US Dollar Shows Little Hope for Rebound on Further Record-Lows

Tuesday, 06 November 2007 17:32:11 GMT

Previous Articles

• Nov 06 - US Dollar Shows Little Hope for Rebound on Further Record-Lows
  
• Nov 05 - Euro: Rate hike, Rate hike, Rate hike
  
• Nov 05 - US Dollar Bounces on Dow Jones Tumbles - Can it Hold Gains?
  
• Nov 02 - Forex Traders Punish the US Dollar Despite Bullish NFP Data - What Happened?
  
• Nov 01 - Currency Trading Markets Sell the US Dollar on Treasury Yield Tumbles
  
• Oct 31 - Currency Traders Show Little Fear of Post-FOMC Dollar Rally as Euro Sets Record Heights
  
• Oct 30 - Dollar Falls to 26-year Lows Against British Pound ahead of FOMC Decision - Strong Rebound Unlikely
  
• Oct 29 - Euro Hits New Record High
  
• Oct 29 - US Dollar at Record Lows against Euro on Stock Market Rallies: Dollar Unlikely to Post Worthwhile Rebound
  
• Oct 26 - US Dollar At Record Low, Oil At Record High - Will These Extremes Moderate Next Week?
  
• Oct 26 - US Dollar Selling Accelerates - Currency Traders may push Euro to Further Record Highs
  
• Oct 25 - US Dollar Nears Record Lows As Durable Goods Orders Plummet
  
• Oct 25 - US Dollar Bounces Back on Dismal Jobless Claims and Durable Goods Orders - What Gives?
  
• Oct 24 - US Dollar Tumbles As Futures Start To Price In A 50bp Cut
  
• Oct 24 - US Dollar Rallies Despite Falling Treasury Yields - What Happened?
  
• Oct 23 - US Dollar Resumes Its Descent Ahead Of NAR Existing Home Sales
  
• Oct 23 - US Dollar Drops on Dow Rallies - Forex Traders Remain Indecisive
  
• Oct 22 - US Dollar Posts Largest Rally against Euro Since 2005 - Forex Speculators Fear Turn
  
• Oct 19 - US Dollar Recovers from Record Lows on Dow Tumbles, Markets Hesitant Ahead of G7
  
• Oct 18 - US Dollar Tumbles Ahead of G7 Summit, Fed Rates Outlook Exacerbates Sell-off
  

Written by David Rodriguez, Currency Analyst

The US dollar continued to set record lows against the Euro and Canadian dollar, defying calls for a worthwhile correction on unflappable anti-greenback sentiment. Limited economic data on the day left currency traders to force movements off of broader speculative interest, and dollar-selling remained the dominant theme in broader currency markets. In fact, the downtrodden buck fell against all major foreign counterparts on a daily basis.

Euro bulls sent the single currency to yet another record, touching heights of $1.4569 before a marginal retracement through the New York afternoon. The British Pound likewise saw strong bids through Tokyo and London trading hours and established fresh 26-year peaks of $2.0905. Anti-US dollar sentiment continued to bolster the Canadian dollar, which shows few signs of slowing its ascent at C$0.9240 per USD. A bounce in global equity markets was not enough to keep the dollar bid against the Japanese Yen, and indeed the greenback remained relatively unchanged at 114.52 yen through time of writing.

The lack of economic data did not stop traders from forcing strong price movements across major currency pairs, and pure market flows away from the greenback served as the only real justification for the move. One prominent bank claimed that the relative underperformance of US equity markets encouraged many clients to pursue risky asset classes in Europe and elsewhere. Others cited further sovereign bank reserve diversification as a prominent driver of daily exchange rates. Whatever the underlying justification for the dollar rout, it remains relatively clear that speculators show little interest in forcing a worthwhile correction in the downtrodden currency. The trade-weighted dollar index has now fallen in seven of the past nine active days, setting fresh-record lows of 75.99 at time of publication. Given such overwhelming bearish momentum, we see little reason for a dollar bounce through subsequent currency trading.

US equity markets proved far more fortunate through NYSE price action, with the Dow Jones Industrial Average adding 50 points to 13,591. A surge in energy stocks pushed broader indices higher, and the S&P 500 added 0.5 percent to 1,510. Tech stocks were the smallest gainers through the session, however, with the NASDAQ Composite a mere 0.2 percent improved to the psychologically significant 2,800 mark.

US Government Treasury yields were slightly higher through the trading session, as the 10-year added 2 basis points to 4.35 percent. Yet shorter-dated yields remained relatively unchanged at recent 26-month lows of 3.67 percent. Speculators seem convinced that the Federal Reserve will continue to cut short-term interest rates through the medium term, and money market rates continue to decline through the period. In fact, Fed Funds Futures now show a 64 percent chance of an FOMC interest rate cut on its December 11 meeting.

Written by David Rodríguez, Currency Analyst for DailyFX.com