Dollar Called Mixed, Appetite for Risk Continues to Grow

James Hyerczyk from ForexHound.com at 10/12/09

The U.S. Dollar is expected to open lower against most majors. 

The EUR USD is trading higher despite weaker German wholesale prices.  This shows that traders are more interested in owning higher risk assets and are paying less attention to economic news. 

Look for weakness to continue in the GBP USD.  The fundamentals suggest that U.K. interest rates should continue to remain low and stimulus plans intact. 

The USD JPY is trading higher.  Comments from the Bank of Japan suggesting it is dangerous to short the Dollar at current levels is providing support. 

The USD CAD is getting hit hard overnight.  Last week Canadian employment was reported better than expected.  The strength created by this bullish report is continuing this morning, boosted by higher equities and energy prices.

Stronger demand for higher yields continues to drive the NZD USD and AUD USD toward new highs for the year.  The Aussie continues to receive support from speculators anticipating another interest rate hike by the Reserve Bank of Australia in November.  The strength in both of these markets demonstrates the strong economic recovery taking place in the Asian-Pacific Region. 

Today is a bank holiday in the U.S. Trading may be thin at times because of the holiday but this condition could lead to volatile trading.  There are no major reports from the U.S. today.  Tomorrow will be an important day with Retail Sales, Business Inventories and FOMC Minutes. 

The main issue in the markets is the Dollar and risk appetite.  Last week the Dollar was pounded early as traders were questioning its use as the world’s reserve currency.  It made a slight comeback late in the week, boosted by comments from the Fed regarding a tight monetary policy. 

Overnight, last week’s late positive momentum was erased by a pick-up in demand for risk.  Asian and European traders seem positive the Dollar will continue to weaken and are expected to step up demand for higher risk assets throughout the week.