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Dollar Giving Back Gains Ahead of U.S. GDP Report

James Hyerczyk from ForexHound.com at 10/29/09


Traders are selling the U.S. Dollar overnight ahead of today’s U.S. Third Quarter GDP Report.  Pre-report estimates are for the report to show that the U.S. economy grew at a pace of 3.2%.  This would mark the first increase in over a year.


Although this report is expected to show the economy has recovered from the recession, it will give no indication as to how robust the impending recovery may be.  Growing unemployment is still a major concern for investors.


The Third Quarter increase in GDP was most likely caused by consumer and government spending.  Traders are expressing concerns that the economic recovery will be rocky if the government begins to pull liquidity out of the market.


The EUR USD is trading higher overnight after a 50% retracement level was tested.  Bullish traders are hoping for a stronger than expected GDP number so that they can put appetite for risk back into the equation.


Yesterday, the GBP USD did not participant in the break. This was caused by the unwinding of spreads put on against the British Pound over the past few weeks.  The strength in the Sterling did not represent developing strength in the economy.  Traders are still speculating that the Bank of England will increase and expand its asset-purchase program. 


The USD JPY is gaining back some of yesterday’s loss this morning ahead of the GDP Report.  Technical factors are most likely the main reason behind the overnight strength.  Traders were looking for a 50% price at 90.15 to attract buyers.  Instead, buyers stepped in at 90.24. The key area to watch on the upside is 91.28.  A stronger U.S. economy is likely to pressure the Yen because it will bring the Fed closer to removing liquidity from the financial markets.


The AUD USD is posting a strong gain this morning after yesterday’s huge drop.  Traders sold off the Aussie as they took out the premium that had been built into the price in anticipation of a 50 basis point hike by the Reserve Bank of Australia.  This came after the release of a weaker than expected Australian inflation report.  Overnight traders are building a case for increased appetite for risky assets if the U.S. growth number comes out better than expected.


The NZD USD is trading higher even though the Reserve Bank of New Zealand left rates at 2.5% and said they probably wouldn’t raise rates until late 2010.  The overnight strength is most likely short-covering following yesterday’s massive sell-off.  Overnight the market traded down to a key 50% price.  The test of this price triggered profit-taking and fresh buying.


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