Usd Domination Remains Unchallenged

The selling seen during the prior two sessions has pushed Eur, Gbp and the Chf near to their yearly lows against the Usd as traders remain in a strong risk-aversion mode. Aud and the Cad are still holding ground, but this will change if the European currencies begin to slide beneath their current support areas, and equity markets fail to hold support.

It would seem that the only cost-effective investments are in the Treasury market, and the Usd. The U.S. Treasury market is a liquid and efficient market for the institutional investor, and at the same time Treasuries are relatively easy to price due to their invert relationship between price and yield. In order to hold Treasuries, one has to hold the U.S. dollar, which, to some extent explains why the Usd is the currency of choice in times of uncertainty.

The dollar index has broken above the 85.00 area, which was a very important psychological level, and reflects a distrust by global investors of the ease in which the global economy can now expand. Investors are now eyeing the Eur/Usd and the Usd/Chf, as the weakest two currencies, as structural problems in the Euro-area have forced traders to abandon the Eur and look for better paying investments somewhere else.

The Eur/Usd exchange rate has lost nearly 12.5% since the beginning of the year, and will probably continue its slide towards the 1.2000 area during the next few weeks, unless something out of the ordinary happens that could re-assure the market that the state of the global economy is in a good shape.

The only two economic releases capable of moving the market are the U.S. Retail Sales and Consumer Sentiment, but even so, the last two weeks of trading have shown that investors are ignoring most numbers coming out of the U.S. as focus remains more on cash and futures equity markets, in an attempt to track any changes in global risk sentiment.

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