to life during the U.S. session after equity markets rose on the heels of Treasury Secretary Geithner’s comments to a Congressional Oversight Panel. The Dow posted triple digit gains while the S&P rose by approximately 18 points. Higher equity movements tend to weaken the Japanese currency as traders become more risk tolerant and move into higher yielding assets. There are no top tier economic releases from Japan tonight, but if we get a carryover from today’s U.S. equities into the Asian markets tonight and European markets in the morning, we may see additional movement in the pair.