Dollar under a shadow as gold shines
Thu, Jul 17 2008, 12:44 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
At the time of writing the dollar has moved into the anticipated break-out strategy with the favoured yen and swiss franc appreciating towards long term targets at 100 and parity respectively. The broad appreciation of the yen is interesting as it plays catch up to the activity in the equity markets. The 'break-down' of the correlation in the yen and vix index was discussed in last week's release with the conclusion that a sharp yen correction was likely. This has led to euro yen dropping through stops, but this was always a risk and the expectation there was for a last squeeze higher.
With cable finally breaching 2.00, the path to 2.04 key should develop over the coming weeks, although this has temporarily dented the bullish euro sterling view and taken momentum out of the break-out. Broad US dollar weakness is evident with the Australian, New Zealand and Canadian dollars' appreciating strongly. The Australian dollar continues to correlate well with energy price rises and continues to be drawn towards the parity objective. No doubt the dollar decline will be punctuated with sharp counter-trend retracements, especially given the strong bearish sentiment of late, but overall this continues to be the favoured strategy.
