DailyFX
Dollar: Is There Enough in ISM Services Data to Stoke Taper Talk?
John Kicklighter

  • Dollar: Is There Enough in ISM Services Data to Stoke Taper Talk?

  • Euro Circles Suggest ECB Backing Off Stimulus Escalation Option

  • Australian Dollar: In-Line GDP Nudges RBA Rate Cut Expectations

  • Japanese Yen Unmoved by Increasingly Colorful Warnings

  • British Pound: Will Service Sector Round Out Recovery Hopes?

  • Canadian Dollar Traders Watch Demand for 30-Year Bond

  • Gold Volume 2-Month Low, ETF Holdings 2-Year Low, Futures Interest 4-Year Low

Dollar: Is There Enough in ISM Services Data to Stoke Taper Talk?

A valiant effort was made by the US dollar to regain some of the significant ground lost on Monday. Yet, the rebound wouldn’t fully balance the greenback; and the currency subsequently looks more sensitive to disappointing news than encouraging. Without further fundamental support, the Dow Jones FXCM Dollar Index (ticker = USDollar) is notably fatigued having rallied to near-three year highs. To keep the drive intact – especially against the current of persistent stimulus hopes – bulls need convincing. A market-wide deleveraging on risky positions would be a windfall for the safe haven dollar, but that potent scenario shouldn’t be depended on given the persistence of benchmarks like the S&P 500.

Turning sentiment would be a serious fundamental feat, but it can be leveraged under the right conditions. Rather than awaiting a financial crisis hot spot, realization that fundamentals don’t match price, witness excessive leverage collapse in on itself; the most sinister spark would be to remove the source of investors’ indomitable confidence: threaten stimulus. The upcoming list of ISM service sector activity, ADP employment and Fed Beige Book could tap that nerve. Though, a weak showing like the factory report Monday could spur ‘QE-infinity’ expectations.

Euro Circles Suggest ECB Backing Off Stimulus Escalation Option

While some of the Euro-related headlines crossing the newswires would sink any other currency, this thick-skinned benchmark seems to be tolerant of all but a verifiable financial crisis. In other words, something has to be on fire (figuratively-speaking) before investors really respond. This is years of conditioning where future problems have become part of the investment scheme and domestic capital faces greater bearers to moving money outside the regional boarders. That said, a headline from this past session that is unlikely to be ignored – ‘ECB sources’ were quoted as saying the central bank was split on whether they would pursue further cuts to the refinancing rate and that an open-ended and active QE-like program (similar to the Fed and BoJ) was off the table. That is important chatter ahead of Thursday’s rate decision. Keeping the euro rate and restraining the ECB balance sheet is a boon to the euro…that is until a lack of support undermines financial markets.

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