Bad News for the Economy Is Good News for the Dollar

Trading in the forex markets today (Wednesday) has been relatively calm, unlike the volatile moves in the US stock markets. Most currency pairs have been moving in a sideways manner, but that’s not to say that nothing is happening; in fact, a lot of things are happening, so much so that it may have been difficult for you to keep track of. No worries. First of all, the latest US economic data released today is very negative - retail sales had the steepest fall in 3 years in September and manufacturing activity in New York has deteriorated, falling to a record low.

Now, these days, bad news is good news for the US dollar - strangely, but not too strangely. US stock markets take negative economic/financial news and developments quite badly (as mentioned in the previous post, stock investors are still having a lot of doubt), so when you have data like this, coupled with Bernanke’s sombre tone about the US economy (he said we shouldn’t expect the credit markets and economy to recover right away), stocks have a natural bias to fall; the Dow ((^DJI)) fell below 9,000 intraday today.

Down moves in stocks cast a positive spotlight on the US dollar. EUR/USD was capped by 1.3700 and went below Tuesday’s low. USD/CHF was trading within Monday’s range, reaching an intraday high of 1.1405.

Currencies which fell today against the USD include the British pound, the Aussie dollar and Kiwi dollar. The risk of a long and deep recession is on the rise in the UK, and this can be seen in today’s unemployment report which showed that the number of unemployed people rose 164,000 in the three months to the end of August - a 17-year high. GBP/USD stayed below Tuesday’s high of 1.7630, reaching an intraday high of 1.7600. GBP/JPY also fell a little today. AUD/USD fell below 0.6800 today.

Economic Calendar For Thursday:

Swiss ZEW 0900 GMT

US CPI, initial jobless claims 1230 GMT

US TICs 1300 GMT

US industrial production 1315 GMT

US Philly Fed 1400 GMT

Comments

[phdinsuntan...:]

cash is king and you are the queen

2008 Oct 15 04:40 PM

[gjvoor1:]

How will we know when it is time to exit the dollar

2008 Oct 15 05:06 PM

[Mr.G:]

the day to get out of the dollar will be loud and clear bullfrog-a good indication to get out of the dollar and into a physical precious metal like gold/silver is to watch if either the swiss franc or euro take a huge drop off (like 15-25%) - dont get greedy and think the same wont happen to the dollar shortly after that - it is the best of the worst right now

2008 Oct 16 04:41 AM