USD Gains Momentum

[Chief V]

USD Gains Momentum

The US dollar has come roaring back this morning as poor data and position squaring ahead of next week’s highly anticipated Fed meeting provide it with support. US core durable goods orders were released this morning to very mixed results, with the core number missing the mark by a large margin and the regular figure beating consensus by a large margin. The core number does not include transportation items (which can be volatile) and is considered a better gauge of purchasing activity. As such, it has caused a flight to safety this morning on the miss. Expectations were for an increase of 0.4% in the core number while the figure came in at a painfully surprising -0.8%, yet again painting a dismal picture of the health of the US economy. With short US positions still at very high levels, the chances for a continued short squeeze like we are seeing now are high, especially leading into the end of this week, when US GDP numbers are released and the all important Fed meeting next week.

On that note, it seems as if the market has priced in a large quantitative easing package from the Fed for next week, hoping that a resumption of their program of buying securities would further debase the dollar and help the overall bearish sentiment toward the USD. There has, however, been some well publicized dissention in the Fed camp, with more than a few governors openly questioning the efficacy of the QE program. This lack of consensus could definitely mean that the QE package could be smaller than expected, (2 Trillion) a result that would certainly disappoint the dollar bears and rein-in risk-taking activities. New home sales are released at 10am EST this morning and could add to the risk off tone if they miss the mark, while Friday’s highly anticipated US GDP release will help steer positioning into next week. All major currencies are down against the Greenback this morning, with the euro trading in the low-1.38s and the yen back to the high-81 region.