US Dollar Dives In Spite Of Upcoming Risk Events

Yesterday’s late earnings release from Intel joins an ever increasing list of US corporates who have beaten analyst expectations for Q3 earnings; sending the USD plummeting to its lowest levels in 14 months (DXY low 75.50). The reaction from currencies and indeed commodities today seems to suggest that the USD’s fate has already been determined, whatever happens in the remainder of the risk events today - EURUSD looks to have broken upside resistance at 1.4876, opening up the next target above 1.5300, and the DXY has very little to catch its fall until we hit 74.40 levels.

The fact is, Q3 earnings were seen as one of the major potential triggers of a correction in this ubiquitous risk-appetite up trade, and thus far, all releases have not only met, but exceeded forecasts. That investors are still selling USD with the same vigour today is symptomatic of the conclusion in most people’s minds that earnings figures are unlikely to pose any threat whatsoever based on how the cards have fallen so far. Asian and European equity indices are broadly higher, and gold has hit new all-time highs at $1070.80 already this morning. Nevertheless, it is still worth watching as we get the first of the major banks, JPMorgan reporting before today’s market open - the solidity of the financial system is likely to remain under intense scrutiny for the duration of this recovery, any shocks here could undermine the current bullish euphoria.

Later today we will also see the release of US Retail Sales for Sep and FOMC Minutes; although the Retail Sales Figures are a significant data point (-2.1% exp. 2.7% prior), expectations are low after last month’s cash-for-clunkers enhanced figure, and the likelihood is that a good print will only fuel more bullish sentiment, whilst a lower print would just present better levels for investors to re-short the USD. The balance of risks for the FOMC meeting are also conducive to further USD weakness, as the improvement in global economic data means there is little chance of any bearish statements, and with each passing meeting the probability increases that the Fed will signal an end to stimulus measures.

This morning’s data calendar in Europe features Eurozone Industrial Production for Aug (1.2% expected, -0.3% prior) and UK ILO Unemployment Rate (8.0% expected, 7.9% prior), however with USD moves being the overpowering driver of most major currency pairs, we believe any influence of these numbers will be diluted by the broader moves dictated by risk sentiment.

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