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FOREX: Dollar Under Pressure as Bargain-Hunters Push Risky Assets Higher

FOREX: Dollar Under Pressure as Bargain-Hunters Push Risky Assets Higher

2011-05-09 07:48:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • US Dollar Slumps as Stocks Rebound Across Asian Bourses
  • Euro Edges Higher Despite Greek Sovereign Debt Fears

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4248

1.4250

GBPUSD

1.6345

1.6455

The Euro and the British Pound moved higher overnight, adding as much as 0.9 and 0.24 percent against the US Dollar, with the greenback broadly under pressure as markets digest last week’s aggressive rally (the biggest in 10 months). We are looking for attractive EURUSD and GBPUSD selling opportunities in the days ahead.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

Lloyds Employment Confidence (APR)

-58

-

-65

23:50

JPY

Bank of Japan Minutes of April 6-7 Meeting

-

-

-

1:30

AUD

Job Advertisements (MoM) (APR)

1.0%

-

1.3%

1:30

AUD

NAB Business Conditions (APR)

5

-

9

1:30

AUD

NAB Business Confidence (APR)

7

-

9

The US Dollar came under broad-based selling pressure in overnight trade, losing as much as 0.5 percent on average against its major counterparts as stocks rebounded across Asian bourses following last week’s selloff – the largest in six weeks – sapping demand for the safety-linked US unit. The MSCI Asia Pacific regional benchmark equity index added 0.5 percent, with optimism chalked up to last week’s better-than-expected US jobs report. The figures showed the world’s top consumer market (and key demand source for Asian exporters) added 244K jobs in April, topping forecasts calling for an 185K increase. Private-sector employment grew 268K, the most in over five years.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German Current Account (euros) (MAR)

13.3B

8.9B

Medium

6:00

EUR

German Trade Balance (euros) (MAR)

11.8B

12.1B

Medium

6:00

EUR

German Exports s.a. (MoM) (MAR)

1.1%

2.8% (R+)

Low

6:00

EUR

German Imports s.a. (MoM) (MAR)

0.8%

4.0% (R+)

Low

6:30

EUR

Bank of France Business Sentiment (APR)

110

110

Low

7:00

GBP

Halifax House Prices sa (MoM) (APR)

0.1%

0.1%

Medium

7:00

GBP

Halifax House Prices 3Months/Year (APR)

-3.0%

-2.9%

Medium

8:30

EUR

Euro-Zone Sentix Investor Confidence (MAY)

13.8

14.2

Medium

The economic calendar is relatively tame in European hours, putting the focus back on risk sentiment trends. With that in mind, stock index futures are painting a conflicting picture, with contracts tracking European bourses pointing aggressively lower ahead of the opening bell while those following US benchmarks are in positive territory.

On the Continent, pessimism is likely linked to renewed sovereign risk fears amid rumors that Greece may go so far as to pull out of the Euro Zone. Indeed, Greek CDS rates – a gauge tracking the cost of insuring against a default in the Mediterranean country – jumped 65.5bps overnight to hit the highest in nearly two weeks. Negative sentiment may be short-lived however after EU Finance Minister council leader Jean-Claude Junker dismissed the idea as “stupid” following a weekend sit-down on the issue, with press reports suggesting regional officials were prepared to extend Greece’s lifeline in exchange for new fiscal measures.

On balance, this argues for a prompt return to the broadly risk-positive themes that proved dominant in Asia. While the US jobs report was cited as the catalyst, larger themes are also surely at work. The spectrum of risky assets fell last week while the US Dollar marked the largest advance in 10 months as traders began to price in the message from April’s FOMC interest rate announcement where policymakers pledged to allow the QE2 program to expire. Facing the looming reality of higher US yields, investors that had capitalized on QE to finance bets on high-yielding assets with cheap borrowing in Dollars began to book profits, opening the door for short-term “bargain-hunting” before the larger risk-averse move resumes anew.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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