· US Dollar: Will a Jump in Oil Finally Cool the Rally?
· Euro, British Pound Show Signs of Bottoming -
· Australian Dollar Shows Potential to Rebound, Canadian CPI Due Out On Friday
· Japanese Yen Dominates, But Outlook Depends on Risk Appetite
US Dollar: Will a Jump in Oil Finally Cool the Rally?
The US dollar story wasn’t much different than it has been for the past few weeks, as lingering risk aversion led the currency higher. However, it seems that we’re starting to see signs of stabilization in the financial markets and perhaps even a bit of a top for the greenback. Indeed, US stock markets managed to end the day higher, led by energy and utility shares as the Organization of the Petroleum Exporting Countries (OPEC) is anticipated to cut oil production at their emergency meeting on Friday by 500,000 - 2.5 million barrel a day. This is particularly negative for the US dollar as EUR/USD holds a positive correlation with crude oil, and if we see that OPEC does indeed cut output sharply, this should drive the price of oil higher (this is why OPEC would do this, after all). Other downside risks loom for the US dollar as well, especially since fed fund futures are pricing in a 90 percent chance of a 50bp cut by the Federal Reserve next Wednesday, while a 25bp reduction is essentially guaranteed. Meanwhile, on Friday, US existing home sales will be released for the month of September. The index is actually forecasted to rise 0.8 percent to 4.95 million, but given the consistent declines in home values and tight credit conditions that likely hindered mortgage availability, there is certainly potential for existing home sales to fall negative. Overall, though, the biggest risk through the end of the week for the US dollar, and perhaps the financial markets in general, will be oil. My bias for the US dollar on Friday: bearish.
Euro, British Pound Show Signs of Bottoming -
The euro and the British pound both slumped on Thursday, as the former nearly hit a fresh 2-year low against the dollar while the latter hit the lowest in 5 years. As usual, economic data from the Euro-zone and
Australian Dollar Shows Potential to Rebound, Canadian CPI Due Out On Friday
Commodity dollars like the Canadian dollar, Australian dollar, and
Japanese Yen Dominates, But Outlook Depends on Risk Appetite
The Japanese yen was easily the strongest currency in the markets early on Thursday, as a lingering risk aversion and a surge in volatility (as measured by the VIX Index) led to broad selloffs in the equity and commodity markets. However, by the end of the day we saw that more common risk trends were in play, as a sharp end-of-day rally in the stock markets coincided with a drop in gold (a safe-haven asset), a rise in oil (a risky asset), and a pullback in the Japanese yen crosses (risky assets). While the odds remain in favor of Japanese yen strength, the outlook for the low-yielder truly depends on the stock markets as the correlation between pairs like USD/JPY and EUR/JPY and the DJIA remains high.
Related Article: Yen Crosses into Short Term Lows?
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