Dollar Rally Relentless as Euro Drops to 1.4400 Pound Plummets to 2 ½ Year Low

Daily Forex Fundamentals | Written by Global Forex Trading | Sep 03 08 12:12 GMT |

Overnight Wire Liquidation continues as cable falls through 1.7700 euro breaks 1.4400 Oil tries to consolidate at 108, gold trades below 800 to 792 European equities modestly lower but Nikkei squeezes out an up day Rumors that HSBC may be eyes a stake in Lehman Ospraie Capital major commodity hedge fund blows up Lehman owns 20% of Ospraie UK Consumer confidence bounces to 52 from 49 expected - still at record lows AUD GDP 2.7% vs. 2.9% eyed EZ Final PMI Services bit better at 48.5 vs. 48 still in contraction UK Services PMI bounce sharply to 49.2 vs. 47 forecast EZ Retail Sales sink US Factory Order on tap BOC decision awaited no change expected USD/JPY Holds below 109.00 for most of night as yen continues to outperform all other majors AUD/USD RBA softer GDP and break below 800 for gold drives Aussie down another 100 points GBP/USD slices through 1.7700 as capitulation takes over will BoE cut tommorow? EUR/USD breaks 1.4400 as oil drifts towards 107.00 Another night of pain for dollar bears as the greenback once again reaffirmed its status as the current king of the hill in the FX markets gaining strongly across the board buoyed by continued declines in oil and gold prices. Gold dropped below800 pressuring the Australian dollar which was also affected negatively by lower than expected GDP results which came in 2.7% versus 2.9% projected. The Aussie fell to 8235 in overnight trade losing another 100 points to the buck before recovering by North American open. However it was the pound that continued to feel the full brunt of the dollar rally hitting a 2 ½ year low as it plunged below the 1.7700 at one point in early London trade. Ironically enough the economic data from UK was actually surprisingly positive with consumer sentiment rebounding to 52 from 49 expected while services PMI reading was considerably better rising to 49.2 from 47 forecast. Nevertheless on balance the UK data continues to reflect serious deterioration in the country's economy and trades anticipate lower rates from the BoE in the near future. The key question going forward is will the BoE accede to political pressures and lower rates at tomorrow's MPC meeting? For now the market consensus calls for no change with rates remaining at 5.00%. Should the BoE remain stationary cable may see a knee jerk short covering bounce. The unit has been so grossly oversold, with the latest waves of liquidation looking more like capitulation of late longs, that a rally back to 1.8000 may very well be a possibility especially if Friday's US unemployment data prints worse than expected and dollar's rally suddenly loses steam. Meanwhile in the EZ the data was relatively mixed with final PMI service numbers printing just a tad better than forecast but retail sale continuing to sink.On positive note however was the bounce in German PMI numbers suggesting that lower oil prices and lower exchange rates may provide mush needed stimulus for that sector. The EURUSD has essentially been the prisoner of oil prices with the pair at near complete mercy to the movements of crude.But as volatility in crude begins to compress and prices settle in $100-$110/bbl range focus is likely to return to economic data. The dollar has had a enormous run against the euro but we doubt that there is much juice left in that trade.The one way price action has been extreme and a counter trend rally is long overdue especially if US economic data fails to deliver on the rather sanguine expectations of the dollar bulls. So for now while all the talk in the currency markets centers on correlation to oil, our view is that this particular theme may be played out and microeconomic data will once again become the primary driver of trade. FX Upcoming Currency GMT EST Release Expected Prior CAD 13:00 9:00 CAD Bank of Canada Rate Decision 3% 3% USD 14:00 10:00 USD Factory Orders (JUL) 1.0% 1.7% Boris Schlossberg http://www.gftforex.com DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.