* The dollar traded mostly higher on Monday despite a US equity market rally. Stocks rose for the first day in five. The S&P 500 climbed 18.60 points to 1,062.98. The USD/JPY recovered overnight losses after Japan’s Finance Minister Hirohisa Fujii, who opposes intervening in the currency markets, stated that he is carefully monitoring the strengthening yen and stable currency moves are desirable. The euro declined after European Central Bank President Jean-Claude Trichet said the solidity of the dollar is important. Sterling fell for a fourth day despite increasing UK home prices. The Australian dollar rose on Reserve Bank of Australia Governor Glenn Stevens’ hawkish comment that adjustments to interest rates shall be “timely and ahead of a build-up of imbalances that would occur if interest rates were kept low for too long.” The Canadian dollar gained as energy prices advanced.
* The dollar index rose, supported by ECB President Trichet’s assertion that a strong dollar is extremely important for the world economy and it is too early for the ECB to unwind emergency stimulus measures. Interestingly, the dollar index gained despite higher equity prices. This could be a new development. We are closely monitoring this week’s employment report. Better-than-expected employment figures may lead to speculation that US interest rates could rise faster than international ones, which in turn could be the end of risk aversion trades and the beginning of a period when the greenback can rally on good news. The dollar index is between important support at the 76 handle and resistance from its downtrend in the 77.50 area. A break of either direction will signal the future USD outlook.
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