Reply #9: Daily dollar watch [View All]

[54anickel]

http://quotes.ino.com/chart/?s=NYBOT_DXY0&v=i

Last trade 87.70 Change +0.27 (+0.31%)

Settle 87.43 Settle Time 23:34

Open 87.57 Previous Close 87.43

High 87.89 Low 87.35

The September Dollar higher overnight due to short covering and is breaking out above the 10-day moving average crossing at 87.49. Stochastics and the RSI are oversold and are turning bullish signaling that a short-term low might be in or is near. Closes above the 10-day moving average crossing at 87.51 would signal that a short-term low has been posted. If the Dollar extends the decline off July’s high, the 50% retracement level of the March-July rally crossing at 86.08 is the next downside target. Overnight action sets the stage for a steady to higher opening in early-day session trading.

The September Euro was lower overnight as it extends Monday’s breakout below the 10-day moving average crossing at 123.936. Stochastics and the RSI have turned bearish signaling that a short-term top has been posted. Closes below the 20-day moving average crossing at 122.78 would confirm that a short-term top has been posted. If September renews the rally off July’s low, the 38% retracement level of the March- July decline crossing at 125.299 is the next upside target. Overnight action sets the stage for a steady to lower opening in early-day session trading.

The September British Pound was steady to slightly higher overnight as it consolidates below the 50% retracement level of the April-July decline crossing at 1.8166. Stochastics and the RSI are overbought and are turning neutral hinting that a short-term top might be in or is near. If September extends the rally off July’s low, the 62% retracement level of the April-July decline crossing at 1.8384 is the next upside target. Closes below the 10-day moving average crossing at 1.7963 would signal that a short-term top has been posted. Overnight action sets the stage for a steady to lower opening in early-day session trading.


Sterling Rallies as King Overruled
http://www.forexnews.com/NA/default.asp

Although the dollar is once again higher against most of the major currency pairs, sterling has mounted some opposition against the greenback following this morning’s release of the Bank of England’s meeting minutes, which revealed a much closer than anticipated vote of 5-4 concerning the recent cut in interest rates to 4.50%. Of special note is the fact that the BoE’s Governor, Mervyn King, was in the minority, which is the first time that has ever happened since the Monetary Policy Committee was set up in 1997.

Inflation remains in focus today as the market turns its attention to US PPI data for July. As with yesterday’s release of CPI figures, higher energy prices are expected to push PPI higher as well, with the market projecting an increase of 0.5% (M/M) from 0.0% in June. Core inflation, however, is forecasted to be much tamer, increasing slightly by 0.1% from a decrease of 0.1% in June.

The dollar was pushed higher yesterday following the release of the consumer price index, largely because its connection with the Fed’s monetary policy brought the notion of interest rates back to the forefront. Given the fact that interest rates in the US are maintaining their upward climb, investors continue to flock to higher yielding dollar-denominated US assets (such as US corporate bonds, which, as Monday’s TICS data reported, hit a record high of $52.2 billion in June), thus helping to support dollar’s gains it has made this year vis-à-vis the euro, pound, yen and aussie.

5-4 vote casts doubt on further cuts, cable eyes $1.81

For this first time since the Monetary Policy Committee was conceived in 1997, the Bank of England’s Governor (currently Mervyn King), was in the minority as the MPC voted 5-4 in favor of reducing Britain’s repurchase rate to 4.50% from 4.75%. The doves in favor of a rate cut cited the opinion that a lack of action would cause consumer confidence to suffer – thus hurting consumer spending.

Conversely, those in the minority stated that “it was too early to conclude that inflationary pressures had abated.” Given yesterday’s release of inflation data for the UK, which revealed an increase of 2.3% (Y/Y) – the highest since November 1996 – there is a strong probability that no further rate cuts will occur for the rest of the year. Accordingly, this initially helped the pound regain some of the losses it incurred against the dollar over the past few days, pushing cable higher to $1.81.

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Corporations are Biggest Recipient of Foreign Funds
http://www.forexnews.com/AI/default.asp

The US dollar is higher against all major currency pairs, with the exception of the yen, following a 28% increase in net foreign capital flows into the US to the tune of $71.2 billion in June from a revised $55.8 billion in May. This improvement was due to record high purchases of US corporate bonds by foreign investors, which increased 156% to $52.2 billion in June from $20.4 billion in May.

The positive aspect of this report is, of course, the fact that the US was able to attract more than enough foreign investment to finance its $58.8 billion trade deficit. In May, the US broke even as it attracted $55.8 billion in foreign capital to cover its deficit of $55.4 billion and, in the two months prior to that, the US was unable to attract enough capital, posting shortfalls of $13.1 and $9.1 billion in March and April, respectively.


Additional good news came from the 65% increase in official foreign purchases of US Treasuries (which serves as a proxy for central banks) to $11.2 billion in June from $6.8 billion in May. This comes closer to the January 2003 – April 2005 average of $11.9 billion, but there is some downside risk for future figures due to the fact that recent foreign participation at US Treasury auctions has waned in August.

As for the negative implications of this report, there is some concern that the record purchase of US corporate bonds by foreign investors accounted for 73% of all foreign inflows, obfuscating the fact that net foreign purchases of US treasuries actually fell 71% to $7.9 billion from $27.6 billion – the lowest level since September 2003. Foreign purchases of government agencies also fell 17% to $18.9 billion from $22.7 billion. Indeed, private foreign interest (largely made up of hedge funds) actually became net sellers of US treasuries in June – for the first time since August 2004 – selling $3.3 billion while at the same time purchasing $49.9 billion worth of US corporate bonds.





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