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The euro hit an all-time of $1.5915 versus the dollar Thursday, only to become subject to an increasingly rare event in currency markets these days - - a dollar rally. That's right: you read correctly. The dollar rallied, getting off the deck, as it were, from its record-low versus the euro to gain more than 1 cent for the day to trade at $1.5741 late Thursday.
Trading is likely to be calm to inert heading into Friday, due to the G-7 meeting in Washington of the world's major central bankers and finance ministers.
What inspired the dollar's rally? Independent currency trader Andrew Resnick told BloggingStocks the currency markets interpreted Thursday's lower-than-expected 357,000 U.S. initial weekly unemployment claims as a strong point for the ailing U.S. economy. That fact, combined with the belief that the previous week's claims may have been inflated, due to the earlier Easter holiday, sent traders into buy-dollar mode.
Reversal or another false-break?
"The long-term, economic fundamentals remain bearish for the dollar, but today may have represented the beginning of a reversal," Resnick said, adding that he is presently flat, or has no open currency trading positions.
Still, the dollar has exhibited several false break outs before, hence, one can not say that a dollar-higher trend is in place, Resnick said. Not hardly, because the G-7 meeting could yield nothing or it could produce policy changes that could support the dollar, he said. A coordinated central bank intervention among the economic powers to support the dollar could also be put in place at that time.
If not, then the currency market is likely to revert to existing economic fundamentals to determine currency values, namely: the U.S. trade deficit, budget deficit, recession/near recession economy - - none of which are dollar bullish, he said.
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