The Dollar SkyDived


What started as an intraday stock rally yesterday quickly flip-sided, as officials from the U.S stated that the economic recovery could take longer than previously expected, something that could drag way into the 2010. According to their analysis, the Federal Reserve is expecting a slow growth scenario accompanied by a high unemployment rate that could exceed the 9% level. Central bank officials did state that while there are minor signs of stability, the overall market continues to show a dire situation.

In addition to the bad news, the Fed mentioned that it was considering purchasing further assets to help the economic situation. The news immediately sparked negative sentiment on Wall Street, sending the indices lower. One must note that a major part of the intraday rally was caused by the commodity market, dragging higher the S&P500. Crude oil closed higher for the day showing a 3.23%.

Stocks retraced towards the second half of the session closing with an average loss of 0.5%.The drag of the day was the financial sector, closing the session down with a 2.66% loss.
Dollar Falls Off the Cliff

Despite the negative momentum during the second half of the trading session the Dollar collapsed following the FOMC’s minutes dropping to a record low of 80.79 points, one only seen last before February. This time round traders didn’t find interest in the Dollar as a safe-haven, preferring bonds, Gold and other currencies. Gold climbed during the session and closed with a daily gain of 1.36%.

On individual pairs, the GBP/USD failed to follow through during early morning hours as the money supply in England showed a major drop, while business investment dropped by a whopping -5.50%, compared to an expected -4%. The economy’s retail sales increased by 0.9%, showing that parts of the economy are beginning to show a mild recovery. The ONS noted that all sectors, apart from household goods and non-store retailing, showed a monthly rise.

Over in the European market the EUR/USD climbed higher, following yesterday’s momentum. After breaking resistance of $1.3739 the Euro followed through propelled by today’s data. Germany’s services PMI exceeded expectations coming out at 39.10, while Europe’s overall services PMI showed a 44.70 result compared to an expected 44.4 points. In addition manufacturing PMI results both showed a slight improvement.

Is the USD/CAD going to finally drop?
Market Data to Watch Out For

Canadian crosses could present major movement today as certain pairs (for example the USD/CAD above) are now trading at critical levels. On the economic front wholesales are expected to be released later on during the session, while the BOC is expected to give its review. In addition, the U.S is scheduled to release its Philadelphia Fed Manufacturing index and leading index, two events that could spark movement on the U.S equity session.

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