Thursday, October 2, 2008

U.S Dollar Index at 80 Resistance...House Vote Is Catalyst

Futures down, US dollar up... U.S Dollar Index is at 80-81 resistance, will house vote catalyst allow USD to pierce through that level?

US Dollar Chart (Source:

It's interesting that DOW futures are down 1.3% (-138) to 10,752, and the US Dollar is up .07% (.555) to 80.09 tonight after the Senate passed the revised bailout bill. It's tough to say what will happen with the USD when the House vote catalyst hits the wire. What is currently driving the bid in the USD? Is slowing global growth overpowering the USD dilution/economic growth fears? Plus there's a chance that the European Central Bank might lower rates, which could also bring support to the USD.

"European Central Bank President Jean-Claude Trichet has stated his strong support for the US effort saying that the must “go (in favor), for the sake of the U.S. and for the sake of global finance.” Such statements have led some to believe that today’s ECB meeting will result a rate cut. Furthermore, the Euro hit a low of 1.393 ahead of the key meeting."

We'll see how the USD reacts to the catalyst and if it can pierce through resistance at 80 - 81... If traders react negatively to the vote, the USD could correct to 78 - 76.

Here are US Dollar bets from a Bloomberg Article I read tonight..

Dollar Bullish
``Market consensus is that the bill will eventually pass in some kind of form,'' said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan's fifth-largest bank. ``The package is likely to reduce worries over the U.S. and bolster the dollar.''

``The Senate's approval may alleviate concerns over the U.S. a bit,'' said Tsutomu Soma, a bond and currency trader at Okasan Securities Co. in Tokyo. ``It's supportive of the dollar.''

``The ability to secure funds in the money market hasn't improved in the slightest,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed lender. ``This should support the dollar as banks that need the currency will simply buy it outright in the foreign-exchange market.''

Dollar Bearish
``U.S. stock futures are down a lot after the vote, and that's one reason to sell the dollar,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third- biggest bank. ``There's still some doubt whether this bill will pass the House.''


Anonymous said...

Is money coming out of foreign markets driving the dollar's rise?

Distressed Volatility said...

the greenback is a safe haven currency during the global crisis, and also supply/demand disconnects in the Forex of U.S dollars vs. foreign currencies raising bids. Probably because of the unwinding carry trade. There were so many borrowed cheap dollars to by higher yielding assets in other currencies, and now that's not working w/ the global econ slowdown and they're buying back dollars. (A rising dollar spoils emerging markets' run- Also the $US was pricing in foreign bank rate cuts and bank failures..A lot of moving parts involved, Nouriel Roubini probably has all the answers:

Distressed Volatility said...

Look at what has happened to the Yen carry trade, also this article states that the recent fed rate cut could hurt the us dollar in near term.

"Yen Climbs to Six-Month High as Stocks Drop, Carry Trades Cut"

``The only thing to do is to buy yen,'' said Steve Barrow, a currency strategist at Standard Bank Plc in London. ``There are long-term investors with positions funded out of the yen that are completely capitulating.''


Also it looks like Australian, New Zealand Dollars were victims.

"Australian, New Zealand Dollars Fall to Lowest in Five Years"