Forex Yellow Pages

Dollar At a Standstill - Which Way Next?

Was it a pause that refreshes or a sign of an intermediate term top? Dollars bulls and bears battled each other to a standstill as the pair tried but failed to make a new record high. On the other hand  any attempts to take it lower were met with steadfast bids. As we noted earlier in the week, ‘the market remains resolutely dollar bearish, keeping any retracements in the EURUSD relatively shallow. Only if the EURUSD breaks below the important 1.4500 figure will we have confidence that a serious correction in the pair has commenced.  For the time being the market continues to give the benefit of the doubt to the ECB while expecting the Fed to steadily lower rates.’

The greenback is beginning to suffer from another problem. Up until very recently  US was able to attract enough foreign capital to offset its massive trade deficits, but last months TICs data shattered the complacency of the market when it printed at -$69 Billion versus forecasts of $65 Billion surplus. This months data didn’t do much better printing only $26.4 Billion against $71.5 Billion forecast. If foreign capital flows are indeed drying up the long term structural implications for the greenback are very negative.  Friday’s announcement by UAE that it is considering a replacement of the dollar peg with a broad currency basket could only be that start of a massive  move away from the dollar as the reserve currency of the  world.

Next week, holiday thinned trading should keep price action contained, but the buck faces more challenges as the calendar is chuck full of housing data which is expected to be dour yet again. The one thing that may boost the greenback could be the release of the FOMC minutes, assuming they are hawkish in tone. At this point conventional wisdom expects another rate cut from the Fed in December. If the committee signals that it will remain stationary, the dollar may get a reflexive bounce. Overall, however, the momentum is still with the bears.

Source: DailyFx