It’s not a good day for the greenback. Taking a look across the board, the US dollar is lower against most of the major currencies – aside from the Japanese yen and the Australian dollar. So, what’s leading the sell off?
Lackluster Economic Data
A good majority of today’s decline seems to be powered by lower economic data. More specifically,manufacturing, the previous backbone of the US recovery, continues to remain in the doldrums. According to Federal Reserve regional reports, manufacturing activity in both the Philadelphia and New York region remained in contraction for November. In particular, the decline in manufacturing activity throughout the Philadelphia region was a big surprise, with most analysts expecting a positive stabilization for the month. The reports are even more bearish when considering the fact that the regional slowdowns are likely to dampen national activity reports, scheduled to be released later on this month. The Philly survey plunged to a reading of-10.1 against estimates for a 1.1 print.
Fed Adds To Dollar Woes
Federal Reserve Bank of San Francisco President John Williams indicated yesterday that the country’s central bank may take steps to increase bond purchases when its present program expires next month. Currently, the Federal Reserve is conducting Operation Twist, which involves the purchase of $45 billion a month in short term bills. The sentiment echoes what was witnessed in yesterday’s release of the FOMC’s meeting minutes and comes in addition to recently announced plans to purchase $40 billion in mortgage bonds. The Fed President additionally noted that the purchases may be expanded to $85 billion and would continue well into nextyear.
The comments are bearish for the US dollar as it underlines the monetary concern currently plaguing central bankers and adds to concern that the US dollar may lose further value as the central bank continues to add to currently running monetary supply.
Currencies to Watch
Given the current dynamic, technical traders are taking note of potential opportunity in both the EURUSD and USDCAD. Particularly, EURUSD at 1.2675 support is being eyed as a major backstop to further selling in the single currency,lending to dollar weakness. USDCAD bears are noting major resistance at 1.0050/1.100 for the time being.