Forex Trading

Witnessing a steady decline during yesterday's trading sessions, the USD became weakened as traders unwound their Dollar buy positions in exchange for riskier assets, such as stocks. The global stock market rally seen yesterday may have been one of the leading causes of the Dollar's depreciation. With recent market optimism, traders may continue to see a small downward trend in the U.S. Dollar, as its positions are unwound in exchange for higher yielding assets.



USD - Dollar Outlook Remains Weak

The USD continued its decline against the EUR, as well as other risk sensitive currencies on Wednesday. However, the overall direction of the market was subdued due to unsteady equity markets. While the Dollar sentiment is bearish, the EUR seems unable to really take off. On Wednesday, the Dollar index was at 78.745, down from 78.920 on Tuesday

Strong performances from the stock markets continue to put downward pressure on the Dollar, as investors move to riskier higher yielding assets. Furthermore, the Dollar outlook suffers from concerns over U.S monetary policy. With growing uncertainty about the framework of the monetary and fiscal policies, particularly in light of the proposed health care reform, the outlook on the Dollar looks very weak despite the Fed's and Treasury's assurances.

Looking ahead to today, several important news releases are expected from the U.S, including the Unemployment Claims at 12:30 GMT and the Existing Home Sales at 14:00 GMT. These indicators are very important since they are leading indicators of economic health and tend to create great market volatility.

EUR - EUR Rises on Weaker Dollar

The EUR experienced a moderate rise against the Dollar and Yen yesterday. Late Wednesday, the EUR was at $1.4211 from $1.4197 late Tuesday and at ¥132.96 from ¥133.01. The Pound depreciated 0.3% to 153.92 Yen, and traded at 86.41 pence versus the EUR. The British Pound also appreciated slightly versus the Dollar, trading at $1.6463 from $1.6436.

The Pound's drop against the EUR came after the National Institute of Economic and Social Research stated that home values will resume their decline. The institute also predicted Gross Domestic Product (GDP) will shrink by 0.4% in the second quarter, slightly worse the 0.3% expected by economists. Also putting downward pressure on the Pound were losses in equities throughout the trading day.

While no major news releases are expected from the Euro-Zone today, traders should follow the release of British Retail Sales that is due at 8:30 GMT. As this is a leading indicator of economic activity, it is likely to cause great volatility for the GBP pairs.

Yen - Yen Benefits from Stock Market Losses

The Yen gained for a fourth day against the Dollar, and for a second day against the EUR yesterday following a larger than expected second-quarter loss by Morgan Stanley, as well as a statement by Wells Fargo & Co. stating that bad loans jumped. The Yen traded at 132.87 per EUR from 133.18 and at 93.56 versus the Dollar from 93.68 yesterday.

With reports from CIT Group Inc. and American Express Co., risk aversion today will likely stay prominent as the expectation is for weak earnings announcements. As the Yen is highly sensitive to moves in the equity markets, any negative earnings reports will revive risk aversion among investors and push them toward the safety of the Japanese currency. The Yen may also rise today ahead of the U.S Unemployment Claims report which is expected to show an increase in claims.

Crude Oil - Oil Prices Slide on Disappointing Inventories Report

Crude Oil for September delivery settled down 21 cents, or 0.3%, at $65.40 a barrel Wednesday, snapping a five-day rally following the release of slightly worse than expected U.S Oil inventories. However, losses were limited due to a weak Dollar and equity gains.

With inventories remaining high and OPEC members not sticking to quotas, there is still too much supply and not enough demand. While rising equity markets and a weak Dollar continue to push Oil prices up, the fundamentals are still weak and do not supports another rally to the $70 price level. Furthermore, any negative news from the stock market, or signs of a faltering economic recovery might send Oil back to the $60 level.

Article Source - Global Stock Rally Dominates USD Trading