Today’s better-than-forecast results from the US Existing Home Sales report has helped fuel a return to riskier assets by global traders. The shift in sentiment has helped spur a rebound in higher yielding currencies like the euro, British pound, Swiss franc and Canadian and Australian dollars as traders pulled out of safe havens and into currencies with slightly higher yields.
One of the more difficult concepts new traders grapple with in the forex market is how a positive economic report can diminish a currency’s value against its rivals. This is further highlighted when positive reports from most other countries strengthen their national currency. The US dollar is an exception to this rule.
Many times a year, the dollar will increase with positive data and decrease with negative data. But many times a year the dollar will also rise and fall with global risk appetite; which is important for new traders to understand.
Under normal market conditions, the US dollar will act as most other currencies act; rising and falling on its own fundamental data. But in times of economic stress and uncertainty, risk appetite becomes one of the most important factors in determining investments into and out of the USD.
Given the recent wave of debt concerns in Europe and the United States, coupled with Japan’s nuclear crisis, Libya’s ongoing revolution, soaring oil prices, and persistent fear of a muted economic recovery and high unemployment, risk sentiment is without a doubt one of the most relevant aspects of today’s trading environment.
With that in mind, traders will want to remember that a positive report, such as today’s US housing figure, will more likely push investors away from the US dollar despite its direct connection to these positive fundamentals. It has less to do with the strength or weakness of the US economy and more to do with where investors stashed their money in order to avoid the added risk to their equity that the above mentioned factors carried.
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Greg Holden is the Chief Market Analyst at ForexYard. Greg uses his detailed knowledge of fundamental and technical analysis to provide some of the leading market forecasts in the forex world today. A guest lecturer at forex symposiums and Chief Editor of ForexYard's analysis center, Greg brings highly detailed and easy-to-use market analyses to his clientele. He has been published on ForexYard's Trading Blog and affiliate websites. Greg holds degrees in Political Science and Economics from Missouri State University, as well as a Masters degree in Middle Eastern History.
