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Dollar Falls on Profit-Taking

US Dollar Declines Versus Peers as FOMC Minutes Stress the Importance of Inflation in the Rate Cycle

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Commodity risk currencies proved the winners of the last session considering how oversold both the Aussie and the Kiwi dollars were. The Euro also managed to post modest gains for the day albeit on a subdued note while the Yen turned stronger as the Bank of Japan signaled no intentions for further monetary policy easing.

ECB Minutes Reveal Inflation Concerns

The ECB minutes were released yesterday which showed that the Governing Council Officials were concerned with the lack of inflation in the Euro Area. The minutes revealed that any downward revision of inflation could be potentially worrisome and that the rebound in the underlying inflation was stalling. Striking a similar tone, ECB Chief Economist Praet remarked that the ECB's credibility would be at risk if the inflation target was missed. With ECB officials continuing dovish talk, markets are starting to build strong expectations that the ECB will act in the December monetary policy meeting. The current rebound in EURUSD is likely to remain short-lived as traders unwind their long positions resulting in a medium-term short squeeze. The single currency is likely to face further downside at a fundamental level in the next few weeks. EURUSD gained 0.69% for the session yesterday closing at 1.0733.

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UK Retail Sales Slip Despite Wage Pickup

The UK retail sales numbers declined on a month over month basis in October, falling -0.60% from September with a downward revision to the previous month's retail sales from 1.90% to 1.70%. The decline in retail sales come amid the UK's Office for National Statistics report showing a strong pickup in wages which could have translated to greater consumption. The uptick in wage growth has also led to an increase in consumer confidence which was not reflected much by the retail sales reading. The British Pound managed to stay firm during yesterday's trading session despite some initial setbacks on a weaker than anticipated sales report. GBPUSD closed with gains of 0.35% for the day as the Pound managed to recover from earlier losses on the back of consumption, rising during the US trading session on account of dollar profit-taking and a risk-reversal.

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Kiwi Continues to Rebound

The New Zealand Dollar gained over 1.46% yesterday and continued to push higher, led in part by a weaker US Dollar. Earlier today, New Zealand's credit card spending data showed a year-to-date increase of 7.80% according to the data released by the Reserve Bank of New Zealand. The gains follow through from the previous month’s 7.30% increase in credit card spending. Forming a doji two days ago, the NZDUSD pair has shown a strong reversal on the daily charts, which points to further upside in the New Zealand dollar. The uptick in spending revealed that consumer confidence is likely to be buoyed by the RBNZ slashing the benchmark interest rates between the periods of June and September. Despite the current bounce in the Kiwi, expectations remain for the RBNZ to cut rates by another 25 basis points during the December meeting, bringing down the RBNZ’s key rate from 2.75% currently to 2.50%.

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Canadian Retail and Inflation Data Ahead

Retail sales numbers for the month of October are due from Canada today. The median estimates point to a 0.20% rise on the headline while the core retail sales excluding autos are expected to drop -0.20% for the month. The declines are anticipated following the prior month which saw the headline retail sales rise 0.50% while the core retail sales stayed flat at 0.00%. Besides the retail sales numbers, inflation figures will also be published. The core CPI reading is expected to show a rise to 0.20% for the month, while on an annualized basis inflation is expected to dip to 2.00% after rising to 2.10% a month ago. The inflation figures largely fall in-line with the Bank of Canada’s inflation forecasts. The Canadian dollar has been trading mixed over the past few weeks as the Loonie initially tested the resistance near 1.3413 through 1.3318.

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