Confluence of Factors Boost Dollar Wednesday

The US dollar continues on its second day of rally in the forex markets, particularly against the Euro, Swiss franc and the Japanese yen, on the back of Philly Fed chief Plosser’s hawkish remarks yesterday. Today Plosser also repeated his words on Bloomberg TV, saying that the current accommodative rate stance may need to be reversed sooner than later and even if home prices fall further or mortgage rates rise.

Although there are people who say he is just one voice and hence his remarks won’t be helpful to the USD, you should note that any change in interest rate expectations, whether they are “correctly” priced in or not, will result in big moves in the forex markets.

The greenback is down against the British pound though as the currency pair is now veering into its own path, mainly influenced by happenings in the UK rather than on broad USD sentiment.

This period of rollercoaster has now brought the US dollar an unusual amount of “good luck” - unusual, considering the US financial system is in a deep mess and the economy is skidding around on slippery ice.

Fundamentally, the outlook for the greenback over the medium term is weak, but today, many factors are still favoring a USD rebound: Crude oil futures fell almost $4 per barrel Wednesday, settling below $125 for the first time since early June and economic data from the Eurozone came in weak. New industrial orders in the Eurozone for May fell 3.5% on the month and 4.4% compared to a year ago, and this was the biggest annual decline since August 2003.

Solidifying plans of the US government stepping in to help Fannie (FNM) and Freddie (FRE) are overwhelming the dull economic sparks in the Euro area. What’s more, Thursday’s release of the German IFO could work against the Euro if it falls below market’s expectations.

EUR/USD fell to an intraday low of 1.5670, reaching bear targets mentioned yesterday. Some short profit-taking action could be seen around 1.5650, but if this level gives way, stops may pull EUR/USD towards 1.5610, 1.5570. USD/CHF rose to a high of 1.0400 today, reaching topside targets as well. A successful break of this resistance could draw Swissy towards 1.0450, 1.0470-90.

Economic Calendar For Thursday:

German IFO, Eurozone current account 0800 GMT

UK retail sales 0830 GMT

US initial jobless claims 1230 GMT

US existing home sales 1400 GMT

NY Fed’s Geithner and SEC’s Cox to testify before House Committee 1400 GMT

Japan CPI 2330 GMT

Comments

[Coelacanth]

It's the Elliot Wave made flesh.

Despite the dour mood of CEO's at financials recently reporting 2 qtr. results ,none the less, investors are eagerly lapping up all their shares. Didn't that happen in the 1st qtr. too?