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Dollar Secures Fifth Straight Advance as Risk Trends Still Heavy
John Kicklighter

  • Dollar Secures Fifth Straight Advance as Risk Trends Still Heavy

  • Euro Steady While Capital Markets Tumble on Fears of Italy-Bred Instability

  • Japanese Yen Recovers as Panicked Selling Curbed

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  • New Zealand Suffers Market-Wide Drop, NZDUSD Suffers Serious Break

  • Swiss Franc Climbing as Euro-area Stability Trembling

  • Gold Recovery Extends Fourth Consecutive Day as FX Volatility Rises

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Dollar Secures Fifth Straight Advance as Risk Trends Still Heavy

Momentum behind a committed risk aversion theme stalled this past session – and thereby the most prominent fundamental driver for the greenback’s sustained climb has been curbed. For the Dow Jones FXCM Dollar Index (ticker = USDollar), a tame 17-point advance Tuesday extended the benchmark’s climb to a fifth consecutive trading day and toed yet another two-and-a-half year high. In the breakdown, however, we find that the greenback’s individual performance was once again uneven. EURUSD was virtually unmoved for the day (forming a doji) while USDJPY offered a sparse 0.2 percent bounce thanks to its sensitivity to risk trends. The saving grace for the currency was a 0.3 percent advance against the Australian dollar and far more substantive 1.0 percent rally versus the New Zealand dollar. Yet, both of those standout performances were the responsibility of the counter currency and not the greenback.

To extend the dollar’s already-impressive climb, we need to see a clear demand for the greenback itself – not demand that is a derivative of its counterparts’ weaknesses. A persistent rise in risk / fear is the best way to stoke the appeal of the market’s most elementary safe haven. Yet, the stalled selloff in yen crosses (more on that below) and the bounce from the S&P 500 to retest former support speaks to indecision after a possible, critical shift in the balance of sentiment. And, before we think that the chance has come and gone for lasting risk aversion, it is worth noting that the forex market volatility index (FX VIX) advanced to a fresh 8-month high and the equity-based VIX Index is still well above 16 percent. Furthermore, the Risk-Reward Index (a basic measure of market returns compared to market risk) has tumbled to a six-month low on its own. There is plenty of pent up energy in behind these markets…

Looking for potential catalysts to a market-wide risk aversion effort, some were looking to the Conference Board’s Consumer Confidence survey from this past session, but the indicator (beating expectations) doesn’t carry the necessary weight to induce systemic change. Fed Chairman Ben Bernanke’s testimony before the Senate Banking Committee carried a little more sway. With investors watching closely for any sign of a general time frame for the end to – and withdrawal of – QE, the central banker offered a few morsels for consideration. Bernanke said the central bank was monitoring asset prices (perhaps basing policy on market levels) but said he did not see evidence of an asset bubble. As to the eventual withdrawal, he said the exit would come with plenty of notice before hand. Have we already seen the early clues of this eventuality in the FOMC minutes? Looking ahead, the countdown to the Sequester continues; but the market’s concern isn’t yet clear.

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