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U.S. Dollar Bid Higher Against Aussie, Euro as Contagion Risks Reemerge

U.S. Dollar Bid Higher Against Aussie, Euro as Contagion Risks Reemerge

2011-09-05 15:22:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Fundamental Headline

Stagnant U.S. Hiring May Signal renewed Recession – Bloomberg

Stocks, Italian Bonds Drop on Europe Debt – Bloomberg

Service Sector Recovery Slows Sharply – Financial Times

Euro Falls Broadly as Euro-zone Risks Mount – Reuters

Gold Hovers Around $1,900 – WSJ

European Session Summary

Following German Chancellor Angela Merkel’s party’s defeat in a local election over the weekend, the Euro was one of the weakest performing major currencies in the overnight session. Renewed concerns over European sovereign debt further depressed confidence in the currency bloc’s leadership’s ability to guide markets through the current crisis. Although global trading volume was notably lower amid a national holiday in the United States, given the scope of the problems weighing on the market on Monday, the trend of risk-aversion could continue throughout the week as participants return to the markets.

EUR/USD 1-minute Chart: September 5, 2011

U.S._Dollar_Bid_Higher_Against_Aussie_Euro_as_Contgion_Risks_Reemerge_body_Picture_1.png, U.S. Dollar Bid Higher Against Aussie, Euro as Contagion Risks Reemerge

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The sharp decline in the Euro and Euro-denominated equity markets suggests that markets are becoming increasingly concerned once more about the ramifications of defaults across Euro-zone periphery members. On Sunday, both outgoing European Central Bank President Jean-Claude Trichet and incoming President Mario Draghi remarked that it would be absolutely essential that member states must meet their obligations towards the European Financial Stability Facility. Mr. Draghi went as far as to say that the “solvency of sovereign states has ceased to be a foregone conclusion,” rattling investor sentiment.

The marked concerns by policymakers led to a mass exodus from risk in the currency markets, with the Australian Dollar and New Zealand Dollar among the worst performers in the first hours of the trading week, with the Euro sinking as well. On the other side of the spectrum, the safe haven currency block, the Japanese Yen, the Swiss Franc and the U.S. Dollar were the strongest performers. Overall, the FX Carry Trade Index, a proxy for risk-appetite in the currency markets, was down 1.05 percent, at the time this report was written.

24-Hour Price Action

U.S._Dollar_Bid_Higher_Against_Aussie_Euro_as_Contgion_Risks_Reemerge_body_Picture_4.png, U.S. Dollar Bid Higher Against Aussie, Euro as Contagion Risks ReemergeU.S._Dollar_Bid_Higher_Against_Aussie_Euro_as_Contgion_Risks_Reemerge_body_Picture_5.png, U.S. Dollar Bid Higher Against Aussie, Euro as Contagion Risks Reemerge

Key Levels: 14:00 GMT

U.S._Dollar_Bid_Higher_Against_Aussie_Euro_as_Contgion_Risks_Reemerge_body_Picture_6.png, U.S. Dollar Bid Higher Against Aussie, Euro as Contagion Risks Reemerge

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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