Forex: Dollar Puts in an Unconvincing Bullish Close as Risk Trends Once again Waver

• Dollar Puts in an Unconvincing Bullish Close as Risk Trends Once again Waver
• Euro Financial Troubles Growing More Prominent and Immediate, Reversal Soon at Hand
• British Pound Traders Counting Dow the Days to the BoE’s Rate Decisions
• New Zealand Dollar and RBNZ Reminded of Fiscal Impact of Earthquake by Treasury
• Australian Dollar Unfazed by Improvement in Construction and Business Confidence
• Japanese Yen Stability Should be Questioned with FX Volatility at 30-Month Low

Dollar Puts in an Unconvincing Bullish Close as Risk Trends Once again Waver

The US dollar – on a trade-weighted basis – put in for its first bullish close Monday in four active trading days. Yet, this was far from a convincing advance for the reserve currency as it dipped to a four-month low before clawing its way back for a positive close; and at the end of the day, the pained trend of the past three weeks is still firmly in place. The absence of a strong recovery is not all that surprising when we consider the lack of fundamental support for a development that would essentially oppose the prevailing trend of the past couple months (and really the past 10 years). For economic data on the day, we were presented with two notable indicators. First up was the consumer credit report for January which seemed encouraging with a greater than expected $5.014 billion increase. Why is a boost in credit supportive? In a macro-sense, it is like income or jobs growth – it encourages net consumption and helps fortify growth. However, considered revolving credit (like credit cards) spending dropped $4.2 billion and non-revolving credit was specifically bolstered by a $24.9 billion pick-me-up from the government, it is hard to see the true support in this data. Even less encouraging was the February budget report. The $223 billion deficit was the biggest monthly shortfall on record, adding to that nagging background concern that of long-term budget problems weighing on the US sovereign rating.

Despite the data, the real fundamental drive for the dollar still rests with the thematic intangibles: interest rate speculation and risk appetite trends. Fed Presidents Fisher (Dallas) and Lockhart (Atlanta) kept the confusion going. Dallas said he could vote for an early exit for the QE3 stimulus efforts if it become “counterproductive;” while Lockhart said they shouldn’t be so hasty to write off the need of further stimulus. It is hard for the market to benchmark a time frame for withdrawal with contradictory commentary like this. Carry far greater weight for the dollar traders in the short-term are risk trends. We learned this morning that Fitch is pricing in a 60 percent chance of a Chinese banking crisis by 2012.