G-20 Pledge Contributes to Forex Rally

The U.S. Dollar was trading weaker at the midsession in a continuation of the rally that started last night.

The U.S. Dollar was trading weaker at the midsession in a continuation of the rally that started last night. Stronger equity markets are helping to fuel a greater desire for higher risk assets. The G-20’s pledge to continue providing stimulus is most likely the biggest factor contributing to the rally. The thought of pumping more money into the global economy has triggered renewed demand for equities and commodities with metals leading the way. Traders are also reacting to renewed questions about the role of the Dollar as the world’s number one reserve currency.

The EUR USD made a new high for the year in a move that fueled a strong breakout to the upside. German economic reports this morning offset each other, leading to the belief that this rally is being fueled by a desire for higher yielding assets. This morning’s reports showed a rise in German exports but weakness in German industrial production.

An unexpected rise in British industrial production along with greater demand for higher yielding assets is helping to support the rally in the GBP USD. This market has now regained 50% of its August break. Some of the rally could be contributed to position squaring ahead of this week’s Bank of England meeting. In light of the recent improvements in the economy, traders are curious as to whether the BoE will make adjustments to its quantitative easing program.

The USD JPY is under pressure as a desire to hold Japanese Bonds over U.S. Bonds is fueling demand for the Yen. The carry trade does not seem to be a factor today even though U.S. equity markets are trading higher.

Stronger energy prices along with higher U.S. stock markets are helping to trigger demand for the Canadian Dollar. The strong rally in industrial metals is also helping to contribute to the rally. Traders have to be leery of potential Bank of Canada action if the Canadian Dollar makes a new high for the year.

Demand for higher yielding assets is driving the NZD USD and AUD USD higher. Australian Dollar traders are also positioning themselves for a rate hike by the Reserve Bank of Australia in the near future.