The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is posting meager gains today and is relatively unchanged of recent, having declined by -0.19% the past five trading days. Considering the sheer number of market moving events that occurred between last Wednesday and Sunday, great volatility in the wake of Fed Chairman Bernanke’s testimony and the Japanese elections was anticipated.
Nevertheless, amid one of the lightest economic calendars in several months, traders have taken to the sidelines as they await more information that might better address one of the four major themes influencing the market right now: whether or not the Fed will taper QE3; the severity of the Chinese growth slowdown; the resiliency of the European currencies; and the state of play in Japan after the mixed election results.
Notably, both the British Pound and the Euro appear to be on the verge of technical breakouts against the US Dollar; but price action today has thus far limited the EURUSD and GBPUSD to Inside Days. After the past few days of data, it is possible that we see a revival of growth concerns now that both the UK and the US have seen weaker than expected housing data – a direct result of higher interest rates. From the beginning of May to the end of June, the US 30-year national average mortgage rate jumped from 3.43% to 2.39%, a major developing obstacle for the US economy.
If developed economies (such as the UK and the US) endure higher interest rates, it is likely that their housing markets suffer, and the economies fall back towards recession. This stands to be a major theme in the second half of 2013 and 2014.
Taking a look at European credit, choppiness in peripheral yields the past two days has proven to be a minor negative influence on the Euro. The Italian 2-year note yield has increased to 1.550% (+4.6-bps) while the Spanish 2-year note yield has increased to 1.847% (+1.7-bps). Likewise, the Italian 10-year note yield has increased to 4.321% (+1.6-bps) while the Spanish 10-year note yield has increased to 4.612% (+2.2-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 10:55 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.15% (-0.29% prior 5-days)
By Christopher Vecchio