The Call To Be Dollar Bullish Plays Out

The major currencies moved hard throughout the European trading hours, as the Usd was bought in-line with future interest rate and growth adjustments that sent the Eur/Usd to the lowest value reached over the last 10 months of trading. The raft of dollar strength came as Europe’s leading powers, Germany and France, agreed that the IMF should be involved in any Greek bailout.

TheLFB trade team have been posting to look for Usd strength since Friday of last week.

The news that the two driving forces behind the euro would be compliant in the rescue of a sovereign nation was not well received, but it was obvious ahead of the EU summit on Thursday and Friday that the International Momentary Fund was not going to be left holding any hot potatoes on its own.

The U.S. Dollar was allowed to easily find buyers overnight, especially against weak European pairs. The two commodity currencies, Cad and Aud, held ground during the Asian session, but gave up fighting the negative momentum spewing from Jpy, Eur, Gbp, and Chf in European trade.

The most important price action overnight came from Usd/Jpy, which managed to break free from its range of the last two weeks of trading. This is an important move that has the potential to send the much Usd/Jpy higher, in-line with both regional economic and fundamental outlook. The next hurdle for the Usd/Jpy is to take out the 200-day moving average, in the 91.50 area.

Interestingly, other than the Industrial New Orders, the overnight macro-economic numbers came in strong for the Euro-area, but this did not helped the single currency in any way. The next reports that will gather the market’s attention are the U.K.’s Annual Budget Release and the U.S. Durable Goods and New Home Sales.

The Annual Budget Release coming from the U.K. puts increased pressure on the pound. The government has to show a feasible plan to reduce its deficit, or else it is at risk of losing its AAA rating – something that would be catastrophic for the Gbp (as in Very Catastrophic). From this point going forward, the valuation of Gbp depends entirely on how the market perceives the government plan to maintain its debt rating.

Equity and commodity markets have also moved lower overnight, reflecting the dollar’s gains from the currency market. A stronger U.S. dollar is seen as negative for the two markets, due to the inverse relationship between assets price and the currency value. This is an economic link, and there is not much that can be done to counter it in the days of near-complete market automation that pits one contingency order against another. As traders have seen overnight, if the sell button get hit hard, it has a tendency to then get jammed down for a while.