craiglist los angeles -: Dollar May Pull Back as Profit-Taking Drives Risk Appetite Recovery

Dollar May Pull Back as Profit-Taking Drives Risk Appetite Recovery

Talking Points

• US Dollar Gains as China Slowdown Fears Weigh on Stocks in Asia
• Risky Assets May Correct Higher as Markets Absorb Negative News-Flow
• UofM Consumer Confidence Gauge May Tip Scales for Mixed US Data

The US Dollar (ticker: USDollar) edged higher against its top counterparts overnight as Asian stocks declined, boosting demand for the go-to safe-haven currency. The Australian and New Zealand Dollars bore the brunt of the selloff. The MSCI Asia Pacific regional benchmark equity index slid 0.6 percent amid reports that Chinese banks may miss their loans target for the first time in seven years in 2012, reinforcing fears of slowing economic activity in the world’s second-largest economy. SP 500 stock index futures are pointing modestly lower, arguing for more of the same into the end of the trading week.

With that in mind, the risk-off mood that has prevailed across financial markets over the past three weeks appears vulnerable to reversal. With the EU leaders’ summit in the rearview mirror and the latest batch of PMIs from China and the Eurozone underscoring the seriousness of headwinds facing global output, the supply of near-term negativity that can conceivably strike the markets may be running dry. Put simply, while there seem to be ample reasons to be generally short risky assets, it may no longer appear attractive to get shorter at current levels. This opens the door for profit-taking to spark a corrective upswing until the bears return in force ahead of the repeat Greek election in mid-June.

The economic calendar is relatively quiet in European hours, with traders likely to look ahead to the final revision of May’s University of Michigan gauge of US Consumer Confidence as the next significant bit of event risk. Expectations call for the reading originally reported outcome of 77.8 â€" the highest reading since January 2008 â€" to be confirmed. After a second week of mixed May survey data results, the outcome may prove to tip the scales in shaping traders’ perception of the US recovery and its ability to mitigate Europe- and Asia-driven downward pressure on global growth.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com