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US Dollar Pulls Back on Half-Day of Trading

By , Quantitative Strategist
24 December 2009 18:38 GMT

US Dollar Pulls Back on Half-Day of Trading
The US Dollar finished the day lower against the Euro and other key forex counterparts as recently impressive US Dollar appreciation gave way to a noteworthy short-term pullback. Consistent with our recent calls for a near-term correction on exceedingly one-sided forex sentiment, the Greenback gave back ground through relatively illiquid holiday trading. The US economic calendar provided some early-morning support and slowed earlier losses. US Durable Goods orders showed healthy growth in business capital expenditures for the month of November, while Initial Jobless Claims data showed that fresh unemployment insurance claims fell to their lowest levels in 15 months.

Combined with last month’s impressive US Nonfarm Payrolls results, we are beginning to see more concrete signs of turnaround in the domestic labor market. Suffice it to say, December’s NFP results could have a fairly substantial effect on US fundamental forecasts. In the shorter-term, traders should be wary of very limited liquidity and manage position risk accordingly. Though markets seldom post big moves through the holidays, thin liquidity can make for exaggerated price action on scant volume.

Related:
Discuss the US Dollar in the DailyFX Forum, Top 5 Events for the Week Ahead

Japanese Yen Big Loser on Bank of Japan’s Intervention Threat

The Japanese Yen was the biggest loser following news that Bank of Japan members were ready to take action following impressive Yen appreciation. Traders pushed the Japanese Yen to extremes not seen in over a decade, prompting the BoJ to hold an emergency meeting with not-so-subtle implications that it regarded JPY strength. Given deflationary headwinds and a strong dependence on export industries, Japanese officials are clearly opposed to excessive currency appreciation and BoJ Minutes showed that “many” members agreed “the bank would maintain its stance of responding promptly to changes in the market situation.” The fairly clear threat of intervention kept the USDJPY above the 85.00 mark, and we suspect that similarly direct BoJ rhetoric may keep the USDJPY from dropping too far below 90 through  the foreseeable future.

Related:
Discuss the Japanese Yen in the DailyFX Forum

Euro, British Pound Little Changed on Uneventful Day of Trading
Empty economic calendars for most of Western Europe made for relatively uneventful trading for the Euro and British Pound. Yet regional equity indices finished the day at fresh 2009 highs as financial market risk appetite remained buoyant heading into year-end. Traders will have to wait for next week’s potentially market-moving Euro Zone Consumer Price Index data to force major moves in EUR pairs. In the meantime, most should remain cautious of thin forex market liquidity that is likely to last into the new year.

Related: Discuss the Euro in the DailyFX Forum,


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24 December 2009 18:38 GMT