Monday, June 28, 2010

Dollar Mixed Overnight; Traders Mull over G−20 Decision; U.S. Economic Reports

Forex Special The U.S. Dollar traded mixed overnight as traders mulled over the suggestions of this weekend’s Group of 20 meeting. At the conclusion of the meeting on Sunday, G-20 members reached an agreement on common goals for deficit and debt reduction. After the Asian markets opened, traders made a move toward risk but quickly turned sellers when it became clear that the G-20 decision would have little impact on today’s trade because of its neutral outcome.

Based on the overnight trading action, it looks as if today’s markets will largely be determined by U.S. and European economic data.

Last week’s poor U.S. housing data pressured the Dollar against the Euro and British Pound as traders looked toward these currencies for a better return on investment. With the U.S. economy weakening and the Fed taking a dovish stance on the economy, many traders felt the Fed would keep interest rates low for a prolonged period of time.

Germany and the U.K. on the other hand have decided to adapt more austere financial measures to help cut their deficits. This made their respective currencies more attractive. Or did it? Some investors feel this week that the Dollar was actually being sold because of the weakening economy rather than these currencies being bought.

The Commodity Trading Commission’s Commitment of Trader’s Report confirmed this conclusion as Net Shorts in the Euro rose to 70,974 on June 22nd from 62,360 a week earlier.

The U.S. Dollar may gain today if the economic news continues to surprise to the downside. At some point, safe haven flows will likely resume with the U.S. Dollar and Yen rallying further if risk demand fades with the weakening global economy.

Today’s Personal Income and Personal Spending reports will give traders a clue as to how much consumers are earning and how much they are spending. The Case-Shiller report will offer investors another look at the U.S. Housing market. Should these reports come out weaker than expected then look for traders to seek safety in the Greenback.

At the G-20 summit, world leaders pledged to maintain stimulus plans until their economic recoveries are solidly in place. Based on the decision to raise bank capital requirements, it is clear that they will need to raise significant levels of capital. This could slow down the rate of economic growth because it will mean capital will have to leave the economy.

Furthermore, the Dollar may gain on the thought that the austere financial measures taken by Germany and the U.K. will actually slow down global economic growth. Some feel that because of the weak U.S. economy, the Fed will have to continue to maintain its stimulus while Germany and the U.K. will actually be cutting spending. If this becomes the case then it means that Germany and the U.K. will be counting on a weaker Euro and British Pound to increase demand for exports while their economies use the weaker currencies to pull out of their economic downturns. Some investors believe that Germany and Great Britain may be cutting their deficits too soon.

The key to the Forex markets today and most likely this week will be U.S. economic data. Everyday this week, key economic data will be released, ending with the June Employment number on Friday.

After this week’s G-20 leaders decided to focus on deficit and debt reduction, weak economic reports this week may make these countries change their minds about enacting austere financial measures too soon if U.S. economic reports indicate a more dovish economy. Countries are walking a fine line right now as to whether to cut spending or maintain stimulus.


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