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US Dollar Index...

The US Dollar Index displays a large rising wedge pattern. Breakout above short-term resistance at 86 indicates a swing to test the upper border, but the bearish formation warns that downward breakout is more likely in the long term. A weaker dollar would increase both crude oil and gold prices.

US Dollar Index...

The US Dollar Index is testing the lower border of a large rising wedge pattern after a false break above 86. The formation is bearish and breakout below 84 would warn of a primary down-swing with a target of 74, calculated as 84 - [88 - 78]. Recovery above 86, on the other hand, would signal a test of the upper border. A weaker dollar would increase both crude oil and gold prices.

Dollar Rallies as Demand for Safety Overrides Disappointing Retail Sales Data
On Wednesday May 13, 2009, 8:09 pm EDT


The entire currency market was working with high volatility Thursday; but it was the dollar that would see some of the most significant moves for price action.

EURUSD rallied once again to within sight of the March swing high at 1.3735 before plummeting. Against the pound, the greenback would produce a similar intraday reversal that would ultimately span 250 points. However, showing the true drive behind the market, the market's activity level would increase progressively with the pair's relation to risk appetite. The dollar saw its biggest advance come against the New Zealand, Australian and Canadian dollars (which were 2.3, 1.5 and 1 percent respectively). However, the pair that would confirm this was a shift in sentiment rather than a specific pick up in US economic prospects was the fourth consecutive decline in USDJPY, pulling it below 96.

Looking back over the past 24 hours, there were no all-consuming economic events to drive such a clear shift in risk appetite. So, where did the impetus for this broad move come from? Realistically, the tempering of risk appetite (and subsequent rise in the dollar's appeal) is an ongoing deflation of the optimism that has been artificially inflated over the past few months. Traders have been jumping into the higher risk pool of yield-bearing assets on the belief that sentiment will be able to sustain itself and that fundamentals will catch up in time to put a floor underneath the market before things started to fall apart. However, after last week's heavy dose of reality, there is reason to worry that sentiment may fall apart well before the eventual recovery ever picks up steam. From growth prospects, we are still dealing with the worst GDP numbers in a quarter of a century and unemployment threatening to top double digits. Fear could really take over should market stability come under pressure. Though the market's initial reaction to the Fed Stress Test results last week seemed to be that of relief; the possibility that the government was too accommodative in accounting for risk while not reasonably preparing for the impact of rising loan defaults has loomed over the market. Should there be any signs that banks are struggling to raise capital without government help, fear will be soon to follow.

Aside from the fickle path of sentiment, scheduled and unscheduled economic data was tempering speculation that the US would be the first major economy to see a true recovery. Topping the docket this morning, the Advanced Retail Sales report for April crossed the wires worse than expected with a 0.4 percent contraction. Dampening the market's reaction though, this decline is relatively modest when taken into historical context. More potent was the rise in foreclosures measured by RealtyTrac Inc. According to the company's statistics, defaults hit a record high for a second time in April with one in every 374 households going under. Forecasting the influence of fundamentals on volatility going forward, the US calendar is relatively light Thursday with jobless claims and producer prices the only notable indicators.

Big Dollar Weakens.......

US Dollar Index
The US Dollar Index completed a large rising wedge reversal pattern, indicating a primary down-swing. Failure of support at 83 confirms the signal and offers a target of 75, calculated as 85 - [88 - 78]. Reversal above 83, however, would warn of a false signal — and another test of 87.

US Dollar Index

The US Dollar Index broke through support at 83/82.50, to signal a primary down-trend, before retracing to test the new resistance level. Respect of resistance at 83 would confirm the down-trend, with a target of 79 calculated as 83 - [87 - 83]. Reversal above 83 is unlikely, but would warn of a bear trap — confirmed if the declining (red) trendline is penetrated. The weakening dollar is another bullish sign for gold.

Dollar falls on job losses, Britain's debt outlook
Dollar slides on persistent job losses, Britain's debt outlook lowered by Standard & Poor's
On Thursday May 21, 2009, 5:33 pm EDT


NEW YORK (AP) -- The dollar slid as the number of newly laid-off workers requesting unemployment insurance dropped slightly, while Standard & Poor's said Britain may have its rating cut because of rising debt levels.

The euro advanced to $1.3889 in late New York trading from $1.3807 late Wednesday, while the British pound rose to a 2009 high for the third day in a row at $1.5890. It recently traded at $1.5837, up from $1.5794.

Investors worried about how well governments can keep up with public spending to stimulate their economies after Standard & Poor's said Britain may have its rating cut because of rising debt levels. That would raise the cost of borrowing for the British government, which is taking a big role in bailing out that country's stricken banking system.

Though the ratings agency reaffirmed the country's actual long-term credit rating at "AAA" and its short-term rating at "A-1+," it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.

Because Britain is pursuing similar policies as the U.S., such as quantitative easing by the Bank of England and the Federal Reserve, the move triggered a sell-off of U.S. assets and the dollar, said David Gilmore of Foreign Exchange Analytics in Essex, Conn.

"The change in outlook for the U.K. was sort of a preview, perhaps, of what the S&P could come around to thinking about the U.S.," Gilmore said. "Both have similar imbalances such as large trade deficits, budget deficits and overall debt."

Meanwhile, the Labor Department said Thursday that initial claims for jobless benefits fell to a seasonally adjusted 631,000, down from a revised figure of 643,000 the previous week. That nearly matched analysts' expectations of 630,000 new claims.

The number of people continuing to claim unemployment insurance rose to nearly 6.7 million from about 6.6 million, the department said. That's the highest total on records dating to 1967 and the 16th straight record. The continuing claims data lags initial claims by one week.

"The labor market is still weak, but people are looking at signs of the economy's deterioration slowing and are more optimistic about a recovery towards the end of the year," Gilmore said.

Factory shutdowns by Chrysler LLC and General Motors Corp. likely will continue to inflate the claims figures until this summer, economists said. The shutdowns also could affect auto suppliers, which employ roughly 3 million workers.

GM said Thursday that it agreed to a tentative deal with the United Auto Workers union that would cut labor costs, close factories and change the way a union-run trust for retiree health care is funded.

In other late trading Thursday, the dollar rose to 1.1404 Canadian dollars from 1.1368 late Wednesday after Canada proposed new regulations aimed at protecting credit card users, a day after the U.S. Congress approved legislation that would make sweeping changes to the credit card industry.

The dollar slipped to 94.23 Japanese yen from 94.89 yen, and fell to 1.0936 Swiss francs from 1.0993 francs.

US Dollar Index...
The US Dollar Index pulled back to test the new resistance level. Respect of 83 confirms the primary down-trend and offers a target of the December low of 79, calculated as 83 - [ 87 - 83 ]. Reversal above 83 is most unlikely, but would warn of a bear trap.

Dollar Index Finds Target

US Dollar Index...
The US Dollar Index reached its target of 79 and is now retracing to test the upper trend channel at 80. Upward breakout would signal a secondary reaction to test resistance at 83. Narrow consolidation above support at 78.50 would warn of another primary down-swing.

US Dollar Gains as Treasury Yields - US Retail Sales Could Disappoint on Thursday
Wednesday June 10, 2009

• US Dollar Gains as Treasury Yields - US Retail Sales Could Disappoint on Thursday

• Euro, British Pound on Opposite Sides of the Spectrum as UK Industrial Production Rises

• Japanese Yen Tumbles Ahead of Final Q1 Japanese GDP Reading

• New Zealand Dollar Jumps on RBNZ Rate Decision, Australian Dollar Faces Employment Data Overnight



US Dollar Gains as Treasury Yields - US Retail Sales Could Disappoint on Thursday

The US dollar was generally strong on Wednesday, though the currency did fall against the Australian dollar and British pound, as Treasury prices plunged, sending yields higher. In fact, the yield on 10-year notes hit an intraday high of 3.99 percent, the highest since October 2008 after Bank of Russia first deputy chairman Alexei Ulyukayev said that they would switch some of their reserves from Treasuries to International Monetary Fund bonds. The comments echo those of China, which has said that it is "actively" considering buying as much as $50 billion of the IMF bonds, while Brazil's Finance Minister Guido Mantega said that they will purchase $10 billion worth of IMF bonds. Meanwhile, the Commerce Department said that the US trade deficit widened for the second straight month in April to $29.2 billion, while the Federal Reserve's Beige Book report showed that the twelve Federal Reserve District Banks saw that economic conditions "remained weak" or "deteriorated further" between mid-April and May. However, five of the Districts also said that the "downward trend is showing signs of moderating," adding to indications that the worst has passed for the US economy.

Looking ahead to Thursday, the Commerce Department is forecasted to report that US retail sales rose 0.5 percent in May after tumbling 0.4 percent in April, and excluding autos, retail sales are anticipated to increase by 0.2 percent. However, there is potential for a worse-than-expected result, as the latest ICSC chain store sales numbers show that consumption plunged by 4.6 percent in May from a year ago. The response of the US dollar to the results will be interesting as the currency finally responded to fundamental forces following the release of US non-farm payrolls for the month of May. Prior to that, risk trends had been the predominant driver of price action for the greenback, so this round of advance retail sales may serve as a good gauge of how strong risk links are in the FX market.

Related Articles: US Dollar Weekly Trading Forecast

Euro, British Pound on Opposite Sides of the Spectrum as UK Industrial Production Rises

The euro was extremely weak on Wednesday, losing against nearly every major currency, but on the other hand, the British pound dominated. There wasn't much in the way of European economic news, but according to the UK's Office for National Statistics (ONS), the nation's visible trade deficit widened to 7.003 billion pounds from 6.471 billion pounds during the month of April, as import growth outpaced a pickup in exports. At the same time, the ONS also said that industrial output rose by 0.3 percent during April, the first increase since February 2008 and the largest rise since October 2007. The improvement was due primarily to jump in mining and quarrying production, though the 0.2 percent increase in manufacturing output was notable in that it was the second consecutive positive result. That said, it's important to keep these moves in perspective, as the annual rate of industrial production remains deeply negative at -12.3 percent.

Related Article: Euro Weekly Trading Forecast, British Pound Weekly Trading Forecast

Japanese Yen Tumbles Ahead of Final Q1 Japanese GDP Reading

The Japanese yen was the weakest of the majors on Wednesday, tumbling more than 1 percent against the ultra-strong Australian dollar and British pound and falling 0.77 percent versus the US dollar. Most of the losses came during the Asian trading session though, as losses in the US equity markets subsequently pushed the Japanese yen higher. Tonight at 19:50 ET, Japan's Cabinet Office will release their final growth readings, which should confirm that the economy contracted for the fourth straight quarter in Q1 2009. However, this reading is anticipated to be revised higher once again, this time to -14.9 percent from -15.2 percent. While this would still be the worst result on record, the revision has potential to provide a boost to the Japanese yen, which is what we saw with the release of the preliminary reading on May 19. On the other hand, a revision to the downside could weigh heavily on the low-yielding currency.

New Zealand Dollar Jumps on RBNZ Rate Decision, Australian Dollar Faces Employment Data Overnight

The Reserve Bank of New Zealand (RBNZ) left their Official Cash Rate target unchanged at 2.50 percent, as expected, citing evidence that "international economic activity is stabilizing and international financial conditions are improving." RBNZ Governor Alan Bollard was somewhat optimistic in his post-meeting policy statement, saying that "for the first time in some months," there were "clear upside opportunities for activity." However, these comments were generally the sole confident notes as Bollard also noted downside risks to activity and inflation, with the appreciation of the New Zealand dollar creating an "unhelpful tension" with their projections. That said, Bollard wrote off the need to intervene in the FX markets, saying that neither intervention nor a rate cut would impact the currency. Going forward, the RBNZ has left the door open to "modest" reductions "in coming quarters" as they reiterated their previous statement that they "expect to keep the OCR at or below the current level through until the latter part of 2010." Keeping this in mind, the New Zealand dollar's initial rally in response to this policy decision could ultimately prove to be short-lived.

The Australian dollar gained on Wednesday, especially against the low-yielding Japanese yen, but the currency faces event risk overnight. The Australian labor markets started to deteriorate during the second half of 2008, and data may show that this is continuing through 2009. While we did see a surprise improvement in April, the May results are projected to show that the unemployment rate rose back up to 5.7 percent from 5.4 percent while the net employment change is anticipated to fall by 30,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 21:30 EDT.

US Dollar Index
A weakening dollar increases demand for gold. The US Dollar Index is in a primary down-trend — currently retracing to test the upper border of the trend channel at 82. Breakout is unlikely, but would warn of trend weakness. Respect of the upper channel would indicate another primary down-swing with a target of 73 — calculated as 78 - [ 83 - 78 ].

US Dollar Index...
A weakening dollar increases demand for gold. The US Dollar Index is consolidating in a narrow range between 79.50 and 81. Downward breakout is more likely and would indicate a primary down-swing with a target of 73; calculated as 78 - [ 83 - 78 ]. Breakout above 81, however, would indicate that the primary trend is slowing — and test resistance at the March low of 83.

US Dollar Index
A down-turn in the US Dollar Index would also boost precious metal prices. Breakout from the narrow consolidation between 79.50 and 81 will test primary support at 78.50. Failure of support would warn of another primary decline, targeting the lower channel border. Recovery above 81 is most unlikely, but would signal a test of the March low at 83.

US Dollar Index
The US Dollar Index continues to encounter resistance around 83.5. Expect retracement to test support at 80. Failure of support would signal a decline to 76.5, while respect of support would indicate a rally to test 89. The (bull) signal would be strengthened if 63-day Twiggs Momentum forms another trough above zero.
Target calculation: 80 - ( 83.5 - 80 ) = 76.5

Today's Market Focus.......

•   December 10-year T-notes this morning are trading down -13.5 ticks. Dec 10-year T-note prices yesterday moved higher for a second day and closed up +11 ticks at 125-200. Bullish factors included (1) the larger-than-expected decline in the Aug Chicago purchasing managers index which fell to a 9-month low (-5.6 to 56.7 versus expectations of -5.3 to 57.0), (2) the prediction from PIMCO, the manager of the world's biggest bond-fund, that the Fed's action to boost the economy are insufficient, given a "frozen" housing market, slow growth, high unemployment and significant debt, (3) the Aug 10 FOMC meeting minutes in which policy makers said they saw "increased downside risks to the outlook for both growth and inflation" and voiced concern that further shocks would cause "significant slowing in growth," and (4) month-end buying of Treasuries by hedge funds and portfolio managers who need to buy newly issued Treasuries (i.e., Aug refunding o f 10-year T-notes) in order to rebalance their portfolios to match changes in bond indexes with which they are benchmarked. Bearish factors included (1) the larger-than-expected increase in the Jun S&P Case-Shiller composite-20 home price index (+0.3% m/m and +4.2% y/y versus expectations of +0.2% m/m and +3.6% y/y), (2) the larger-than-expected increase in Aug US consumer confidence (+2.5 to 53.5 versus expectations of +0.3 to 50.7), and (3) reduced safe-haven demand for Treasuries after the stock market rallied.
•   The dollar index this morning is weaker and posted a 1-1/2 week low in overnight trade with the dollar/yen -0.16 yen and the euro/dollar +1.24 cents. The dollar index yesterday finished slightly higher. Bullish factors included (1) the Aug Euro-Zone unemployment rate holding at a 12-year high of 10.0% for the fifth consecutive month, its highest level in 12 years, which was euro-negative, (2) the Aug 10 FOMC meeting minutes in which policy makers signaled no plans to resume large-scale asset purchases, and (3) an increase in the safe-haven demand for the dollar after the FDIC reported that US "problem" banks rose to 829 at the end of Q2, up +7% from 775 at the end of Q1. Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) strength in the yen on speculation the action taken on Monday by the BOJ and the Japanese government to halt the yen's strength and boost economic growth will be insufficient, and (3) eu ro-positive comments from Standard & Poor's that the risk of a renewed recession in Europe is "remote."
•   October crude oil prices this morning are trading up +64 cents a barrel and October gasoline is +1.71 cents per gallon. Oct crude oil prices yesterday tumbled after mid-morning and closed down -$2.78 a barrel. Oct gasoline closed lower by -5.04 cents per gallon. Bearish factors included (1) the larger-than-expected decline in the Aug Chicago purchasing managers index which fell to its lowest level in 9 months and signals the economic recovery and energy demand may be cooling, and (2) the outlook for weekly US crude supplies to increase when the DOE releases its inventory report on Wed. Bullish factors included (1) the weaker dollar, (2) the better-than-expected Aug US consumer confidence, (3) the larger-than-expected increase in home prices in the Jun S&P Case-Shiller home price index, and (4) the prediction from DnB Nor ASA that crude oil prices will be supported at $70 a barrel for another year as the cost of oil production in deeper water rises and fears of a double-dip recession ease. Expectations for Wednesday's weekly DOE inventory report are for crude oil stockpiles to rise +1.3 million bbl, gasoline supplies to fall -375,000 bbl, distillate inventories to gain 1.1 million bbl and the refinery capacity rate to remain unchanged at 87.7%.

US Dollar Index...

The US Dollar Index is retracing to test support after encountering resistance at 83.5. Failure of support at 80 would signal a decline to 76.5*, while recovery above 83.5 would indicate a rally to 89. Respect of the zero line by 63-day Twiggs Momentum would strengthen the bull signal.

Target calculation: 80 - ( 83.5 - 80 ) = 76.5