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Better Than Expected German Confidence Helps Stop Decline

Tue, Aug 18 2009, 12:52 GMT
by James Hyerczyk

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The U.S. Dollar is trading lower overnight following a strong two-day rally.  Yesterday the Dollar rallied sharply higher versus all major currencies with the exception of the Japanese Yen as investors became risk averse for risky assets following a hard sell-off in the Chinese stock market.

Today is expected to be a different story as the Dollar is reacting to the news that an increase in German investor confidence was greater than experts had forecast.  Overnight it was reported that the ZEW Center for European Economic Research Index of investor and analyst expectations rose to 56.1 in August from 39.5 in July. 

The better than expected German confidence number helped put in a short-term bottom in the Euro overnight.  So far there has been only a slight rally which indicates the initial reaction is just short-covering.  Traders may be waiting for the U.S. Housing Starts report to fuel an even stronger upside reaction.

The GBP USD is trading steady to better in a knee-jerk reaction to the news out of the Euro Zone.  This market looks like its piggy-backing the move in the Euro.  The fundamentals remain bearish but the technical picture could be short-term oversold.

Greater demand for equities and energy could help trigger a short-covering rally in the Canadian Dollar this morning in addition to the help this market is already getting from the boost in German investor confidence.  Technically, the USD CAD is oversold which may also contribute to the rally.

Look for the USD JPY to trade higher today if the overnight rally in the stock market can sustain itself.  Lately investors have been throwing money at the Japanese Yen as appetite for higher risk assets diminished.  A rally today in the equity markets could help reestablish the Yen as a carry-market currency.

Stronger equity markets and better than expected reports out of Germany and the U.S. today could help trigger a short-covering rally in both the AUD USD and NZD USD.  Trader demand for higher yielding assets appeared to be shifting yesterday so today’s action will be important to the structure of the charts. 

Published on  Tue, Aug 18 2009, 12:52 GMT

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