Daily Forex Analysis by Finexo.com 05/01/2010


After beginning the first trading session of the new decade on a rally, the Dollar retreated in mid-day trading on Monday as investors began accumulating their annual portfolio’s opting for higher yielding currencies. Investors were also taking advantage of low US interest rates, in some cases near zero, to fund riskier asset purchases as the market waits on US Federal Open Market Committee’s February policy meeting. After a December that saw irrational optimism over the future of the US economy, many traders have begun the year holding off seeing a more consistent flow of positive data. Should this trend continue, it would affirm that much of the December Dollar rally was more a case of short covering rather than glee over an imminent US recovery.

At 11:30PM GMT, the Dollar was trading down .63% against the Euro to 1.4412, down .49% to the Japanese Yen at 92.54, down 1.02% versus the Canadian Dollar to 1.0413, down 1.57% against the Australian Dollar to .9126 and down .44% to the Swiss Franc at 1.0296. The Dollar did post a gain on Monday, climbing .49% to the British Pound to 1.6088.

The ICE Dollar Future Index, a benchmark indicator which matches the Dollar’s performance against a basket of currencies was trading down at 77.02, a .43% drop. The Dollar’s fall on Monday came after a Manufacturing Report showed that production in the US continued to expand for a fifth straight month however the enthusiasm was muted by another report which showed that construction spending had fallen to a six year low in November. This has been the story in the US the past few months as good news is offset by bad and is cited by many as the reason for the continued short-term downtrend in the Dollar.

Chart: USD/JPY

The USD/JPY has recently passed a key resistance level of 92.32 which leads to the belief that the downtrend which saw the pair fall to 84.82 is over. The problem is that while all technical markers suggest an upswing in the USD/JPY, fundamentals are showing a different story. This paradox makes the pair difficult to trade as seen on Monday when the pair retreated below the 92.32 mark again when all charts pointed to a higher outcome. We can see from below that the trend; while possibly bullish in the near term is still quite negative in the long-term. Exercising caution while trading would be prudent in this pair until at least February’s FOMC meeting.


Written by Finexo.com