USD Graphic Rewind 07.22
USD INDEX GRAPHIC REWIND
The dollar found itself relatively well bid throughout the day yesterday due to various themes. Early in the day the euro and pound shed some of their recent impressive gains propping the dollar in Europe and into the US session, which saw the dollar consolidate a little as players digested a raft of corporate earnings. Stocks and currencies were see-sawing ahead of Fed. Chair Bernanke's testimony as players refused to enter large positions in case of any surprises. Bernanke's comments were decidedly dovish and while he said that a double-dip is unlikely and the recovery is continuing at a moderate pace he did warn that the outlook is "unusually uncertain" and said the Fed is willing to take further action to support the economy if it should falter again. These comments prompted a massive flight to quality in the shape of dollar, yen and Swiss franc buying as players liquidated riskier holdings. However, while the dollar did benefit from the flight to safety by no means was it investors first choice the major flows were seen going into the yen in its headline and on the crosses pushing Usd/Jpy it to some of its strongest levels in a year. We can see from the above chart that the dollar has declined over-night in Asia despite equities trading lower, since Bernanke's comments have made the dollar incredibly unattractive to hold, so even in this risk averse trade the dollar is struggling to find consistent safe-haven bids, indicating that dollar aversion is still rampant.
Looking ahead, we expect Thursday to be a quiet day of trade with a slight slant to the downside for equities and riskier FX, unless the unexpected happens, ahead of the release of the EMU's bank stress-tests tomorrow. The dollar will likely remain heavyish as investors continue to chose the yen over the dollar as their quality asset of choice.
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