Dollar Falls as Stocks Reverse Losses

FX Strategy Update

Fri, Aug 28 2009, 02:03 GMT

by Hans Nilsson

CMS Forex

Dollar Falls as Stocks Reverse Losses

The dollar declined in NY trading Thursday as US stocks reversed earlier losses and closed higher. US Q2 GDP beat market expectations and jobless claims declined. The dollar index fell to 78.06, about 0.5 point above important support. The S&P 500 was up 2.86 points to 1,030.98. The euro rose on improving risk appetite. Germany’s consumer confidence climbed to a 15-month high and consumer prices unexpectedly increased. Sterling gained against the dollar but fell to a new low versus the euro. The Australian and Canadian dollars advanced on a rebound in crude oil prices.

The USD/JPY fell today. The advantage of borrowing in Japan has diminished as US borrowing cost has fallen. This has reduced carry trades funded in Japan and pressured the pair. The USD/JPY has support from the longer term uptrend. If this is broken, the pair may fall to the 91-area support. There is resistance in the 94- 95 area. Japan’s election will be held on August 30. The latest election polls indicate that the opposition Democratic Party will win, which will introduce new political and economic policy uncertainties.