Dollar Rallies as Stocks Hit Six Week Highs (page 2 of 2)

Meanwhile EUR/CHF continues to perform strongly with the currency pair reaching the highest level since the introduction of the Euro this morning. This also marks the ninth consecutive day of strength for a currency pair that typical range trades. Since the launch of the Euro, we have never seen a rally in EUR/CHF last for longer than nine trading days. The last time we saw nine straight days of strength was back in December.

British Pound - Since the Bank of England left interest rates unchanged last week, the British pound has fared poorly against the US dollar and Euro. More specifically, the pound has already seen three consecutive days of weakness against the US dollar. With little economic data of consequence this week, it will be difficult for the currency to find support unless we see a wave of dollar bearishness when European traders return to the markets on Tuesday. Like the Eurozone, the UK was also closed for Easter Monday today. BRC retail sales are due for release tomorrow. Stronger sales could lead to a brief recovery in the pound.

Japanese Yen - The break higher in the Japanese stock market (Nikkei) has helped the Yen recover some of its losses against the Euro, Swiss Franc and British pound. The only currency that the Yen lost ground against was the Australian dollar; it remained virtually unchanged against the US and New Zealand dollars. The weakness in the Yen over the past few weeks reflects the market's belief that the Bank of Japan will not stand in the way of carry trades. The central bank will be announcing their monetary policy decision tonight and rates are expected to be left unchanged at 0.50 percent. Deflation is rearing its ugly head again as the latest consumer price figures from Tokyo report their first drop since May of 2006. This may be temporary, but even if it is, the central bank will find it difficult to justify a rate hike in an environment where inflation is falling and retail sales remains weak. BoJ Governor Fukui has a press conference scheduled after the rate decision. Even if he is optimistic about the outlook for growth, he will have limited flexibility to be proactive rather than reactive.

Commodity Dollars (AUD, NZD, CAD) - Commodity currencies are looking heavy and overextended despite the rise in the Australian dollar today. Both the Aussie and Kiwi have been unable to rally beyond their swing highs and a break below today's low would open the door for a test of critical support. Gold prices are lower, which is contributing to the weakness, but the bigger story today is the Canadian dollar. Oil prices have been falling for the past 6 trading days and we are finally seeing a reaction in the Canadian dollar. With no CAD data on the calendar tomorrow, we could see an even further extension in today's USD/CAD rally.