When Will Dollar Turn Bullish?

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  • After gaining overnight on drops in international equity and commodity markets, the dollar rose on Monday ahead of the FOMC 2-day meeting but later pared gains as US stocks reduced earlier losses. The Federal Reserve is expected to maintain the target range for the federal funds rate at 0 to 0.25% this Wednesday while market participants look for clues on the Fed's exit strategy. The S&P 500 declined 3.64 points to 1,064.66. The yen dropped for a fifth day out of six. Sterling depreciated. The Bank of England said the pound's long-run sustainable real exchange rate may have fallen as a result of the financial crisis. The Australian and Canadian dollars fell as commodity prices and risk appetite declined.
  • The EUR/USD fell for a second day as risk aversion rose. Extremely overbought, the pair saw some profittaking today. However, the trends of the EUR/USD and most other dollar crosses are unbroken. Thus, it is too early to call for a sustainable dollar rally. Before we turn bullish on the dollar, we would like to see the break of the dollar index' downtrend in the 78 area. The EUR/USD has important support in the 1.44 area. If this is broken, the pair outlook will turn bearish. Resistance exists in the 1.49.

Financial and Economic News and Comments

US & Canada

  • The US leading economic indicators index, a measure of future economic activity, increased a slightly lessthan- expected 0.6% m/m to 102.5 in August, a fifth consecutive monthly advance, after an upwardly revised 0.9% m/m rise in July, LEI data from the Conference Board showed, registering the longest stretch of gains since 2004 and indicating the US economy is recovering from the recession. The coincident economic index, measuring current economic activity, was unchanged at 99.8 in August after an upwardly revised 0.1% m/m increase in July.

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  •  Foreign investment in Canadian securities totaled C$351 million ($328 million) in July after C$10.511 billion in June, showing foreigners invested in Canada's securities for a seventh straight month, according to figures from Statistics Canada. Meanwhile, Canadian investors sold C$526 million of foreign securities in July.

Europe

  • UK house prices increased 0.6% m/m to £223,996 ($364,632) in September after a 2.2% m/m decline in August, Rightmove Plc reported. House prices slid 1.5% y/y, following August's 3.1% y/y decrease. In September, house prices advanced 0.9% m/m in London, 1.5% m/m in the southeast of England and 8.4% m/m in East Anglia, while Yorkshire and Humberside posted the largest decline of 3.6% m/m.

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  •  In its Q3 2009 quarterly bulletin, the Bank of England said: sterling's depreciation reflected a combination of perceived changes to UK relative cyclical prospects, the perceived riskiness of UK assets and the apparent need for the UK economy to rebalance, the effects of which may have been amplified by financial market factors.

Asia-Pacific

  • Australia's new motor vehicle sales increased a seasonally adjusted 0.3% m/m to 75,388 in August after a 6.9% m/m decline in July, the Australian Bureau of Statistics said. New motor vehicle sales fell 6.2% y/y, easing the pace of decline following July's revised 10.3% y/y drop.

FX Strategy Update

 
EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
AUD/USD
EUR/JPY

Primary Trend
Positive
Negative
Positive
Negative
Negative
Positive
Neutral

Secondary Trend
Positive
Negative
Neutral
Negative
Neutral
Positive
Neutral

Outlook
Neutral
Neutral
Neutral
Neutral
Neutral
Positive
Neutral

Action
Buy
None
None
Buy
None
Buy
None

Current
1.4676
92.01
1.6211
1.0323
1.0783
0.8630
135.02

Start Position
1.4575
N/A
N/A
1.0385
N/A
0.6601
N/A

Objective
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Stop
N/A
N/A
N/A
N/A
N/A
0.8070
N/A

Support
1.4400
89.50
1.6200
1.0280
1.0600
0.8450
130.00

1.4000
87.00
1.6000
1.0000
1.0300
0.8200
128.00

Resistance
1.4750
92.20
1.6700
1.0600
1.1100
0.8800
139.00

1.4900
94.50
1.7000
1.1000
1.1300
0.9000
145.00

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