Another day, another round of massive USD depreciation, with the Greenback getting hit hard again and extending declines against most major currencies, with much of the price action attributed to elevated expectations for a second round of quantitative easing from the Fed, after a softer US consumer confidence print on Tuesday. Fed Lockhart has however recently been on the wires saying that QE2 is by no means a done deal, and it will be interesting to see how the markets respond in Tuesday trade.
For now, the prospects for the Buck are looking quite gloomy, with data so far in Asia exceeding expectations after the Japanese Tankan came out quite solid, while the New Zealand trade balance was also better than forecast. This should further bolster risk sentiment and appetite for higher yielding and seemingly better positioned currencies. The topic of reserve diversification away from the USD has also been resurrected, with the slide in the buck rehashing concerns that the single currency is undergoing a major secular decline. Nevertheless, the Greenback is showing oversold on a short-term technical basis, and we would caution investors from adding to USD shorts at current levels.
Looking ahead, there is a batch of UK data due at 8:30GMT including; index of services, M4 money supply, mortgage approvals, net consumer credit and net lending on dwellings. Then at 9:00GMT, attention shifts to the Eurozone where business climate and confidence indicators are released. The Swiss KOF leading indicator caps things off for the European calendar at 9:30GMT. US equity futures and commodity prices are all marginally bid, with gold trading by record highs just over $1310.
Written by Joel Kruger
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