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Market up = dollar up soon? Changing USD Impact?

  • #1
  • First Post: Jul 31, 2009 2:07pm Jul 31, 2009 2:07pm
This morning I've read an interesting update after GDP:

Quote
(..) The euro-dollar's fairly range bound price action lately, in spite of important economic data, has some analysts thinking that the major trading strategy that has emerged in this crisis - what is good for the U.S. economy is bad for the U.S. dollar as traders seek riskier currencies - might be on the decline.

"I do think, at the margin, we're starting to see this whole safe-haven reverse relationship loosen," said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York.

"The core of this report shows we're definitely seeing a slower pace of economic contraction," he said.

While the dollar is gaining currently with a flight to safety, "we are not far from the situation where good economic news for the U.S. could be good for its currency," said Bennenbroek. (..)
(source: Dow Jones Newswires).

I'm wondering what you guys think about this suggestion?
  • #2
  • Aug 7, 2009 10:13pm Aug 7, 2009 10:13pm
It looks like this is becoming a reality.
Stronger market rally equals stronger dollar.
The change in correlation between markets and e/u pair.
  • #3
  • Aug 7, 2009 10:52pm Aug 7, 2009 10:52pm
_dxy went crazy yesterday, I caught like 150 pips per 4-6mins usd/jpy.
I was so surprised when eur went 200 pips down, this is reality and we should not neglect it. I was trying to enter the market against usd I hit 2 stops.
  • #4
  • Last Post: Aug 8, 2009 12:24am Aug 8, 2009 12:24am
Hi tpr and others,

Correlation breakdown is usually an indication of a new trend developing. Sentiment is starting to change as suggested in the quote you included- the Dollar is starting to strengthen on positive US news now. As a trader it's not my duty to predict anything, but I am maintaining a negative bias on currencies (long dollar) because the risks to the downside. In the longer term, however, markets may be pricing in Fed rate hikes too soon. Just because signs appear that the worst may be over doesn't mean that the Fed is immediately willing to start tightening. Jobs numbers may be better than expected but they are still negative in the hundreds of thousands. Are they going to hike by the end of next year? This seems optimistic to say the least.

But back to the current, I would be aware of more traders starting to change to the new rules of the game of rewarding the US Dollar for better than expected US news. As conditions improve in the US, the Dollar may appreciate soon against some currencies such as EUR, GBP. RBA is indicating the end of rate cuts and is also perceived to recover fast, which is why we don't see as much of a drop against the Dollar.

Interesting topic and you are perceptive to notice this.

Kris Matthews
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