Wait and See

Markets extremely quiet today as it being the last day of the month (traditionally quiet as dealers try to preserve profits or move on to next month if trading has been bad), economic numbers (Personal Income -2.3,PCE Deflator 2.2,PCE Core 1.6) basically as expected, and a major snowstorm about to hit the east coast.

The bigger picture is that the dollar has grinded lower for a number of days now. No large moves rather a slow steady move. We continue to look to tomorrows rate decision in Australia. 25 basis points are expected. Pay close attention to the comments as it will give direction on future moves and likely direction on the currency.

Taiwan getting concerned

Taiwans central bank told overseas financial institutions it is concerned about foreign capital inflows amid the local currency's recent gains this according to Bloomberg News. I think this adds to a continuing trend toward a stronger dollar (see previous posts) specifically against Asia.

Overnight very little occurred with the dollar. GDP came out this morning basically as expected (+3.8%). The market had little reaction to the news.

A Short Squeeze in the making.....

Emerging Markets currencies sold off hard as U.S. interest rates trended higher once again. With yields in the states on the rise there is less need to look elsewhere to earn a return. Stock markets around the world have been going higher. Therefore a need to buy currency to purchase the stocks has been the trend. Watch these stock markets closely. When they start to turn the exit door to buy dollars will be very small. I am looking for the dollar to do very well tonight. Specifically against Korea, Taiwan, New Zealand and Australia.

Weak Dollar a concern for Asia

Talk last night that policy makers from South Korea, Japan, China and other members of ASEAN met to discuss the weak dollar. Clearly the ever weakening dollar has been bothering this region. This is eveident from the continued smoothing (intervention) which takes place almost everyday in the market. This intervention is not aimed at changing the direction of the dollar but rather to slow the move. All this being said I look for dollar Asia to continue to weaken with Korea and Taiwan leading the way. 1000 in the Korea was already breached yesterday and I feel that we will be comfortably below that level early next week.

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Korea and Japan Speak Up and dollar whips

South Korea and Japan announced overnight that they were going to continue to buy U.S. dollars for they reserves afterall. This sent the dollar sharply higher against all currencies.

FOMC minutes stressed the importance of labor costs and overall inflation in determining appropriate level of interest rates. FED Gov Guynn is looking for consumer spending to stay strong and rates to continue to rise. The FED continues to signal higher rates down the road.

Retracement or renewed dollar weakness ?

The dollar felt extremely vulnerable to further weakness as the New York market closed today. Traders seemed to be holding on till 5.00p.m.in hopes that when they walk into the office tomorrow things would be “better”. Clearly this is what I was doing. Everyone I talked to today pointed to tomorrow’s CPI number as a “big event”. I think the traders are trying to talk themselves into this one. I see further dollar weakness in the days ahead as dollar bulls get continually squeezed out of their positions. I will also be looking for Latin American currencies pairs (particularly Usd/Mxn. and Usd/Brl) to head higher for the balance of the week. Those currency pairs have both moved a lot in recent weeks and some profit taking going into month end would not be surprising

The Mighty Dollar ?

The dollar came under heavy pressure overnight on growing concerns that central banks would diversify thier reserves out of the U.S. dollar. South Korea came out and said it is planning to do just that, diversify its reserves. South Korea currently holds the fourth largest amount of dollar reserves in the world. Rumours that Taiwan was planning to do the same has sent the dollar to new five week lows against the Euro and seven week lows against Cable.