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Dollar Crumbles Early in European Trade; Euro-zone & UK PMI's Improve
Written by article default Tuesday, 05 October 2010 09:30
The US dollar has had a torrid time this morning in Europe, after ending the Asian session on a firm footing, bolstered by the unexpected holding of rates by the RBA and cutting of rates by the BoJ, dollar aversion has taken hold early in Europe. This can be attributed to a variety of factors, firstly risk appetite is back as European equities march higher and a raft of European PMI data coming in on-the-whole better than expected lifting sentiment. Secondly, the trend of dollar aversion continues to grip the market with QE2 looming on the horizon. Finally, looking at the dollar index, from a technical standpoint, it remains locked in an intense downtrend which should continue until the index tests neckline support of head-and-shoulders pattern at 77.00 which is still some way off suggesting further dollar losses are in the offing.Despite solid risk appetite we haven’t seen liquidation of positions in the yen or franc which have registered considerable gains against the dollar this morning. The Swiss franc is trading at fresh record levels for a second day and the yen wiped out all of its post-BoJ losses, which saw the yen down as much as 1% against the dollar.
On the data front, PMI Services were released this morning for the Euro-zone and UK. In the euro-region weakness in French and Spanish readings were offset by upward revisions for German and Italy lifting the Euro-zone PMI to a better than expected reading but still at a 6-month low, the components, however indicated that an improvement is on the way. In the UK the PMI index unexpectedly rose, forecasts were for a mild drop, surprising many and propelling the pound higher against the beleaguered dollar. Elsewhere, Euro-zone retail sales came in much weaker than expected but failed to factor into price action.
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