DailyFX

Forex: Dollar Extends Rebound but Loses Momentum Before Key Breakouts

John Kicklighter

  • Dollar Extends Rebound but Loses Momentum Before Key Breakouts

  • Japanese Yen Crosses Surge Higher with USDJPY, EURJPY Boundaries at Hand

  • Euro Attempts Fundamental Rally on Strong Data, Success Uneven

  • Canadian Dollar Drops after Poor Retail Sales Data, Inflation Numbers Ahead

  • British Pound: Will the 2Q GDP Update Catch the Market’s Attention?

  • Emerging Markets Currencies Slow Descent but Recovery Elusive

  • Gold Ignores Dollar and Holds Range, Silver Ratio Heading Lower

Dollar Extends Rebound but Loses Momentum Before Key Breakouts

The Dow Jones FXCM Dollar Index extended its rebound Thursday, but it would lose its drive before the greenback could secure breakouts on pairs like EURUSD and USDJPY. Nevertheless, the benchmark’s performance on the day is impressive against the backdrop of swell in risk appetite. Looking to the US equity markets, the battered S&P 500 muscled a 0.9 percent rally – the biggest run in threeweeks – to close just below its 50-day moving average and the range of highs established throughout the week. Investor sentiment is less bullish than it is congestive, and that lack of conviction carries over to the safe haven dollar. Sentiment is thereby neither a benefactor nor burden. Yet, as much potential as the ebb and flow of risk positioning has on capital flows and the dollar, there are a few other fundamental themes that the currency can revert to when left to its own devices. The second most influential driver for the dollar is the market’s view of the Fed’s Taper timetable. Following up on the FOMC minutes’ revelation that the group broadly supported the schedule Bernanke laid out in June, the New York Fed released the results of its primary dealer survey. According to the consensus, the major banks charged with dealing Treasuries expect a September Taper of $15 billion – more than economists expected. Further, the group projected a further $15 billion cut in December and halt by June.

Japanese Yen Crosses Surge Higher with USDJPY, EURJPY Boundaries at Hand

Though the Deutsche Bank carry trade index fell for a fourth day, the yen crosses put in for an across-the-board rally. The only Japanese-based event risk to absorb was Japanese investors’ ¥904 billion in net sale of foreign bonds through the week ending August 16 – in other words a repatriation of capital following the biggest outflow in three years reported the previous period. That said, it is worth noting a growing deviation between the key yen pairs and the Nikkei 225. The relationship has proven exceptionally strong over the past few months, which could anchor one party or accelerate the other. With key technical levels ahead for USDJPY, EURJPY and GBPJPY; this is a relationship to watch.

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