The threat of the Greek contagion
into other economies (Spain the latest), softer Chinese data and a tightening from the PBOC,
and a criminal probe into Goldman Sachs
, are all negative events spread out across the globe that have weighed heavily on risk appetite. As a result, we have seen a massive flight to safety in the form of the USD
, with the Euro
and even Yen
all taking considerable hits and tracking to fresh 2010 lows against the Greenback. Even the commodity bloc currencies have been influenced
, with Aussie
all finding heavy offers in Tuesday trade. The VIX jumped
up by close to 20% on Tuesday and market participants are feeling a similar sense of panic as had been felt post-Lehman.
While all major currencies are down against the buck on Wednesday thus far, the Aussie has managed to outperform on a relative basis, with the antipodean finding some bids on the back of a solid round of local data, with the performance of services index and building approvals exceeding expectations.
In our opinion, the USD is now very well positioned to extend gains across the board, with the single currency potentially benefitting in both risk averse and risk inclined markets. While a risk averse market should force USD appreciation on a flight to safety, any improvement in risk appetite could now also benefit the buck, which stands to gain on a Fed that is required to adopt a more hawkish monetary policy and thereby look to raise rates, which would in turn narrow yield differentials back in favor of the Dollar. As such, we remain USD bulls and would look to continue to buy the Greenback over the medium-term.
Looking ahead, German PMI (55.0 expected) is due at 7:55GMT immediately followed by Eurozone PMI (57.3 expected) at 8:00GMT. UK PMI (53.4 expected) is then out at 8:30GMT, with Eurozone retail sales (0.1% expected)
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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