In line with a comment I made yesterday concerning the USD, the week being relatively void in economic data has permitted the USD to weaken against the AUD, CAD, Kiwi, and CHF. Under this scenario, the market is willing to assume risk as traders to not want to commit to USD’s ahead of FOMC next week where a .25 to.50 rate cut is widely expected.

Back to last week, a surprisingly weak NFP number has made certain of a fed rate cut. Although the USD has suffered from yield erosion, the fundamental drivers are not likely to result in further USD weakness. The market is effectively waiting on FOMC and the USD story is a result of traders unwillingness to commit to USD positions allowing the high yielding ccy’s to push it down. As we near FOMC, we are likely to see USD stabilize and potentially a USD surge as a result of profit taking and repricing after the events and the market diverts its attention to the next key issue (i.e. back to credit scenario). The more price gets to an extreme and the closer we get to the FOMC, the more willing I am to buy USD with the sense that price may move back into stabilization.
Be careful out there! Chris

Tags: USD, FOMC