The US dollar is on the move – fresh American data and fresh European worries send EUR/USD to new lows.Also other currencies are surrendering to the dollar – the US dollar index gave us signs of this breakout last week. Now it happens. You can guess which currency stands firm against the dollar. A sustainable trend still needs to be confirmed.
The US continues to show signs of recovery. The CB Consumer Confidence jumped to 57.9 points, the highest since the eve of Lehman Brothers’ collapse. This also exceeded early expectations for a rise to 53.6 points. American confidence was met with a sign of distrust in Europe:
It was Standard and Poors’ turn to downgrade Greece’s credit rating. They lowered it to “junk”. It can’t go lower from here. While Greece is the spotlight of the debt crisis for many months, the big fear is from contagion.
S&P also showed the way to contagion – Portugal, that already got downgraded a few week’s ago by another agency, was beaten by S&P – a downgrade from A+ to A-, worse than expected. Spain,Ireland and even Italy could be next.
EUR/USD managed to hold above the big barrier of 1.3267 during the day, but this downgrade sent it piercing down through last week’s temporary low of 1.3201. At 1.3150, the road to the significant support line of 1.3080 is open. Reaching this spot will be a full cycle for the Euro, that began a long term rally from this point at March 2009.
But it’s not only the Euro – the Pound, the Swissy, the Aussie and the loonie are all falling against the dollar. They have all lost their recent achievements – USD/CAD parity is drifting away.
This brings the US dollar index to 82.40 – above the target of 82.24 which was the peak on March 25th. This index is now at the highest level since May 19th 2009 – we have a significant breakout for this important index.
The one currency that doesn’t give in to the dollar is the Japanese yen – it gains against the dollar, and the yen crosses are falling. For example, the popular Geppy (GBP/JPY), that made an attempt to break above 146 early in the week, is now collapsing to 142.
The gains of the yen show that this is risk aversive trading – it leans on fear for the global economy more than on the US recovery. We will need to see many more positive indicators from the US, especially in the job market, in order to see sustainable gains in the US dollar index.
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