U.S. Dollar: The Divergence Trade

It has been another interesting trading day in the financial markets with equities and currencies staging a sharp end of day reversal. The EUR/USD traded within a hair of its 9 month low on an intraday basis a few times before moving into positive territory. Economic data in the U.S. was very weak and more troubles in the Eurozone caused a wave of risk aversion throughout the European and early U.S. trading session. However it was the encouraging comments from Fed President Bullard that stoked the recovery. Traders were also relieved that Bernanke did not say anything particularly damaging in the second day of his testimony on monetary policy. Today’s reversals in the forex market may be important but not as much as the divergence in price action across various currency pairs.