The US dollar held its ground after a volatile trading day yesterday as the market digested the news of Germany's ban on the naked short selling of government bonds and as the crisis in Europe dominated the market. In other news, the Philadelphia Fed Manufacturing Survey fell just short of expectations releasing at 21.4, while initial jobless claims came in higher than expected at 471,000 up from the consensus of 440,000.
Look for the dollar to gain ground as the problems in Europe continue to spillover into the general market.
The euro touched a new four year low against the dollar in overnight trading before rebounding slightly. In addition to the ban on short selling, Germany temporarily prohibited uncovered Credit Default Swaps, in which the underlying liability is also a liability of a euro zone country. Look for the euro to continue to remain pressured as bearish sentiment dominates the market.
Sterling fell 1 percent on the day against the dollar, extending losses due to risk aversion with the euro zone crisis. Look for the pound to remain under pressure with the euro zone crisis looming in the background coupled with an increased chance of both fiscal and monetary tightening in the UK.
The Japanese yen strengthened against the dollar and euro as investors focused on a safe haven play pushing Japan's currency higher. With risk aversion escalating, look for USD/JPY to continue to remain below its 100-day moving average of 91.60.
The Canadian dollar held near a two-week low against the greenback as concerns over the euro zone debt situation diminished expectations that the Bank of Canada would raise interest rates soon. Look for the loonie to remain pressured as oil prices continue to fall.
The Australian dollar continues its slide dropping over 3 U.S. cents to new eight-month lows as massive panic selling from hedge funds continued. Given the uncertainty around Australia's proposed super-tax on miners' profits, and falling stock and commodity markets, look for the Aussie to potentially weaken further with support coming in at .80. Investors, however, continue to feel that Aussie's fall in the past week is defiant of strong fundamentals that should assist the currency in a rebound long term.
The New Zealand dollar also weakened against the dollar, but fared better than its Aussie counterpart. Look for the kiwi to continue to be driven by volatile markets tracking the crisis in the euro zone, which should turn around with an upbeat domestic outlook coupled with a rate hike starting next month from New Zealand's central bank.
10-Year Treasury Note Yield: 3.251%
Dow Jones Industrial Average: 10,211.00 - 234.58