DailyFX

Forex: Dollar Drops the First Time in 4 Trading Days as Risk Frozen

John Kicklighter

  • Dollar Drops the First Time in 4 Trading Days as Risk Frozen

  • Euro Little Moved Despite Greek Bond Issues, Italian Political Shakeup

  • Australian Dollar Slips Early Tuesday, Follow Through Depends on Equities

  • Japanese Yen Unfazed by Business Activity, Trade Data

  • British Pound: BoE Governor King Fears Global FX Wars

  • Canadian Dollar May Further Progress if BoC’s Carney Says the Right Things

  • Gold Advances on Third Day Under Lowest Volume In Weeks

New to FX? Watch thisVideo; For live market updates, visitDailyFX’s Real Time News Feed

Dollar Drops the First Time in 4 Trading Days as Risk Frozen

The dollar wasn’t carrying its own weight through the opening trading session of the week. However, a weak environment for speculative turnover and trend development helped to keep the greenback’s losses to a minimum through Monday’s close. The single currency slid against all of its major counterparts – with the exception of a negligible improvement against the Australian currency. That said, the biggest hit the dollar would take was a relatively modest 0.29 percent drop against the kiwi (NZDUSD). On an aggregate basis, the Dow Jones FXCM Dollar Index (ticker = USDollar) retraced Friday’s gains and kept the 10,000-figure firmly overhead. There is relevance in the proximity of this technical boundary and lack of progress to start our week. It shows a syncing between technicals, fundamentals and market conditions.

For fundamental reasoning behind the dollar’s lack of progress, we need only look at the standard bearers for risk trends. From the S&P 500 – one of my preferred, quick measures of speculative appetites – we would see the extremely quiet conditions. The average daily range was the smallest in two-and-a-half months, volume dropped back below 500 million shares and the VIX volatility index continues to retreat. What does this tell us – that the demand for a safe haven like the dollar is tepid at best. We could attribute this quiet to a seasonal withdrawal of market participations, but more likely it is a reflection of anticipation. On Wednesday, the Federal Reserve will announce its monetary policy decisions alongside updated growth forecasts. At this meeting, it is heavily expected that the policy authority introduces a new stimulus program (more on that tomorrow). The influence that this can have will curb speculation on other, lesser factors like a ‘no progress’ read on the Fiscal Cliff.

Euro Little Moved Despite Greek Bond Issues, Italian Political Shakeup

Event risk accumulated for euro traders over the weekend, but the concerns that evolved out of the headlines didn’t seem to be substantive enough to seriously undermine the currency’s health. EURUSD little more than 10 pips higher on Monday’s close and the biggest move for the currency in general was a 0.18 percent drop against the New Zealand dollar. Taking stock of what Forex traders repressed for now, the first concern arose early over the weekend. It was reported that Greece failed to meet its €30 billion bond buyback target (replacing that stock with €10 billion in new debt). The $26.5 billion restructuring at an average rate of 33.4 percent, however, brings us close. In other news, Italy has come back on the threat radar after Prime Minister Mario Monti announced he would step down after the 2013 budget is approved – possibly calling an election by February. The risk that a more lax leader will take the reins one of Europe’s largest debts is unnerving for crisis watchers.

and

Recommended Stories