Sunday, June 27, 2010

Weekly Dollar Update: June 27, 2009

**All credits to FXDAILY.COM for this lovely chart

My take on this chart is that the major pairs are strongly reacting to relative economic health factors as drivers. NZD strong interest rates without the political turmoil of AUS. Fund managers are viewing Japanese equities as very attractive with positive capital flows floating the Yen. The Brits are happy with political fiscal measures and a more positive outlook. From my experience, times of diverging correlations are when we will see new trends are established. Does this mean the bullish dollar trend is over?


Here is what I am looking at for the Dollar this week:

Monday 6/28:
  • Personal income: expected to rise 0.5% from 0.4%

  • Personal Spending: to rise to 0.1% from 0.0%

Tuesday 6/29:
  • Consumer Confidence expected to decrease to 62.5 from 63.3

Wednesday 6/30:
  • ADP employment employment change: expected to rise to 60K from 55K

Thursday 7/01:
  • ISM manufacturing expected to decrease to 59.0 from 59.7

  • Construction spending survey MoM: expected decrease to -0.6% from 2.7%

Friday 7/02:
  • ** Non-Farm Payrolls: an expected decrease to -105K from 431K

  • unemployment rate surve: and expected increase of 9.8% from 9.7%

I'll agree with a number of analyst in the markets that the Dollar is a highly sentiment driven trade at the moment, and is very fickle and subject to large volatility swings. Of course the big question everyone is looking at is if the Dollar has bottomed out and will see weakness for the rest of 2010 or will it resume its bullish 7 month trend. The past week has been certainly encouraging for dollar bears.

Sentiment factors
  • G20
  • Eurozone Health
  • US non-farm payrolls
  • Chinese credit and monetary policy (yuan floatation)

    Nothing new re-iterated here.

    I'll say the technicals allow plenty of upside room while the downside is limited to a suppressed price range unless we see exacerbated contagion spreading with the PIIGS. I'm reading more literature on expansionary policy and fiscal contraction, and will report back my opinions later and its relative possible effects on the Dollar and respective pairs.


    The first few days I will be looking for confirmed bearish US econ data which will confirm a bullish EUR/USD technicals for the week. By then hopefully expectation should be priced in for the US non-farm payrolls. I re-iterate my bearish stance on the EUR/USD for this week which complements my quick technical take given HERE. And to answer the question asked above: as I said before, the downside has become less attractive as sentiment is factored in and the upside becomes more attractive. I will say a significant dollar correction is needed, for a sustained dollar strength. Though I won't comment on if a full out reversal is warranted with such uncertain fundamentals.

    However, I will clearly state my short term trading view of bearish on the dollar for this week.


    Hedging Correlation plays: Short Dollar/Short Crude

    PS: Ill be writing again at the end of the weak to assess my performance


    Alexander Lê
    Managing Partner
    Analyze Capital LLC
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