Greenback Rises as Risk Sentiments Stabilizes

For Wednesday, expect the Greenback to strengthen as risk appetite wanes as trepidation in the markets return. In addition, US equities ended its trading with mixed signals with the Dow Jones Industrial Average notched higher by about +0.09%, while the S&P 500 closed lower on the session by about -0.13% and US treasury yields were lower with its 10-year yield plummeting about 4bps to fall back below the pivotal 200-day SMA. In its economic data, the US showed positive signals as its current account deficit for the second quarter narrowed by more than expected to -117.4 billion from the prior revised -133.6 billion. The NAHB housing market index rose to a six year higher with a print of 40 in September which was more than the projection of 38 and up from the previous month’s reading of 37.

Furthermore, Dallas Fed President Fisher which is known to be hawkish and a non-voter commented against the QE3, in which he said that the Fed cannot do it alone and urge Congress to get their act together. On the other hand, Chicago Fed President Evans said that he supports the Fed’s QE3, since he had been calling for an unlimited bond buying measure and said that the QE3 can make the economy more resilient to risk and indicated that he projects a drop in the unemployment rate which might dip below the 7% level due to the result of the QE3. Another Fed member New York Fed President Dudley reiterated the disappointing performance of the US economy and said that monetary policy is not a panacea and defended the Fed’s action to engage in QE3 by stating that the Fed isn’t encouraging excessive borrowing and that the Central Bank will monitor the impact of purchases and reminded markets that the Fed isn’t out of ammo for stimulus and that it will provide more medicine if necessary.

Meanwhile, housing starts in the US climbed by 2.3% to an annualized pace of 750,000 units in August following the downwardly revised 733,000 reading seen in the previous month. The improved pace of the new home construction in August was driven by the 5.5% gain in single-unit housing start to 535,000 annualized units, which is the component’s highest level since April 2010. Multiple-unit structure starts, in contrast, dropping by 4.9% in the month to 215,000 to provide a partial offset. Increases in new home construction were seen in the Midwest at 20.7% and South 3.7% while starts declined in the Northwest -12.6% and West -4.3%. However, building permits declined by 1.0% from the four-year high recorded in the previous month, although remained relatively elevated at an annualized 803,000. The level of permits in August was above market expectation for larger decline to 796,000. The monthly decrease reflected a 3.0% decline in permits for multiple-unit structures to 291,000, while single-unit permits notched higher by 0.2% to 512,000 which was their highest level since March 2010.

Commentary

For today, the Greenback is now showing strength as risk appetite is losing steam causing the dollar to show modest gain in its currency valuation. US showed positive signals as its current account deficit for the second quarter narrowed by more than expected to -117.4 billion from the prior revised -133.6 billion. The NAHB housing market index rose to a six year higher with a print of 40 in September which was more than the projection of 38 and up from the previous month’s reading of 37. In addition, housing starts in the US climbed by 2.3% to an annualized pace of 750,000 units in August, while building permits declined by 1.0% from the four-year high recorded in the previous month, although remained relatively elevated at an annualized 803,000.

Thus, expect the Greenback to move further into the positive territory for the coming session, as positive news coming from its economic data, most particularly risk aversion is causing the dollar to rise further in its price action