Dollar grinds higher as sentiment deteriorates

The dollar continued to grind higher against all of its major counterparts (with the exception of the JPY) as risk sentiment deteriorated further. Another day void of top tier data saw the market focus predominantly on European concerns. Political uncertainty remained high in Greece as Syriza leader Tsipras said that his party was unable to form a government. The mandate will be passed on to the Pasok party tomorrow which is led by former finance minister Venizelos. Failure to form a coalition government will result in new elections in June which is likely to be framed around the decision of whether or not Greece should remain in the euro zone (parties in the recent election ran on the premise of whether or not they support austerity). EU officials reiterated that Greece must deliver necessary economic reforms to continue to receive aid and IMF officials said that it is not acceptable for the country to seek laxer terms.

Sovereign yield spreads in Europe were significantly higher which weighed on the common currency. Germany’s 5-year and 10-year bund yields reached record lows and Spanish 10-year yields rose sharply and broke back above the 6.00% mark. The divergence shows the relative strength of the German economy and recent March data has surprised to the upside suggesting that Europe’s largest economy may avert a technical recession if 1Q GDP figures (due next week) show a return to growth from Q4’s contraction of -0.2%.

U.S. equities extended losses with the Dow Jones Industrial Average closing lower for the sixth consecutive session while the S&P 500 finished in negative territory for the fifth session out of the past six. The Dow and the S&P declined by about -0.75% and -0.67% respectively today. Commodities also slumped with the gold breaking below the 1600 level. The yellow metal is currently lower by about -0.88%, silver is down about -0.89%, and oil sees a -0.37% decline at time of writing.

US Treasury yields are mixed with the curve flatter today amid comments from Fed officials which indicated no need for new easing. Minneapolis Fed President Kocherlakota, a known hawk, said that the Fed may need to cut stimulus in 6-9 months and Cleveland Fed President Pianalto said that she expects the economy to recover at 2.5% or better. This dampened hopes for additional easing, however demand for safety kept yields under pressure. This also put pressure on USD/JPY which is currently trading below the 100-day simple moving average. A sustained close beneath here may open up to the 200-day SMA which is currently around the 78.40 level.

Data due out of the Asia/Pacific session tonight include New Zealand April house prices and the business NZ PMI. In Japan, weekly securities investments data is set for release as are current account figures. Australia will see its employment data for April which is forecast to show an uptick in the unemployment rate to 5.3% with a decline of -5.0k in jobs.

Source: Forex.com

09.05.2012