From early in the year the dollar’s direction has been mainly one-way and with the market eyeing the massive budget deficit the dollar has been sold on just about every correction higher.
There are just four weeks of effective liquid trading left before the end of the year and with modestly better signs from the economy the market is beginning to sense that it could be tough trying to force the Dollar any lower. Even if it managed new lows there is little chance this would be sustainable.
Japan posted its 2nd positive quarterly growth in the third quarter, boosted by a modest upturn in exports. Analysts seem confident that there will be no return to recession. However, they said the same thing two years ago… Where there is consensus is in the fact there is also unlikely to be any strong growth with the economy to remain sluggish for some years to come.
Year end bonuses are expected to be lower, jobs are still hard to come by and consumption is going to be the victim. With the Yen strong against the Dollar it is going to be difficult for Japanese companies to be price competitive in the important U.S. market place.
Thus the outlook for the coming few weeks, certainly into the New Year is for a stronger Dollar and it looks like the Yen has staved off the feared move through 88.00. There is still a small window of about one week before the cycle low so there is still a minor risk, but overall the market is unlikely to be in a mood now to press home any sharp adjustment to current prices.
Other posts by Ian Copsey: