A Forex View From Afar

The Dollar And The Emerging Currencies

The dollar index saw a day of light strengthening during the Monday session as the U.S. financial markets will be closed today. The New York Stock Exchange will be closed for business, but the NYMEX will remain open providing the daily oil fix.

The current overnight session offered the dollar the possibility to retrace some of the strong declines seen in the previous week of trading. However, the light volume observed in the financial markets (including the currency market) was too small for the dollar to break any important price points, such as the 81.00 resistance area on the dollar index. So it would not be a surprise to see the dollar’s strength continue within the next few days, as it tries to retrace some more ground. As a note, TheLFB-Forex.com Trade Team notes that, some pairs may look a little overvalued in the short-term.

As the dollar declined and investors turned more bullish on the global economy over the last few weeks of trading, emerging currencies were able to post their first gains this year. This is a big relief for some emerging countries, since a significant percentage of the public and private debts are denominated in foreign currencies. According to TheLFB-Forex.com Trade Team analysis, some of these emerging currencies may offer important opportunities, due to their strong international positions and due to their huge swap (especially compared with the dollar).

The best three performing currencies of the last few months are the South African rand, Turkey’s lira and the Brazilian real. Each of these currencies pay a swap bigger than 9% against the dollar, which should attract some strong inflows of capital in the mid to long term. Additionally, a number of analysts, including TheLFB-Forex.com Trade Team, forecast that inflation will pick up later this year, something that should further increase the spread between the dollar and the emerging currencies.

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