The U.S. Dollar lost ground against all major currencies as record low U.S. interest rates encouraged the selling of the Dollar and the buying of higher yielding assets. Overnight the Dollar firmed until a better than expected U.S. Weekly Initial Claims Report helped put in a top and set off a gradual decline throughout the day.  

The Dollar was the recipient of additional selling pressure at about the midsession following a better than expected oil inventory report.  Firm equity markets throughout the U.S. trading session were additional signs that investors were demanding higher yielding currencies.  

Record low interest rates in the U.S. helped boost demand for the higher yielding EUR USD.  Euro bulls are beginning to believe that the U.S. may be amongst the slowest nations to move its interest rates higher once the recovery begins.

Early this morning the Bank of England voted to leave its benchmark interest rate unchanged at 0.50% and its quantitative easing program untouched.  Furthermore, the BoE also decided to leave the interest rate it pays on reserve bank deposits unchanged.  

Last month the BoE shocked the markets by increasing the amount of funds available for its asset buyback program.  Traders sold off the Pound for about a month as this was a sign that the economy was still in a perilous position. Since the BoE did not ask for additional funding today, investors saw this as a sign that the U.K. economy may be in a position to begin its recovery.

The USD CAD lost ground today despite efforts by traders to support this market throughout the day.  Buyers finally threw in the towel after a rally in both equity and energy markets fueled a rally in the Canadian Dollar.  Losses were limited; however, as traders are still expressing concerns that the Bank of Canada may take action to suppress the rise in the Canadian Dollar.  The BoC is concerned that a rapid rise in the value of the Canadian Dollar will have a negative effect on Canadian economic growth.
The NZD USD recovered from earlier losses to finish higher. Overnight the Reserve Bank of New Zealand voted to leave interest rates unchanged at 2.5% and also warned that further rate cuts are possible because of the “patchy recovery” taking place.  The firmer equity markets, however, helped turn this market around and erase earlier losses.  The ability to recover from early selling pressure reflects both demand for higher yielding assets and investor confidence that New Zealand’s economy will recover from economic weakness.

The RBNZ now believes that additional stimulus may be needed to fight rising unemployment.  News that exports fell by the most in 58 years was evidence that the rapid rise in the currency is hurting foreign demand.  This could limit the economic recovery and slow down the rate of appreciation in the currency.

News that Australian employers cut almost twice as many jobs as economists forecast helped to limit gains in the AUD USD early in the trading session, but a late rally in U.S. equity markets helped the Aussie recover and finish higher for the trading session.

This bearish news comes on top of a report earlier in the week that Aussie retail sales fell.  Because of the weaker than expected economic reports, traders are now reducing bets that the Reserve Bank of Australia will hike interest rates in October. This could limit gains.  This market is likely to break once the U.S. stock markets begin to show signs of weakness.


Contact Us:
Local: 312-896-3930
Toll Free: 800-971-2440

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.