Over night the Green back hit its lowest levels of the year and on to a three month low against most major currencies. As the start of the US session gives way to a better then expected ADP report coming in just ahead of expectations a little life was breathed into the dollar as traders looked for risk aversion into the start of the trading day on a little profit taking for the day.
This imbedded trend should be short lived as risk apatite should soon give way to continuation to the overall market trend and further sell off of the dollar and yen. What we are seeing setting up with strong manufacturing numbers out of the US and other countries, along with loose monetary policies set forth by the Fed this will fuel further risk taking. Remember risk appetite is often paid for with US Dollars and JPY Yen; so as risk appetite grows the Dollar and Yen look to decline further as capitol flows out of Treasuries and into Equities.
I look for continued short term strength in commodity based currencies, AUD and CAD as oil and gold prices press higher with continued turmoil in Egypt. But look for strength out of the AUD, EUR and GBP on inflation expectations. I would expect to see monetary policy shift away from long term continued quantitative easing. Giving way to rate hikes out of the ECB and BoE. The ECB meets tomorrow Feb 3rd and we could see pressure put on the ECB to control inflation come out during Trichet’s accompanying statement tomorrow…
Looking ahead to the week’s upcoming economic events there should be plenty of entry opportunities during both the European trading session and US session.