Risk and Carry Guiding the Dollar

Support 1.2515 1.2450 1.2390 96.40 95.80 95.05 1.4940 1.4890 1.4650 1.1940 1.1890 1.1825 A steep decline in the Wall Street lead to a negative trend in the Asian market leaving the tradrs focused on risk aversion. The weak stock market might prompt further unwinding of the carry trade resulting in Yen strength. The relatively low rate in the US is transferring the dollar to behave more and more like a carry trade. "Sluggish stocks point to yen and dollar buying on risk aversion," said Saburo Matsumoto, senior manager at Sumitomo Trust & Banking. "Because of the huge carry trade volume built up over the past few years, there is still scope for the yen to strengthen as these positions are unwound, keeping it generally firm against the dollar," he said. "The dollar is benefiting from shrinking money markets despite global monetary easing, given its status as the key settlement currency, even though there are concerns about the economy," Matsumoto added. The dollar was trading around the levels of 1.2625 against the Euro and 96.60 vs. the yen at 07:20 (GMT).
The Australian dollar was battered due to dovish comments from the central bank which signalled more sharp rate cut ahead. The minutes from the November meeting showed the board was increasingly worried about consumer and business sentiment and felt a larger-than-expected cut of 75 basis points to 5.25 percent was warranted. The high yielding currencies are being under pressure as risk appetite is diminished among traders in the money markets. The Aussie was trading around the levels of 0.6435 against the dollar at 07:20 (GMT)
Today’s economic calendar is full of moving market information. From Europe we will get the Swiss retail sales at 08:15 (GMT) and at 09:30 (GMT) the UK is expect to show a drop in inflation pressure. The CPI in the UK is expected to fall from 5.2% y/y to 4.8%y/y leaving more space for the BOE to focus on growth. The main focus of the day will be the testimony of Bernanke at 14:30 (GMT) but earlier we will have the PPI published at 13:30 (GMT) and TIC long term purchases (14:00).

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