Today’s Forex Analysis summary.
The U.S. Dollar lost ground to all the major currencies on Tuesday on mixed fundamentals. There was no theme in the market today as many of the currencies reacted to their own individual news. After the tone was set in each market, comments from U.S. Treasury Secretary Geithner helped move the markets but I wouldn�t say he was the main catalyst of today�s action.
The Euro was strong most of the day following an almost week-long sell-off. News that the ZEW German investor confidence number was positive for the first time since July 2007 triggered the start of a short-covering rally. This move was basically short traders lightening up positions that had been built on the notion of a lack of confidence in the European Central Bank.
The British Pound posted a slight gain on Tuesday as the weaker Dollar led traders to lighten up short-positions. News that two major U.K. retailers posted better than expected earnings reminded traders that it is possible a recovery in the economy is starting.
The Canadian Dollar started sharply lower with the market hitting a three week low following the Bank of Canada�s announcement of an interest rate cut to 25 basis points. Although some traders claim this was a surprise, the real surprise in my opinion was the BoC�s statement calling for interest rates to stay at this level until June 2010.
The Japanese Yen could be under pressure if the stock market begins another leg higher. Traders will be looking to sell the Yen and invest in higher yielding markets in carry trade activity. At this time the economy is still bad to warrant any buying interest. News that China�s economy may be going through a contraction is expected to worsen the economy in Japan.
The rally in the Euro took some of the pressure off the Swiss National Bank to intervene in the market. The SNB has issued a warning that it stands poised to weaken its own currency if it gets to much higher. The purpose of the intervention is to make Swiss goods cheaper and to counter the effects of deflation.
Although there are still major concerns about their economies, both the New Zealand and Australian Dollars posted gains on Tuesday. An increase in trader appetite for risk helped attract buyers to the higher yields. Most traders feel there is the potential for more downside as the economies of these two countries are still weak and may weaken further now that there are indications of contraction in the Chinese economy.
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