Dollar Enjoys Upside Correction, Look to Fade

The US dollar is recouping some of its recent losses against most of the major and emerging market currencies. Softer than expected New Zealand GDP, followed by the disappointing euro zone flash PMI, the renewed widening of interest rate spreads in Europe and heavier tone in the equity markets appears to have helped spark what appears to be largely corrective price action in the foreign exchange market, with the euro and dollar-bloc absorbing the bulk of the pressure.

The dollar is consolidating yesterday’s losses against the yen, but has shown little impetus to recover. It has been confined in boring 15-tick range around JPY84.55. Sterling is also holding on to its recent gains better than the euro as it too benefits from the shake out of some late euro longs. This euro pullback is likely to be seen as a better buying opportunity by New York traders.

Global equities are seeing profit-taking. Bonds are generally firm, but Irish and Portuguese spreads are at record levels.