News on USD

Currency trading markets returned to dollar selling through the day’s forex price action, as a general recovery in risk sentiment allowed speculators to re-enter profitable dollar-short positions. Indeed, the overnight Tokyo session saw Hong Kong’s Hang Seng Index recover marginally from the previous day’s rout, while the Dow Jones Industrial Average added an impressive 160 points through time of writing. Whether or not this will risky asset rebound continues will remain key to dollar performance, but tomorrow’s significant event risk may likewise play a part in short-term greenback price action.

A busy international economic calendar left traders with plenty to talk about through previous Tokyo and London forex sessions, but actual price movements on economic data remained relatively limited. Notables included the closely-watched German ZEW report, which fell significantly below consensus forecasts yet was not enough to derail the recent euro rebound. In the UK we saw that domestic CPI printed slightly above official targets through the month of October—solidifying the case for stable interest rates and lending support to the recently oversold British Pound. The US economic calendar was comparatively empty, and the only notable on the ledger is the upcoming Pending Home Sales Report due at 15:00 EST, 20:00 GMT.

Limited event risk left forex speculators to trade off of general risk sentiment, and a sharp rebound in the US stock market allowed traders to continue selling the risk-sensitive dollar. Yet forex market trading was reportedly thin through the later New York hours, and it seems as though traders are increasingly indecisive over the short-term direction for major forex pairs. According to FXCM dealing data, open interest in US dollar positions has fallen across the board after recent market volatility. Given unexpectedly sharp price movements, speculators are increasingly reluctant to open large positions. That said, the FXCM Speculative Sentiment Index reading continues to support US dollar weakness through short-term trade. The contrarian signal shows that the majority of retail forex traders remain long the US dollar against major currency counterparts. Yet we likewise note that the proportion of USD-longs has been shrinking through the past week of trade. Such developments suggest that dollar losses may slow through short-term price action.

Outlook for the dollar will likewise continue to depend on the Dow Jones Industrial Average, which rebounded sharply at +1.3 percent to 13,147 through the New York afternoon. Gains were broadly distributed across the majority of trading sectors, and the S&P 500 added a similar 1.3 percent to 1,457. The recently downtrodden NASDAQ Composite posted the biggest rally on the trading session—adding 1.7 percent to 2,628.

US Treasury market traders returned to their desks after yesterday’s US Veteran’s Day holiday and immediately sold short-term government debt. The 2-year Treasury Note Yield climbed 5 basis points to 3.48 percent. Yet the short-term bond yield remains near recent 2-year lows and will have to post substantive rebounds to recover last week’s losses.

Written by David Rodríguez, Currency Analyst for DailyFX.com