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U.S. Dollar Offered Lower Following Coordinated Intervention

U.S. Dollar Offered Lower Following Coordinated Intervention

2011-09-15 13:48:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Fundamental Headlines

Consumer Prices in U.S. Increase 0.4%s – Bloomberg

Greece Is to Remain in Euro: Sarkozy, Merkel – Bloomberg

Euro Bonds “Absolutely Wrong” Crisis – Reuters

Jobless Claims Post Surprise Last Week – Reuters

Europe Lending Woes Deepen – WSJ

European Session Summary

Headed into the final hour before the North American session open, the U.S. Dollar was mixed across the board. While it was lower against the Euro and the British Pound, the Greenback was up against the commodity currency block. Yesterday’s mixed batch of news – continued support for Greece by France and Germany, while the Reserve Bank of New Zealand warned of a global slowdown – ultimately boosted risk-appetite if only slightly headed into Thursday’s trade.

The price action in the overnight was quickly forgotten after 13:00 GMT, however, as the U.S. Dollar tanked across the major currencies. The other funding currencies, the Japanese Yen and the Swiss Franc, traded lower as well. The Federal Reserve, in conjunction with the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, announced that three liquidity U.S. Dollar liquidity-providing operations with a maturity of three months would be carried out over the remainder of the year. The European Central Bank’s website noted that “these will all take the form of repurchase operations against eligible collateral and will be carried out as fixed rate tender procedures with full allotment.”

EUR/USD 1-minute Chart: September 15, 2011

U.S._Dollar_Offered_Lower_Following_Coordinated_Intervention_body_Picture_1.png, U.S. Dollar Offered Lower Following Coordinated Intervention

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The coordinated action by the five central banks is indeed significant. Overnight lending rates between banks have risen in recent weeks, a suggestion that banks are unwilling or rather cautious about lending to one another due to a potential liquidity drain. The move suggests liquidity is becoming a major concern; a liquidity crunch was part of the reason why the Lehman Brothers crisis was so exacerbated. With additional Dollars in the system now, it appears that the U.S. Dollar is poised to weaken. The ultimate fate of the Greenback is hanging on next week’s Federal Open Market Committee meeting.

Thus far, on Thursday, the Dow Jones FXCM Dollar Index is lower, trading at 9723.61, at the time this report was written, after opening at 9740.25. The index has traded mostly to the downside, with the high at 9773.24 and the low at 9677.97.

24-Hour Price Action

U.S._Dollar_Offered_Lower_Following_Coordinated_Intervention_body_Picture_4.png, U.S. Dollar Offered Lower Following Coordinated InterventionU.S._Dollar_Offered_Lower_Following_Coordinated_Intervention_body_Picture_5.png, U.S. Dollar Offered Lower Following Coordinated Intervention

Key Levels: 12:40 GMT

U.S._Dollar_Offered_Lower_Following_Coordinated_Intervention_body_Picture_6.png, U.S. Dollar Offered Lower Following Coordinated Intervention

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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