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The directionless nature of speculative-based markets is both a boon and a burden when trying to establish the dollar’s fundamental bearings. On the one hand, without a clear trend in risk appetite to benchmark the currency against, it is difficult to determine whether the greenback is actually still playing the fundamental role of safe haven currency to FX traders. Whether this relationship is breaking down or still holds fast is essential to both analyzing and trading the US dollar. Having this definable driver to defer to means we can establish the current health of the currency; and when developing forecasts, we can project the rather straightforward direction and tempo of risk appetite rather than attempting to categorize and verify the importance of the infinite variables factoring in a currencies strength. And, at the same time, an absence of clear speculative drive is beneficial in that it fits the tempered bearish momentum that swept over the greenback this past week. That being said, we would still see a divergent performance from the dollar across its major counterparts. EURUSD extended its advance to a fifth consecutive day – and put some momentum on it. In contrast, both GBPUSD and USDJPY were virtually unchanged to end the day. Then there was USDCHF. A complicated pair to bear out on a safe haven scale, unique fundamental drivers certainly helped it to jump start its biggest rally since August 4th.

In analyzing the bearing and pace of the dollar, it is still essential to interpret fundamental developments for their impact on investor sentiment. Today’s scheduled macroeconomic event risk would carry little weight when it comes to altering speculative interests (even if the economic implications are considerable). Perhaps the most media-friendly reading for the day was the second quarter current account balance. The $123.3 billion deficit was smaller than projected but nonetheless the largest shortfall since the final months of 2009. Considering the primary weight on this broad trade reading was the physical balance, this data comes as little surprise since the monthly readings are known well in advance of this release. As for investor capital inflows (the opposing force to this gap), we would actually receive the TIC flows report for July along with the aggregate quarterly figure. The more timely reading rose $61.2 billion with predicable increases in Treasury and agency debt as well as unexpected purchases of corporate bonds and stocks. As for the slip in initial jobless claims to a 450,000 pace and the deceleration in factory-level inflation data to a 3.1 percent pace; this is second tier data on already heavily speculated subjects (employment and rates).


And, though it looks highly likely that we will end out this week with a sigh from risk trends; there is still a far better chance for event-based volatility on Friday than in the previous 48 hours. On deck early in the New York session are the consumer price index for August and University of Michigan Consumer Confidence survey for September. Significant surprises properly aligned to prevailing uncertainties can generate a rise in volatility through sheer virtue of their historical role as market-movers. However, interest rate expectations are near zero through the coming year and few doubt growth will slow through the end of the year. Needless to say, this data may have to offer something remarkable to get price action moving. In the meantime, we should keep our eyes on the long-term effects of the Fed’s SOMA program. The central bank bought another $1.379 billion in Treasuries to maintain its stimulus program. This will act as a natural weight on the dollar as long as risk is absent. FX Trading

The euro put in for a robust performance Thursday; but the strength was more relative than absolute. If we look to the drivers over the period, we see that the SNB’s dovish turn, the RBNZ’s moderate language and the dollar’s floundering would provide indirect strength to the single currency. If we were to look at the actual European fundamental developments for the day, the backdrop is far less impressive. On the economic docket, the region’s trade deficit contracted to a 172 million euro shortfall; but most investors are less concerned with external trade figures and more interested in internal imbalances. What was truly was Greek Finance Minister Papaconstantinou’s commentary that the nation would not default or restructure. As he put it the region would be falling apart if that were the case. Is this a threat to investors and EU politicians?

There were two notable economic reports that would cater directly to a couple of the Sterling’s more important fundamental drivers: interest rate speculation and the stability of an economic recovery. The growth forecast was lowered slightly by the first drop in retail sales (0.5 percent) since January. On the other hand, the BoE’s quarterly survey of consumer inflation expectations boosted the target to a two-year high 3.4 percent clip. Forex Trade Point