Sideways-to-lower U.S. equity markets helped prop up the Dollar on Tuesday as traders became more averse to higher risk assets. Trading conditions were thin and lifeless which made it difficult to determine if today’s action was being triggered by holiday liquidation or U.S. economic reports. Nonetheless, the trading action was not normal which set-up the possibility of bull and bear traps throughout the day.
This morning the U.S. reported that 3rd Quarter GDP fell from 3.5% to 2.8%. This was inline with economist estimates but nonetheless indicated that the economy was still faltering. The drop in GDP was attributed to a wider trade gap and lower consumer spending.
Traders were also indifferent to a better-than-expected improvement in November Consumer Confidence. This news failed to fuel a rally in equities but helped underpin the Dollar.
Early in the trading session, China’s bank regulator warned Chinese lenders that they would have to strictly comply with capital requirements or face serious consequences. If this announcement leads to a tightening of credit, then it could have a negative effect on China’s expansion and demand for raw materials.
The EUR USD finished virtually unchanged today on light volume. This morning’s Ifo economic sentiment survey showed that German confidence increased more than economists forecast. This report provided support for the Euro today. Technically, this market is still struggling with the psychological $1.5000 barrier.
Aversion to risk helped the Dollar gain against most currencies with the exception of the Japanese Yen. Repatriation as well as weak U.S. economic news pressured the USD JPY.
Today’s warning from the Chinese bank regulator encouraged selling in the AUD USD and NZD USD. Enforced lending restrictions could hurt Australian and New Zealand import/export activity.
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