US Dollar Supported as Stocks Surge with Treasury Sales to Boost Yields (Euro Open)

The US Dollar remained supported despite a sharp rally across Asian stock exchanges, diverging from risk trends on news the Treasury will sell a record $115 billion in bonds next week, boosting interest rate expectations and driving yield-seeking interest in the greenback. Germany’s IFO Survey and UK Gross Domestic Product data headline the calendar in European hours.

Key Overnight Developments

• US Dollar Supported as Stocks Surge with Treasury Sales to Boost Yields
• Euro, British Pound Consolidate at Familiar Levels in Overnight Trading

Critical Levels



The Euro traded sideways in Asian hours, oscillating in a narrow 30-pip range below 1.4170. The British Pound tried higher to test above 1.65 but prices retreated late into the session, yielding an effectively flat result ahead of the opening bell in Europe.

Asia Session Highlights



With no major market-moving data on the economic calendar, forex market consolidated near familiar levels in overnight trading hours. Interestingly, prices seemed to look past a sharp rally on Asian stock exchanges, a dynamic that over recent months has meant losses for the safety-linked US Dollar. A similar divergence was on display in New York hours, with the currencies shying away from breaking key levels even as risk appetite continued swell. The greenback may be seeing support as traders react to the US Treasury’s announcement that they will sell a record $115 billion in bonds next week. Treasuries declined as the news crossed the wires, with 10-year notes posting the largest daily loss in nearly seven weeks, sending yields to the highest level in a month. We have argued for some time that the US Dollar will benefit as the government issues debt to finance the rapidly growing public deficit: Treasury prices will head sharply lower as the market is flooded with new supply, putting tremendous upward pressure on the long-term interest rates. This will make USD-denominated assets attractive to yield-seeking investors, driving demand for the greenback.

Euro Session: What to Expect



Germany’s IFO Survey of business sentiment is expected to rise for the seventh consecutive month in July, pointing to continued improvement in firms’ 6-month economic outlook. Still, the reading is expected at 90.1, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating but at a slower pace. The Euro Zone Purchasing Manager Index is set follow a similar a similar trajectory, printing at 43.5 in July to show that the manufacturing sector shrank for the 14th consecutive month, albeit at the slowest rate since the metric hit a record low in February. Some recovery is to be expected as an array of fiscal packages from governments across the currency bloc filter into the broad economy, but the big question in the Euro area as well as most anywhere at this stage is whether growth is sustainable after stimulus cash dries up. As it stands, the latest economic forecast from the International Monetary Fund (IMF) reveals that the Euro Zone will stand apart from other industrialized economies in seeing economic growth continue to contract in 2010, pointing to a comparatively slower return to higher interest rates that will keep the Euro on the defensive against most major currencies.

In the UK, Gross Domestic Product is set to shrink -0.3% in the second quarter, a far smaller decline than the -2.4% lost in the three months through March and the smallest drop in a year. London-based think tank NIESR has forecast the moderation, saying “the U.K. economy is now stagnating rather than continuing to contract at a sharp pace.” Minutes from the last meeting of the Bank of England echoed the optimistic outlook, with policymakers saying risks to GDP have probably diminished and speculating that the economy may shrink less than was previously expected. Not everyone is as sanguine, however: the British Chamber of Commerce urged the BOE to add 25 billion pounds to their asset-buying scheme, saying a recovery is “not guaranteed”, a sentiment that has been echoed by the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). This makes today’s report critical to shaping the market’s expectations of future of monetary policy: traders will likely be less sensitive to a print in line with or better than what is expected, as this would only reinforce themes that have already been priced into the exchange rage; conversely, a disappointing outcome could weigh heavily on sterling as traders readjust their exposure to reflect a likely expansion of quantitative easing.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Supported as Stocks Surge with Treasury Sales to Boost Yields (Euro Open)

Dollar Trading To Be Dominated By Bernanke and Geithner Testimony

The USD is set for another volatile action-packed trading day as this weeks' trading comes to a close. The Dollar saw sharp moves against the EUR, GBP and JPY yesterday. This type of behavior is set to continue today as vital economic news is set to come out of the U.S. The economic events that are set to lead the forex market are the publication of U.S. Revised UoM Consumer Sentiment at 13:55 GMT, Federal Reserve Chairman Ben Bernanke's Testimony and Treasury Secretary Timothy Geithner's speech on U.S. economic recovery both at 14:30 GMT.



USD - Dollar Rallies vs. Yen on Economic Recovery Hopes

The U.S. Existing Home sales notched a 3rd monthly rise in June, and prices hit their highest since October. This fueled hopes the housing sector is finally on the mend, and many analysts hope this will help propel a broader economic recovery. According to analysts, the data suggests that the U.S housing sector is beginning to stabilize. This is a necessary component for a more meaningful U.S. recovery, and hence a stronger USD in the long term.

The U.S. Dollar soared against the Japanese Yen yesterday, due to the U.S. housing data. The USD rose 1.2% to as high as 95.30 vs. the JPY on Thursday. However, the pair finished trading at the 94.63 level. Against the EUR, the Dollar traded near a 7 week low at $1.4292, the weakest level since June 3. The pair finished trading much lower at the 1.4162 level. This was despite the greenback falling in early trading as the U.S. stock-index futures advanced on speculation that the worst of the recession may be over, prompting investors to purchase higher-yielding assets.

A number of analysts cautioned that the rally in risk sentiment on Thursday could be short-lived, as sentiment remains fragile and markets are probably quite near to seeing risk aversion returning to the forefront. This will be clearer to forex traders today, as 3 vital economic events are set to take pace in the U.S. These include the Revised UoM Consumer Sentiment at 13:55 GMT, Federal Reserve Chairman Ben Bernanke's testimony at 14:30 GMT and Treasury Secretary Timothy Geithner's speech on the economy also at 14:30 GMT.

EUR - EUR Hits 7 Week High Against the U.S Dollar

The European currency made gains against the U.S Dollar in early trading after data on U.S. jobless claims in the latest week came broadly in line with expectations. However, this was short lived, as the U.S. housing data was very optimistic, resulting in the pair closing far lower at the 1.4162 level. The EUR also fell against the GBP to the 0.8589 level as confidence returned to the British currency. However, the EUR/JPY pair was unchanged as demand for the safe-haven JPY fell yesterday.

The British Pound traded near the highest level this month against the USD, as advances in retail sales and mortgage approvals prompted speculation the recession in Britain is abating. In turn, this leads economists to the conclusion leading to speculation that the Bank of England (BOE) will increase its Interest Rate. The Bank of England reduced the main Interest Rate to a record low 0.5% in March. The Sterling also gained for a 2nd day against the EUR and the Yen as a government report showed Retail Sales increased last month at 4 times the pace forecast by economists.

There is much data coming out of Britain and the Euro-Zone today that is expected to determine the GBP and EUR crosses, as this week's trading comes to a close. From Britain, the Prelim GDP and Index of services figures are set to be published at 08:30 GMT. From the Euro-Zone, the German Ifo Business Climate and Flash Manufacturing PMI are set to be released at 08:00 GMT. Forex traders are also advised to follow U.S. economic news too, as the market is set to be very volatile throughout the day.

JPY - Yen Loses Ground Amid Economic Recovery Hopes

The Japanese currency fell against the U.S Dollar and the GBP on Thursday, paring losses made the previous day. The JPY hit its lowest level in more than 2 weeks against the Dollar on Thursday, and a 3 week low against the EUR as traders in Asia sold Yen in anticipation of outflows from Japanese investors. The Yen also dropped versus the Swedish Krona and Norwegian Krone yesterday as Japanese financial companies prepared to raise at least 700 billion Yen ($7.42 billion) for funds that will be invested globally.

Much of The Japanese currency's decline came about after the Finance Ministry said the contraction in the nation's exports slowed to 35.7% in June from a year earlier. Japan's trade data however provided hard evidence that the global economy is now on the mend, analysts stated. As the risk sentiment improves on the back of receding wariness about the prospects of the global economy, the Yen may weaken further against higher-yielding currencies.

Crude Oil - Crude Oil Eyes $67 a Barrel

The Crude Oil prices rose above $66 a barrel Thursday, ending at the highest level in 3 weeks at the $66.88 level. This came about as U.S. home sales data lifted stock markets and raised hopes for an economic recovery. Oil advanced 2.7% after the National Association of Realtors said home resales increased in June for a 3rd consecutive month.

Crude has risen in 6 of the recent 7 trading sessions. The rally came even after U.S petroleum data continued to show weak demand and rising inventories. Crude Oil and other commodities have tracked equity markets in recent months as analysts seek signs of a better economic outlook after the downturn cut world energy demand for the first time in a quarter of a century.

Article Source - Dollar Trading To Be Dominated By Bernanke and Geithner Testimony

My Forex Blog says....The Shift from Fundmantals is Coming....

This week has been a strange one on the Forex. Typically, when the US or Japanese stock markets are up, the Dollar and Yen are down and when they are down, the Dollar and Yen are up.

The equity markets are a marker for risk appetite, and the dollar and Yen usually suffers as investors flock to stocks to quench their hunger. But this week has seen the reverse happen alongside puzzling comments from US Federal Reserve Chairman Bernanke, ECB President Trichet and to some degree, the Japanese Finance Minister as well.

As the US stock index, the Dow Jones Industrial Average raced towards 9,000, a level unseen since October 2008, the Dollar too made gains, albeit not as dramatic. The Nikkei Index was also up this week while the Yen as well did not suffer for the excitement of it all.

Patterns like this are rare, and make trading difficult, especially for fundamental traders who rely on hard data, not theoretical formulas and exotically named technical achievements (no offense Fibonacci…).

Yesterday saw Ben Bernanke, AKA helicopter Ben, give a second round of testimony to congress, this time in front of the Senate Banking committee. And while he pretty much towed the party line that he established the day before, he made one alteration which sent the Dollar on a roller coaster as Forex traders tried to figure out what he was saying.

He spoke of positive signs out of the housing market one day after putting part blame for the woes of the country on the depressed housing market. It is inconsistencies like this that can cause panic, and for a while with the Dollar it seemed as if it had.

I trade on fact, things I read, things I hear, things I piece together like a jigsaw puzzle – and for the most part it has worked out well for me. The stock market is not the same kind of market as the Forex, it is a market where emotions and psychology can rule the day.

The Forex market is too large for that, Online Forex traders know this to be true, sentiment cannot move a currency – but hard data, good or bad can. But what I witnessed this week has made me reconsider this. What I saw this week was pattern trading based on emotional instinct, not fact and numbers.

The US is in a bind, and while the Chairman of the Central Bank might allude to positive signs, the warning signs are large and in our faces. With swelling debt, with an administration bent on “fundamentally changing the United States of America” (Obama’s words, not mine) by redistributing wealth and socializing private industry at an enormous cost to not only the current taxpayer, but future ones as well – I do not see a strong Dollar right now. And I might not ever again if this continues.

It would be comforting to know that I am wrong, I would want nothing more than that. But seeing how the game of politics has consumed every inch of what is supposed to be objective and non-partisan departments – I do not believe I am.

Trichet wants to keep his job. Bernanke does too. Is it fair that their impartiality can lead to their dismissal (or non re-upping of their contracts)?

But, unfortunately, this is what we have – and in the long run it will ruin the trust that the markets have in any data that come out– and lead to the equitization of the Forex – we saw the beginning this week.