Upside down
Wed, Aug 6 2008, 08:22 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Although the major currency markets are still broadly range bound and the summer trading conditions are still apparent, the clear technical set-ups in both precious metals and soft commodities continue to underpin a medium term recovery for the dollar. The price of platinum has dropped aggressively, which has led the way for gold and if the $850 level is breached, the implications are for $720. This is mirrored in the soft commodity markets which has caused a magnified impact for dollar appreciation against the Australian, New Zealand and Canadian currencies. With US yields relatively stable, the vulnerability of core bond yields makes the dollar an attractive catch up play.
Because of this, and despite the current trading conditions, the potential for an aggressive dollar rally should be factored into the medium term strategy against the majors. Dollar yen could lag this move as euro yen finally moves into a trend, but the major 108.60 level still represents a break-out risk. Dollar swiss should also be drawn towards the 1.0622, a break of which is a major signal.
