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FOREX: US Dollar to Extend Gains as Risk Aversion Grips Markets

FOREX: US Dollar to Extend Gains as Risk Aversion Grips Markets

2011-09-19 06:55:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • S&P 500 Stock Index Futures Slump, Pointing to Continued Risk Aversion
  • US Dollar Soars as Stocks Fall After EU FinMin Summit Proves Fruitless

The US Dollar outperformed overnight, gapping higher at the weekly trading open adding as much as 0.9 percent against its leading counterparts as investors flocked to the greenback as a safe haven amid a rout across Asian stock exchanges. The MSCI Asia Pacific ex-Japan regional equity index – an appropriate benchmark because markets in Tokyo were closed for a holiday – fell 2.4 percent after a meeting of EU finance ministers in Wrocław, Poland over the weekend failed to produce concrete steps to squash the region’s sovereign debt crisis.

Indeed, policymakers arguably made matters worse, threatening to withhold an €8-billion tranche of aid due to be disbursed in October if Athens fails to meet its deficit-reduction objectives. Such saber-rattling before the ratification of the EFSF bailout fund’s new powers (initially introduced in late July) giving it the ability to directly recapitalize banks – which may have been used to cut off contagion channels and allow for an “orderly” Greek default – naturally spooked the markets already unnerved by EU policymakers’ insistence on brinksmanship vis-à-vis the debt crisis.

Looking ahead, S&P 500 stock index futures are trading down nearly 2 percent in late Asian trade, hinting risk aversion is likely to continue driving the safe-haven US Dollar higher at the expense of most major currencies. Indeed, the buck even scored considerable gains against the Swiss Franc and Japanese Yen – until recently traders’ favored havens at times of uncertainty – as fears of intervention reduced their appeal, with more of the same likely going forward. The economic calendar is uneventful, with only minor releases on tap in European and US hours. France is set to auction off €8 billion in 91-, 182- and 336-day bills, with poor uptake likely to reinforce the trajectory already in place.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:00

NZD

Westpac NZ Consumer Confidence (Q3)

112

-

112

22:30

NZD

Performance Services Index (AUG)

53.9

-

54.5

23:01

GBP

Rightmove House Prices (MoM) (SEP)

0.7%

-

-2.1%

23:01

GBP

Rightmove House Prices (YoY) (SEP)

1.5%

-

-0.3%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:00

EUR

Euro-Zone Construction Output (MoM) (JUL)

-

-1.8%

Low

9:00

EUR

Euro-Zone Construction Output (YoY) (JUL)

-

-11.3%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3535

1.3875

GBPUSD

1.5600

1.5840

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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