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Daily FX: U.S. Dollar Weak on Black Friday

Christopher Vecchio

It’s the end of the liquidity drain that’s plagued global markets this week amid the major U.S. holiday, but to cap off the less active week there has been a modest rally by high beta currencies and risk-correlated assets, such as the Australian Dollar and the Euro. The positive news flow out of Europe has helped this.


The final day of the three day liquidity drawdown has arrived, and price action on Friday has been moderately bullish for high beta currencies and risk-correlated assets. There’s been decent follow-through on yesterday’s advances by the Australian and New Zealand Dollars, as well as the Japanese Yen and the Euro, as the U.S. Dollar is the worst performing currency across the board.

Mainly, there’s been some positive news flow out of Europe allowing for the continued rebound in risk-appetite, as any such headlines out of the United States are absent amid the Thanksgiving holiday. On the data front, a German business confidence reading outperformed expectations, helping ease concerns that the Eurozone’s largest economy was starting to slide towards recession; perhaps this pace has been stalled.

On the European news side, there have been a few more reports that Spain is inching towards a bailout agreement, which is bullish for the EUR/USD as it means the European Central Bank’s OMTs would be active, essentially placing a cap on short-term Spanish yields. ECB President Mario Draghi reminded market participants of this today, saying “if and when” (paraphrasing) the OMTs need to be implemented, the ECB stands ready to go.

Furthermore, the developments on Greece have been frustrating yet hopeful, with another Eurozone finance ministers’ meeting on Nov. 26. Round the clock negotiations this week fell short of any major compromise, although it was agreed upon that Greece would receive another two years to fulfill its obligations; another round of elections resulting from brinksmanship could be a major setback.

Taking a look at European credit, peripheral bond yields are mostly higher, preventing the Euro from rallying further. The Italian 2-year note yield has decreased to 1.977% (-3.3-bps) while the Spanish 2-year note yield has increased to 2.983% (+1.0-bps). Similarly, the Italian 10-year note yield is unchanged at 4.771% while the Spanish 10-year note yield has increased to 5.648% (+2.3-bps); higher yields imply lower prices.


JPY: +0.29%
NZD: +0.25%
EUR: +0.13%
AUD: +0.11%
CHF: +0.09%
GBP: +0.05%
CAD: +0.03%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.14% (-0.18% past 5-days)