Monday, 12 Jul 2010

USD Slightly Higher from Light News Day

The lack of U.S. data this morning has made for a quiet North American open that has the dollar unchanged or stronger against most of the major currencies. China reported very strong export figures on Saturday but the third month of declining imports has some traders worried about the appetite of Chinese consumers.

Although it may be a quiet trading day, it should not be a quiet trading week thanks to the busy economic calendar. The intraday reversals in the GBP/USD and USD/JPY suggests that the dollar could give up its gains and there is a good chance that could happen with most of this week's events posing a risk to the U.S. dollar.

The most important event this week is the U.S. retail sales report. Concerns about the sustainability of the U.S. recovery and the degree of consumer spending has been one of the main reasons why investors have turned against the dollar. The market's focus has shifted from the balance sheet problems in Europe to the disappointments in U.S. data.

Consumer spending is the missing link to this whole puzzle and if American consumers are still spending, then these worries are overdone. However, if consumers cut spending for the second month in a row, like the market expects, then the dollar could be headed for big trouble.