Forex Flash: USD edges higher across the board – Westpac

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FXstreet.com (Barcelona) - "The USD index has been grinding higher since mid-
December, however we suspect further topside from here will prove tough going amid an abundance of dollar negative asset market cues." writes Global Strategist Sean Callow at Westpac. This includes a 3 month highs for crude oil, a VIX index at multi month lows, a modest shift short term yield spreads against the USD vs. much of the G10 in the last 2 weeks and ongoing falls in peripheral EZ sovereign spreads (note: Italian 2yr yields hit their lowest levels in 32mths this week).

On the plus side for the USD, the FOMC minutes were an unwelcome reminder that the Fed sees real limits on open ended asset purchases but it is very unlikely that the "several" members who favor slowing/stopping asset purchases by mid-2013 would include any one of the key dovish cabal of Bernanke, Yellen or Dudley. Suspect it would take several months of 200k+ payrolls gains at least before the threat of less QE becomes a genuine USD positive.

Elsewhere, the lagged effects of much improved EZ financial conditions flag a stabilization in the Eurozone data and the pro-Monti coalition is gaining in Italian polls. "A likely acrimonious debt ceiling debate in mid-to-early February should prompt a risk aversion led USD bounce, much as was the case amid the Aug 2011 debt ceiling debate, but in the interim see greater scope for the USD index to break down towards 79." Callow notes.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Forex and Currencies

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