Global Recovery Concerns Pressure Dollar

Three significant events are the driving forces behind Forex at present. These are a prospect of a serious restriction placed on Chinese credit, fiscal concerns about Greece and other European peripheral countries and President Obama’s new banking plan.

The combined impact of these three issues is causing market players to become increasingly more nervous about global recovery resulting in them paring back their riskier investments. The Chinese credit situation is considered the most important factor and any further signs of tightening would especially affect commodity-based currencies such as the Australian Dollar.

Yesterday, Obama presented plans to prevent banks from owning, sponsoring or investing in private equity or hedge funds. As the market then deduced that these proposals could produce a downside risk to banking profits, the dollar was sold off rapidly as a result.

The Euro-zone is still under pressure from the financial troubles of a number of its smaller country members. In particular, Greece’s fiscal situation is weighing heavily on the Euro as the country’s borrowing costs on its huge public debt have soared in the last couple of days.

The YEN has been the main beneficiary as a result of the uncertainty caused by these three events. In the last twenty-four hours, the USDYEN has plunged by almost 200 pips although it has managed to bounce overnight to 90.15 at present.

The EURYEN is also still under pressure and currently posts 127.25. A break of its major technical support at 127.00 could lead to further serious losses. However, the EURO is faring slightly better than the dollar with the EURUSD succeeding to rally overnight. The pair presently sits at 1.4110 (see hourly chart).

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