Sunday, January 23, 2011

Dollar Dips as Investors Find Their Confidence

Growing optimism surrounding the prospects for a long-lasting solution
to the sovereign debt crisis troubling the Eurozone continued to
provide investors with reason enough to reverse bearish bets on the
single currency. The dollar also weakened as risk appetite appeared to
be on the increase ahead of Wall Street's opening bell.

*U.S. Dollar* - The dollar fell broadly as measured by its index
against a basket of major trading partners as S&P futures signaled a
better opening after a loss of confidence following a healthy start to
equity trading this year. The dollar index shed 0.3% to 78.56 while
S&P stock index futures added 6-points indicating a resilient start to
trading on Friday. Global stock prices stalled in the last couple of
sessions leading the MSCI Asia Pacific index to a two-day loss of 3%
after China announced strong growth to end the year to the extent that
markets suffered a shakedown fearing imminent measures to further
restrict activity. The dollar is heading in to the weekend on the back
foot as investors position for no policy change at the FOMC next week.

*Euro -* Market participants continue to toss around the notion that
EU officials are on the brink of something big that will break ground
on the sovereign debt crisis. One investment house today writes that
officials won't permit a run on Spanish government debt, should it
happen, to escalate into systemic crisis. Spain said this week that it
would inject more capital into its banks. Earlier in the week media
sources discussed plans to widen the safety net provided by the
sovereign bailout fund, while some claim that Greece may yet be
permitted to restructure its debt using bailout funds. None of the
current news flow suggests a worsening of the crisis and as such is
rolling up to support the euro and causing some investors to buy back
short positions. The euro rose against the dollar to $1.3524 and
against the yen to ¥111.86. Also offering support for the euro today
was a rise in business confidence during January amongst German
executives to the highest since records began for the unified nation
in 1991.

*Aussie dollar -* Improving appetite for stocks has recently turned
around the fortunes of the commodity dollars. The Aussie got off to a
sticky start on news that fourth quarter export prices slid by 8.1%
following a 7.8% rise during the third. The unit fell to an intraday
low at 98.46 U.S. cents before making gains on the day inspired by a
revival of broader investor confidence. Buyers lifted the unit to as
high as 99.14 cents in early New York trading.

*Canadian dollar -*The Canadian dollar is faring equally well and has
erased an earlier loss at $1.0012 U.S. cents gaining to $1.0070. The
gain in the loonie followed a strong reading for November retail
sales, which on a year-on-year basis rose by 5.3%. The monthly gain of
1.3% surpassed forecasts of a gain of 0.5% as consumers spent more on
new cars and auto parts. The jump was the largest in eight months and
the sixth gain in a row. The Bank of Canada recently added measures to
restrict lending on account of the indebted state of consumers.

*Japanese yen* - The dollar's losing streak stretched to the Japanese
yen where it is at its weakest so far on Friday to read ¥82.65. There
was very little change in readings of business and consumer confidence
to materially change views surrounding the yen leaving the ebbs and
flows in risk appetite as the driving force behind the yen's gain.

*British pound -* Despite a poor reading for December retail sales the
pound has put in a news session high against the dollar at $1.5991.
The pound also rose to 84.70 pence per euro. Clobbered by the coldest
December in a century coupled with winter storms, the British consumer
remained indoors to the detriment of shop keepers. December sales fell
by 0.8%, four-times the predicted mild decline of 0.2%. Sales were
unchanged over a year ago leaving store owners wondering how to
persuade consumers buy more in light of two significant headwinds.
Inflation at an eight-month high is eroding their ability to pay while
a recent sales tax increase feeds into ever-higher prices.
Source: ActionForex.Com

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