From being an almost one way trade, in the last few days the dollar has struggled. All of a sudden the greenback is not getting it all its own way. The key signs of a rebound have come in the safer haven assets which have seen positive flows since Monday, with both the yen and gold performing strongly.
Look at the volume on Dollar/Yen. Thursday was the biggest volume day of the year (on a big down day), whilst yesterday was the 3rd biggest (again on a big down day). As we approach the US session, today’s volume is well on the way towards being the biggest again today. Although Dollar/Yen is trading slightly higher today the suggestion is that there is some profit taking that is taking place.
Safe haven flows have not been confined to the yen, with the gold price sharply off its recent low at $1183.46. A rebound has taken the price up to test its first resistance at $1221.64. With Dollar/Yen also toying with its key near/medium term support at 108.00 this morning the safe havens are rising to test some key levels today. The downside momentum on Dollar/Yen is growing as the pressure is mounting.
Gold has turned lower from $1220.60 (under the $1221.64 initial resistance), whilst Dollar/Yen dipped to 107.80 before the buyers have returned to pull the rate firmly higher again. It seems as though there is a battle going on today as the dollar consolidated after two days of losses. The Dollar Index has not fallen below a key reaction low since the rally began back in June. A fall below the support at 85.45 would see the arguments mounting for a correction.
The market’s attention will turn back stateside once more after yesterday’s sharp global sell-off was induces by the dreadful German industrial production data (which fell 4.0%) and the IMF cutting its forecasts for global growth. This evening the Federal Reserve publishes its minutes from the latest FOMC meeting at 19:00BST. The market will be looking for hawkish leanings, with the two dissenting voices (Richard Fisher and Charles Plosser) and potentially other signals that suggest potentially others being set to join them. Also watch for how the Fed discusses the “considerable time” wording of the statement, with expectation that this will be removed form the statement at some stage in the coming months. The Fed minutes could have a significant impact on the fate of the Dollar Index tonight.
Tonight also signals the results of Alcoa which has traditionally been seen as heralding the start of earnings season. The equity market bulls will hope that the bellwether can help to lend support to this falling market. I have been consistently saying for the past few earnings seasons that the market will be looking past the manipulated earnings growth and concentrate on revenue growth. It seems as though I have been too hasty in previous quarters, but at some stage markets will concentrate on top line growth (which is the real signal of a company’s growth) to gauge the quality of this quarters results.