Dollar's Rising Resilience Suggest More Gains. By Nicholas Hastings.
LONDON (Dow Jones)--The dollar's resilience to bad news is growing even stronger, with the latest sharp rise in global risk aversion failing to knock the U.S. currency seriously lower.
Some analysts believe this will ensure the dollar's rally has more distance to run, especially against the euro.
"We remain short euro/dollar, targeting 1.4350," said Manuel Oliveri, a currency strategist with UBS in Zurich.
Lee Hardman, currency economist with Bank of Tokyo-Mitsubishi UFJ in London, puts the dollar's increased strength down to a shift in investor */focus/* <#Term1>.
"It is apparent that euro/dollar is becoming more sensitive to downside surprises in euro-zone economic data than U.S. negative surprises," he said.
On the dollar side, U.S. economic data continues to provide little firm evidence of an upturn, with the housing market remaining soft.
U.S. financial institutions remain under pressure as the mortgage problems of Freddie Mac and Fannie Mae continue to take their toll on the balance sheets of major banks.
"Financial sector concerns continue to dominate attention and although there has been a shift in economic concerns from the U.S. to the rest of the world, the financial turbulence has yet to recede significantly," said Mitul Kotecha, head of global foreign exchange strategy at Calyon Credit Agricole in London.
A measure of the dollar's ability to ignore this bad news emanating from the U.S. came with the sharp rise in risk appetite earlier this week as global equity markets took a new hit.
According to UBS, its Risk Aversion Index soared to +0.44 Tuesday from -0.09 Monday.
Some of the dollar support could come from the continue soft performance of crude oil prices, which are still trading well below $120 a barrel despite rising concern about the latest hurricane - Gustav - that has formed in the Caribbean and could pose a threat to Gulf of Mexico drilling platforms.
At the same time, the rising expectation that the Federal Reserve will want to tighten policy soon to prevent any underlying inflation pressures from taking root are providing a good excuse for investors to stick with the U.S. currency for now.
"The combination of the data releases and Fed minutes are likely to suggest that although the economic decline is ongoing, things aren't getting a lot worse, which is more than can be said for outside of the U.S.," Calyon's Kotecha said.
Paul Robson, senior currency strategist with The Royal Bank of Scotland in London, is among those who sees the dollar support growing.
"It's unwise to stand in the way of a moving train, especially as the currency appears desensitized to falling equity markets and further financial market stress," Robson said.
Of course, more evidence that the euro zone economy is falling off the end of a cliff and that the European Central Bank may finally be turning more dovish is also helping.
Over the last week, a purchasing managers' survey from across the region show both manufacturing and service industries on the decline.
Tuesday, the latest consumer and business confidence surveys from Germany added to the woe, with both showing declines much larger than the market had anticipated.
This sharper than expected slowdown may also finally be having an impact on the ECB's policy stance.
Until now, the bank has remained resolutely hawkish, suggesting that fighting inflation remained its number one priority and that interest rates wouldn't be cut to promote growth.
However, the ECB's recent silence on the issue speaks volumes.
"It is notable that there has been no rhetoric as yet from ECB officials attempting to dampen such monetary easing expectations," said Bank of Tokyo's Hardman.
Adam Boyton, a strategist with Deutsche Bank in New York, also suggests that there is still plenty of room for more investors to go long of the dollar.
He said that although data from the Chicago Mercantile Exchange Friday showed speculative interest at its highest since November 2005, positioning is still not that extreme given the overall growth in the market itself.
"There still appears scope for the market to get 'longer' on the dollar," Boyton said.
Early Wednesday, though, the dollar was facing a small selloff as the recent oil price appears to have stalled on fears that tropical storm Gustav could regain hurricane strength and threaten oil platforms in the Gulf of Mexico.
Sentiment towards the dollar wasn't help by other data Tuesday showing a continued deterioration in the U.S. housing market.
By 0739 GMT, the dollar had fallen to Y109.20 from Y109.64 late Tuesday in New York, according to EBS. The euro is also up at $1.4696 from $1.4646 but fell to Y160.52 from Y160.59 as risk appetite showed signs of improving a little.
Some analysts believe this will ensure the dollar's rally has more distance to run, especially against the euro.
"We remain short euro/dollar, targeting 1.4350," said Manuel Oliveri, a currency strategist with UBS in Zurich.
Lee Hardman, currency economist with Bank of Tokyo-Mitsubishi UFJ in London, puts the dollar's increased strength down to a shift in investor */focus/* <#Term1>.
"It is apparent that euro/dollar is becoming more sensitive to downside surprises in euro-zone economic data than U.S. negative surprises," he said.
On the dollar side, U.S. economic data continues to provide little firm evidence of an upturn, with the housing market remaining soft.
U.S. financial institutions remain under pressure as the mortgage problems of Freddie Mac and Fannie Mae continue to take their toll on the balance sheets of major banks.
"Financial sector concerns continue to dominate attention and although there has been a shift in economic concerns from the U.S. to the rest of the world, the financial turbulence has yet to recede significantly," said Mitul Kotecha, head of global foreign exchange strategy at Calyon Credit Agricole in London.
A measure of the dollar's ability to ignore this bad news emanating from the U.S. came with the sharp rise in risk appetite earlier this week as global equity markets took a new hit.
According to UBS, its Risk Aversion Index soared to +0.44 Tuesday from -0.09 Monday.
Some of the dollar support could come from the continue soft performance of crude oil prices, which are still trading well below $120 a barrel despite rising concern about the latest hurricane - Gustav - that has formed in the Caribbean and could pose a threat to Gulf of Mexico drilling platforms.
At the same time, the rising expectation that the Federal Reserve will want to tighten policy soon to prevent any underlying inflation pressures from taking root are providing a good excuse for investors to stick with the U.S. currency for now.
"The combination of the data releases and Fed minutes are likely to suggest that although the economic decline is ongoing, things aren't getting a lot worse, which is more than can be said for outside of the U.S.," Calyon's Kotecha said.
Paul Robson, senior currency strategist with The Royal Bank of Scotland in London, is among those who sees the dollar support growing.
"It's unwise to stand in the way of a moving train, especially as the currency appears desensitized to falling equity markets and further financial market stress," Robson said.
Of course, more evidence that the euro zone economy is falling off the end of a cliff and that the European Central Bank may finally be turning more dovish is also helping.
Over the last week, a purchasing managers' survey from across the region show both manufacturing and service industries on the decline.
Tuesday, the latest consumer and business confidence surveys from Germany added to the woe, with both showing declines much larger than the market had anticipated.
This sharper than expected slowdown may also finally be having an impact on the ECB's policy stance.
Until now, the bank has remained resolutely hawkish, suggesting that fighting inflation remained its number one priority and that interest rates wouldn't be cut to promote growth.
However, the ECB's recent silence on the issue speaks volumes.
"It is notable that there has been no rhetoric as yet from ECB officials attempting to dampen such monetary easing expectations," said Bank of Tokyo's Hardman.
Adam Boyton, a strategist with Deutsche Bank in New York, also suggests that there is still plenty of room for more investors to go long of the dollar.
He said that although data from the Chicago Mercantile Exchange Friday showed speculative interest at its highest since November 2005, positioning is still not that extreme given the overall growth in the market itself.
"There still appears scope for the market to get 'longer' on the dollar," Boyton said.
Early Wednesday, though, the dollar was facing a small selloff as the recent oil price appears to have stalled on fears that tropical storm Gustav could regain hurricane strength and threaten oil platforms in the Gulf of Mexico.
Sentiment towards the dollar wasn't help by other data Tuesday showing a continued deterioration in the U.S. housing market.
By 0739 GMT, the dollar had fallen to Y109.20 from Y109.64 late Tuesday in New York, according to EBS. The euro is also up at $1.4696 from $1.4646 but fell to Y160.52 from Y160.59 as risk appetite showed signs of improving a little.
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