Reply #18: dollar watch

[UpInArms]

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 73.268 Change -0.025 (-0.03%)

Dollar Rally Set to Continue

http://www.dailyfx.com/story/bio1/Dollar_Rally_Set_to_Continue_1217364468081.html

The recoveries in the US dollar and equities have been very impressive. In yesterday’s Daily Fundamentals, we said that “despite today’s move, the dollar’s rally may not be over.” Gold continues to provide a strong indication of the market’s risk appetite and dollar sentiment. If you want to figure out if investors are really nervous, just take a look at gold. Today, gold prices have fallen by another $10 to $919.00 an ounce. This suggests that the dollar’s rally is set to continue. There could and will probably be retracements, but the overall trend of the dollar is up. As previously indicated by the bounce in the University of Michigan consumer confidence numbers, sentiment in the US has improved according to the Conference Board’s survey. Although jobs are increasingly “hard to get,” consumers are starting to accept the current state of the US economy as the way of life. This does not mean that the troubles are behind us because house prices in May fell by the largest amount on record. Going forward, the stability of the US economy will depend on oil prices staying low. Crude is trading at approximately $121 a barrel and as long as it remains at current levels or falls further, inflation and inflation expectations will ease. Not only will this loosen the noose for central banks around the world, but it will also provide respite for consumers and businesses. In turn, this will add further fuel to the dollar which we expect to break 1.55 against the Euro and at least 109 against the Japanese Yen. However keep in mind that even if the dollar is rallying, it does not necessarily mean that the US economy is stabilizing. Instead, it represents a realignment of expectations. The weakness of the US economy has already been priced into the market, but the deterioration in places like the Eurozone, New Zealand and the UK is catching many traders by surprise. This has triggered weakness for the Euro, New Zealand dollar and British pound. Looking ahead, the ADP Employment report is due for release tomorrow. The market expects private sector employment to fall by 60k jobs. Although the report is a leading indicator for non-farm payrolls, traders need to be careful of relying solely on this report since it can have a shaky track record.

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Will GDP And NFP Readings Curb Expectations Of A Fed Hike?

http://www.dailyfx.com/story/topheadline/Will_GDP_And_NFP_Readings_1217413781494.html

The Federal Reserve is scheduled to meet next Tuesday; but despite the dollar’s recent strength, the market is pricing in little chance of a quarter-point rate hike when everything is said and done. Currently, Fed Fund futures show a 6.3 percent probability of a hike to 2.25 percent – a significant drop from the nearly 25 percent odds measured only a month ago. Despite this expected passivity in the near-term however, traders still see a 71.5 percent chance that the central bank will tighten by the year’s end and shake the two-year easing/neutral cycle.

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CREDIT MARKET: HOW IS IT DOING?


The Federal Reserve is scheduled to meet next Tuesday; but despite the dollar’s recent strength, the market is pricing in little chance of a quarter-point rate hike when everything is said and done. Currently, Fed Fund futures show a 6.3 percent probability of a hike to 2.25 percent – a significant drop from the nearly 25 percent odds measured only a month ago. Despite this expected passivity in the near-term however, traders still see a 71.5 percent chance that the central bank will tighten by the year’s end and shake the two-year easing/neutral cycle. All of this could change very quickly though as major event risk approaches. Both the 2Q GDP and July NFP numbers will offer a conclusive measure of strength for the world’s economy. And, considering the optimistic forecasts for growth and fragile state of financial markets, a disappointment here could have severe repercussions.



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U.S. CONSUMER: HOW ARE THEY DOING?
The official consensus for the second quarter growth report seems to suggest the American consumer may not pitch the world’s largest economy into a recession. Over the past week, two consumer confidence indicators crossed the wires with unexpected outcomes. The Conference Board’s sentiment report improved for the first time in seven months, while the University of Michigan’s gauge offered a surprise upside revision. However, the promise these indicators offer is certainly limited as these monthly bounces have merely lifted the readings from recent historical lows. What’s more, the fuel for optimism – steady wage growth and rising employment – has just begun to sputter. The government is expected to report the seventh consecutive contraction in net employment and a new two-year low in earnings growth.



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