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Higher Yielding Currencies Continue Gains as G-20 Finance Ministers Meet

Higher Yielding Currencies Continue Gains as G-20 Finance Ministers Meet

2011-10-14 13:38:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Fundamental Headlines

European Rescue Plan Takes Shape – Bloomberg

Retail Sales Rise 1.1% in September, Beating Forecasts – Bloomberg

Greek Government Vows to Pass Cuts in “Fight for Existence” – Reuters

Rating Cut Puts Spain Back on Crisis Radar – Reuters

Berlusconi Wins Confidence Vote – WSJ

European Session Summary

“Biggest weekly gain against the U.S. Dollar.” This has been the phrase that best describes the price action of the major currencies against the Greenback the past week, as the U.S. Dollar has been pummeled on optimism that European leaders are putting together a credible plan to fight the debt crisis. The Australian Dollar is on pace to post its strongest week against the world’s reserve currency since February 2009, while the Euro is on pace to have its biggest weekly gain against the U.S. Dollar since January. Likewise, the Canadian Dollar has risen to its highest level in nearly three-weeks.

G-20 finance ministers are holding a two-day meeting, starting today, to discuss ways to help Europe overcome its sovereign debt crisis. The meeting among global finance officials in Paris has boosted optimism that a credible plan may be in the works, finally a sign that markets will have a clear indication of what is going on. Markets have been pricing in a Greek default over the past few weeks, with bond markets signaling a recession onset by a credit crunch, and equity markets and higher yielding currencies falling to multi-month lows.

AUD/USD 10-minute Chart: October 9 to 14, 2011

Higher_Yielding_Currencies_Continue_Gains_as_G-20_Finance_Ministers_Meet_body_x0000_i1028.png, Higher Yielding Currencies Continue Gains as G-20 Finance Ministers Meet

Charts created using Strategy Trader– Prepared by Christopher Vecchio

At the time this report was written, the Aussie was up over 1.00 percent against the U.S. Dollar, with the other commodity currencies, the Canadian Dollar and the New Zealand, not far behind, at 0.7 percent gains or better. The Japanese Yen was the only currency trailing the U.S. Dollar, which comes as no surprise as the Yen has arguably seen more capital inflows due to the flight to safety during the late-Summer and early-Fall.

The major moves higher come as rating agencies continue to tighten the noose around countries and institutions that are have excess exposure to risk in the market. Over the past two-weeks, Italy, Spain and New Zealand have been downgraded on the sovereign level, while European banks, not just in the Euro-zone but in the United Kingdom as well, have been hit with lower ratings. Evidently, market participants are looking past the fact that an excessive amount of risk exposure is on the table and are instead hoping that central banks and governments have measures on deck to bailout increasingly insolvent and fiscally mismanaged nations.

Looking ahead for Friday, with the U. of Michigan confidence reading for October due, markets are pricing in another rebound in consumer sentiment. Consumer confidence in the United States is forecasted to improve slightly in October’s preliminary reading, after rebounding in September back to 59.4. September’s reading remained below the key 60.0 level, last having been above said level in July at 63.7. Nonetheless, the rebound in confidence may be short-lived, as increased market volatility has erased trillions of value off of equity markets, and further political divisions over how to reduce America’s expanding debt burden have arisen once more.

24-Hour Price Action

Higher_Yielding_Currencies_Continue_Gains_as_G-20_Finance_Ministers_Meet_body_Picture_1.png, Higher Yielding Currencies Continue Gains as G-20 Finance Ministers MeetHigher_Yielding_Currencies_Continue_Gains_as_G-20_Finance_Ministers_Meet_body_Picture_7.png, Higher Yielding Currencies Continue Gains as G-20 Finance Ministers Meet

Key Levels: 13:00 GMT

Higher_Yielding_Currencies_Continue_Gains_as_G-20_Finance_Ministers_Meet_body_Picture_4.png, Higher Yielding Currencies Continue Gains as G-20 Finance Ministers Meet

Thus far, on Friday, the Dow Jones FXCM Dollar Index is lower, trading at 9712.54, at the time this report was written, after opening at 9763.47. The index has traded mostly lower, with the high at 9793.55 and the low at 9704.70.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com.

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com.

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

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