eur fundamentals

Dow Surge Forces Sharp Dollar Losses against Euro - What Happens Next?

Wednesday, 23 January 2008 19:39:00 GMT  |  David Rodriguez, Currency Analyst

The US dollar bounced on an overnight rout in the Dow Jones Industrial Average and S&P 500, but an incredible reversal in the Dow actually left the dollar lower through late New York currency trading. The Dow seemed headed for another sharply negative stock trading session, with Dow futures down as much as 300 points in pre-open trade. Yet a later reversal provided much-needed relief to downtrodden US stocks and allowed forex traders to sell the greenback across major forex pairs. Such volatile currency movements have left the euro exactly even against the US dollar through time of writing, and continued gains in the Dow and S&P 500 may in fact be enough to sink the dollar lower through the New York session close.

A virtually empty US economic calendar allowed currency traders to focus on developments in domestic stock markets, with sharp volatility in the Dow and S&P 500 forcing similarly choppy price action on the day’s forex trading. Overnight futures had the S&P 500 off a dramatic 50 points, but aggressive bulls came to the rescue in the late NYSE session and forced a substantive recovery. There was seemingly little news flow to cause such surprisingly sharp moves. Yet overall market jitters and investor indecision made for incredibly volatile price action across all major financial markets.

US Treasury Bond yields started the morning session sharply lower on overall recession fears, but the late Dow surge has actually left Treasury yields modestly higher through time of writing. Indeed, the yield on the 30-year US Government Bond fell to all-time lows at 4.13 percent through the early going and currently trade at a much more respectable 4.25 percent. All else remaining equal, the higher Treasury yields should theoretically boost the attractiveness of the dollar and make it gain against major forex counterparts. Yet the underlying themes of market risk sentiment and appetite continue to dominate all currency trading. The dollar now rallies whenever the Dow Jones tumbles and pulls back on any major Dow advances. 

Where is the Dow headed? Where is the Dollar headed? Share your opinion with fellow currency traders on the DailyFX Forex Forum EUR/USD Discussion.

Written by David Rodríguez, Currency Analyst for DailyFX.com,  

Tell us what you think about this article;  e-mail drodriguez@dailyfx.com

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