Dollar Strength Returns

The dollar had taken a beating in the last week of December which led to some doubts in the mind of a few traders on whether it was the end of the dollar trend that had been dominating the markets in the first few weeks of December. But this had taken place when the markets were thin and there was not much liquidity around as many traders were off on their holidays for Christmas. We had mentioned that market movements in such cases should always be taken with a pinch of salt as they are generally opposite to what should be happening in the markets normally. We had mentioned that what was likely to happen in the first few days of January is the one that the traders should be looking yet to establish their positions for the short term.

And true to form, we saw the return of the dollar strength all across the board yesterday. We also saw the release of the Manufacturing PMI data from the US yesterday and this was better than expected and this further helped in pushing the dollar higher. Though there was a bit of a correction in the dollar strength since that time, we believe that the dollar strength will be the theme across the markets for today as well.

The yen also continued to weaken as we saw the USDJPY pair touch the December highs close to 118.5 but it quickly corrected back and sits around 118 as we write this. We believe that it is going to be only a matter of time before the highs are broken and then we can see the pair moving still further higher towards 120.

As for economic news, apart from the Services PMI from the UK, we do not have any major economic news from any part of the world for today and so we are likely to see more of position building ahead of the major data that will be released over the next 2 days.
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