• Dollar Climb Winded as Reserve Diversification Calls Grow ahead of G20, Fed Reminds of QE2
• Euro Financial Troubles Starting to Hit Circuit Breakers as Irish Debt Margins Boosted
• British Pound Rallies after Quarterly Inflation Report Calls for Tempered Inflation, Strong Growth
• Australian Dollar Tumbles Despite Increase in Net Jobs as Unemployment Rate Jumps
• Canadian Dollar Climbs Despite a Near-Record Trade Deficit that is Clearly Linked to Exchange Rate
• New Zealand Dollar Sees a Tepid Recovery in Factory Activity, Biggest Drop in Home Sales in Two Years


Written by: John Kicklighter, Currency Strategist

Dollar Climb Winded as Reserve Diversification Calls Grow ahead of G20, Fed Reminds of QE2
When there are underlying headwinds working against or in favor of a currency or asset, those long-term considerations will be a constant factor in price action. So, while there may be a more immediate and distressing fundamental catalyst that can alter volatility and trend in the short-term; that nagging concern can consistently come back to trouble the market. That is the situation that the US dollar currently faces. While the greenback has responded to a tentative correction in risk appetite and the short-term effort to rebalance from a speculatively oversold position, there is still the long-term issue that the world is moving away from a one-currency reserve habit and the more medium-term matter of the economic and speculative influence from the Fed's expansive monetary policy. Without a tangible, counterbalance to keep the dollar above water; the currency is prone to slipping back into the sell column of the market's trading book. The fact that the currency would finally correct Wednesday made sense given the progress that was made over the three previous active trading sessions. For the Dollar Index, returning to the mid-October highs was manageable; but surpassing them required a true conviction. We could see that same critical juncture across the majors: EURUSD briefly traded at a month low before holding up to a range low around 1.37; USDJPY tested the ceiling on a six-month descending trend channel for the first time since mid-September; and AUDUSD is now bouncing above parity...

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