Euro dominates direction driving dollar down
The Greenback fell sharply across the board yesterday as investors and central banks alike sold the dollar and bought the Euro.
The Saudi Arabian Monetary Authority alone were reported to have bought between €1.5bn & €5bn and sold US Dollars yesterday. This is seen to have been part of their ongoing diversification of dollar denominated oil proceeds.
The initial move was sparked by fundamentals, stronger than expected economic data out of the UK & the Euro-Zone – both regions posted better than expected service sector PMI figures.
As the move gathered pace, EUR/USD broke the key technical level of $1.2250 which triggered stop-loss orders and option expiries alike, exaggerating the move and encouraging traders with long-dollar positions to continue the dollar sell-off.
More generally, the Euro seems to be flavour of the month, investor pessimism over the single currency has begun to fade, as the Euro-Zone’s economic outlook appears more upbeat.
This is in stark contrast to the US, where a slew of positive data has not been able to curb the buck’s slide, investors looking instead at geopolitical factors, the country’s twin deficit and the renewed rally in commodities.
Gold is trading at a four week high of $435.60 per ounce, and oil is at a record high trading at $62.40.
Attention in the market today will be focussed on the Bank of England’s rate decision due for release at 12pm, the ECB’s rate decision 45 minutes later at 12.45pm and the key indicator of the week, July’s non-farm payrolls due out of the US tomorrow at 13.30 BST.
The MPC are widely expected to cut UK interest rates by 25 basis points to 4.5%, and this cut has been factored into the market. However, this will be a close call as inflation in the UK hit the Government’s 2% target in June, and a 25bp cut could reignite the housing market, encouraging further borrowing. This could be reason enough for the MPC to leave rates alone. If we do see a cut, expect sterling to soften slightly as the pound’s interest rate superiority diminishes.
The Saudi Arabian Monetary Authority alone were reported to have bought between €1.5bn & €5bn and sold US Dollars yesterday. This is seen to have been part of their ongoing diversification of dollar denominated oil proceeds.
The initial move was sparked by fundamentals, stronger than expected economic data out of the UK & the Euro-Zone – both regions posted better than expected service sector PMI figures.
As the move gathered pace, EUR/USD broke the key technical level of $1.2250 which triggered stop-loss orders and option expiries alike, exaggerating the move and encouraging traders with long-dollar positions to continue the dollar sell-off.
More generally, the Euro seems to be flavour of the month, investor pessimism over the single currency has begun to fade, as the Euro-Zone’s economic outlook appears more upbeat.
This is in stark contrast to the US, where a slew of positive data has not been able to curb the buck’s slide, investors looking instead at geopolitical factors, the country’s twin deficit and the renewed rally in commodities.
Gold is trading at a four week high of $435.60 per ounce, and oil is at a record high trading at $62.40.
Attention in the market today will be focussed on the Bank of England’s rate decision due for release at 12pm, the ECB’s rate decision 45 minutes later at 12.45pm and the key indicator of the week, July’s non-farm payrolls due out of the US tomorrow at 13.30 BST.
The MPC are widely expected to cut UK interest rates by 25 basis points to 4.5%, and this cut has been factored into the market. However, this will be a close call as inflation in the UK hit the Government’s 2% target in June, and a 25bp cut could reignite the housing market, encouraging further borrowing. This could be reason enough for the MPC to leave rates alone. If we do see a cut, expect sterling to soften slightly as the pound’s interest rate superiority diminishes.
posted by Wise Money @ 8:44 AM
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