FXS: The Dollar falls on a drop in equities as investors view the rally as overbought
The greenback rose from yesterdays 15 month low against a basket of major currencies as a decline in U.S. stocks discouraged demand for riskier assets. The Dollar Index which is used to track the greenback against the other major currencies that include the Euro, Yen and British pound increased 0.2 percent to 75.146, from 75.027 yesterday. The Index touched 74.930, the lowest level since August 2008. Overall the index has lost 7.7 percent since the beginning of the year. However Citigroup advised its clients to buy the euro versus the dollar as the “consolidation” is about to be over, wrote analysts led by Tom Fitzpatrick, chief technical analyst in New York, in a research note to clients today. “We believe the market is ready to trend higher again,” the strategists wrote, adding that a rally through $1.5064 would “open the way” for $1.5285. The EUR/USD is currently trading at $1.4975 as of 19:53pm, GMT with a bullish trend.
The British pound fell on Tuesday after the ratings agency Fitch said highly indebted Britain was the major economy most at risk of losing its triple-A rating. Sterling retreated from its highs against the dollar hit on Monday, after the agency told Reuters that Britain will have a tougher time than the United States in sustaining its fiscal deficit. The UK government has so far borrowed heavily to pull the economy out of recession, its weak fiscal position has plagued the currency, and investors will no-doubt sell the pound on any suggestion Britain may lose its triple-A rating. Data also showed today that the UK’s Trade-Balance widened to -7.2B from an expected -6.1B which continued the negative trend on the Sterling. Investors will look ahead to the Bank of England's quarterly Inflation Report on Wednesday when the central bank and Mervin king set out their latest forecasts for growth and interest rate predictions. The GBP/USD is currently trading at $1.6730 as of 20:23pm, GMT with a bearish trend.
The Canadian dollar traded higher against the greenback as crude oil and global equities fell which contradicts the usual pattern of (lower commodity prices, higher Dollar and low risk taking), this maybe with a view that the dollar’s rally today is unsustainable. The Canadian currency also known as the loonie gained 16 percent this year however it has fallen 0.9 percent over the past month as the Bank of Canada and government officials reiterated comments that its strength threatened the nation’s economic recovery due to the export of commodities and goods to its largest trading partner the U.S. The USD/CAD is currently trading at 1.0495 as of 20:51pm, GMT with a bullish trend.
