Greenback Off to Solid Start in Early Week; Yen Extends Declines

By Joel Kruger, Technical Strategist Mon Nov 15 06:05:00 GMT 2010 Price action in the early week has been USD positive thus far, with most of the major currencies marginally extending declines against the Greenback on the back of weaker risk appetite, and ongoing concerns over Eurozone sovereign debt issues. The latest headlines have Germany pushing Ireland to accept a bail-out package and help avoid contagion to Portugal and Spain, and this will be a critical theme over the coming sessions.

Elsewhere, it seems that economic data releases have failed to materially factor into price action, with a much better than expected New Zealand retail sales and solid Japanese GDP, taking a backseat to broader currency flows. Also out in Asia have been weaker UK Rightmove house prices and deterioration in Aussie new motor vehicle sales data.

The US Dollar has been well bid over the past several days, with the single currency finding a renewed bid tone following the latest decision by the Fed to implement another round of QE. Market participants seem to be taking a less dovish outlook on the Fed, with the sense that the Fed is becoming very sensitive to the longer-term risks of ultra-accommodative policy and will be far less inclined to take additional easing measures from here on. Fed Lacker was out on the wires early Monday, and has contributed further to the buck’s bid tone after saying that he thought that the risks to QE2 outweighed the benefits.

While most of the setbacks in the major currencies have been marginal at this point, the Yen stands out, with the currency continuing to extend declines to fresh multi-day lows against the buck. Last week, the break back above 82.00 officially took the short-term pressure off of the downside with the trigger of a double bottom that projects additional gains towards 84.00 over the coming sessions, before considering the possibility for a bearish resumption.

Looking ahead, Swiss producer and import prices are due out at 7:15GMT, followed by the Eurozone government debt/GDP ratio, and trade balance at 10:00GMT. On the official circuit, there a re a number of ECB officials slated to speak, including; Contancio and Nowotny at 7:45GMT, Tumpel-Gugerell at 8:05GMT, and Costa at 9:00GMT. US equity futures and commodities prices trade flat and will be looking to make more of a noise in European trade.

Written by Joel Kruger, Technical Currency Strategist

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Mon Nov 15 06:05:00 GMT 2010

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