Broad dollar weakness following G20 pledges |
The main moving sentiment in the market this week is the weekend G20 meeting and the new pledges from member nations which all sided to the disadvantage of the dollar.
The Group of 20 finance leaders in South Korea pledged to avoid intervening in the market to weaken their currencies to gain trade advantages, which gave the dollar the bearish bias on expectations in the market that nations will refrain from unilaterally selling their currencies versus the dollar at least into next month when the nations’ leaders meet.
This sentiment worked against the dollar and weakened it further adding to the quantitative easing prospects and weakening recovery outlook. The pledges rather calmed markets and eased the jitters seen recently over prospects for a new round of currency wars, and adding to that it supported expectations for China to move faster on the yuan revaluation which will also be good support for global trade and the recovery.
The dollar was moving bearishly since this morning, where it lost grounds versus the yen on trimmed intervention expectations and versus the euro as investors saw the common European currency as a new haven amid the dollar’s rapid devaluation.
The gauge measuring the dollar’s performance versus its six major peers, the dollar index, traded softer since early Asian trading hours and continued bearish into the European session. The index touched the low so far at 76.70 after leaving the high at early trading hours of 77.42 and currently hovering around 76.91 recovering some of its losses.
As for the euro, it advanced on the back of the weak dollar and was aided further by strong industrial orders figures. The pair is currently trading around sensitive areas at 1.4022 and likely to continue higher throughout the day despite the expected volatility. The pair so far recorded the low of 1.3932 and the high of 1.4080.
Regarding sterling, the royal pound is merely moving on the back of dollar weakness, where surely we see that the weakening recovery, more austerity measures, and expected expansion in the BoE’s QE measures will work their way against sterling, nonetheless for now the currency is affected by the general sentiment against the dollar.
Sterling advanced to touch the strongest against the dollar today at 1.5771, and still solidly below the critical areas of 1.60 seen the previous period. The pair is currently hovering around 1.5728 areas and still above early lows recorded at 1.5661. The pair declined rapidly from the strong resistance areas and was supported by the 1.5650 and likely might correct to the upside this week and move higher from oversold areas.
Moving on to Japan, the yen continues to endure the most among its peers, which is further bearish pressure upon the waning recovery in Japan as exporters feel the pinch of the strong currency and the central bank works actively to stave off growing downside threats of deflation.
The USDJPY pair surely continued the bearish move on the back of the dollar weakness and trimmed expectations for another round of Japanese interventions following the first attempt that surely went a waste. The pair touched the high of 81.45 and currently trading below 80 areas at 80.55 slightly above the low set at 80.39.
We expect further volatility to be seen today with equities acting bullishly to the G20 pledges and housing data to be reported from the US later into the session which might increase the volatility.
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