Dollar Mixed Overnight; Traders Mull over G-20 Decision; U.S. Economic Reports

The U.S. Dollar traded mixed overnight as traders mulledover the suggestions of this weekend’s Group of 20 meeting. At the conclusionof the meeting on Sunday, G-20 members reached an agreement on common goals fordeficit and debt reduction. 

The U.S. Dollar traded mixed overnight as traders mulledover the suggestions of this weekend’s Group of 20 meeting. At the conclusionof the meeting on Sunday, G-20 members reached an agreement on common goals fordeficit and debt reduction. After the Asian markets opened, traders made a movetoward risk but quickly turned sellers when it became clear that the G-20decision would have little impact on today’s trade because of its neutraloutcome.

Based on the overnight trading action, it looks as iftoday’s markets will largely be determined by U.S. and European economic data.

Last week’s poor U.S. housing data pressured theDollar against the Euro and British Pound as traders looked toward thesecurrencies for a better return on investment. With the U.S. economy weakening and the Fedtaking a dovish stance on the economy, many traders felt the Fed would keepinterest rates low for a prolonged period of time.

Germanyand the U.K.on the other hand have decided to adapt more austere financial measures to helpcut their deficits. This made their respective currencies more attractive. Ordid it? Some investors feel this week that the Dollar was actually being soldbecause of the weakening economy rather than these currencies being bought.

The Commodity Trading Commission’s Commitment of Trader’sReport confirmed this conclusion as Net Shorts in the Euro rose to 70,974 onJune 22nd from 62,360 a week earlier.

The U.S. Dollar may gain today if the economic newscontinues to surprise to the downside. At some point, safe haven flows will likely resume with the U.S. Dollarand Yen rallying further if risk demand fades with the weakening globaleconomy.

Today’s Personal Income and Personal Spending reports willgive traders a clue as to how much consumers are earning and how much they arespending. The Case-Shiller report will offer investors another look at the U.S.Housing market. Should these reports come out weaker than expected then lookfor traders to seek safety in the Greenback.

At the G-20 summit, world leaders pledged to maintainstimulus plans until their economic recoveries are solidly in place. Based onthe decision to raise bank capital requirements, it is clear that they willneed to raise significant levels of capital. This could slow down the rate ofeconomic growth because it will mean capital will have to leave the economy.

Furthermore, the Dollar may gain on the thought that theaustere financial measures taken by Germanyand the U.K.will actually slow down global economic growth. Some feel that because of theweak U.S. economy, the Fedwill have to continue to maintain its stimulus while Germanyand the U.K.will actually be cutting spending. If this becomes the case then it means that Germany and the U.K. will be counting on a weakerEuro and British Pound to increase demand for exports while their economies usethe weaker currencies to pull out of their economic downturns. Some investorsbelieve that Germany and Great Britainmay be cutting their deficits too soon.

The key to the Forex markets today and most likely this weekwill be U.S.economic data. Everyday this week, key economic data will be released, endingwith the June Employment number on Friday.

After this week’s G-20 leaders decided to focus on deficitand debt reduction, weak economic reports this week may make these countrieschange their minds about enacting austere financial measures too soon if U.S.economic reports indicate a more dovish economy. Countries are walking a fineline right now as to whether to cut spending or maintain stimulus.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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