Will the Dollar Rally Return in Forex Trading?

Yesterday, the U.S. dollar rallied in forex trading as major stock indices dropped and risk aversion set in. In currency trading, the greenback still retains some of its safe haven cachet. As equities plunged, investors turned to the U.S. dollar for safety.

Today, though, in early currency trading on the FX market, the story is a bit different. The dollar rally has petered out in forex trading, and the greenback is lower across the board. This state of affairs may not remain for long, though. Economic data today is expected to influence the stock market, and a drop could send the dollar higher again.

If currencies continue to take their cue from equities, then a larger than expected drop in confidence could drive equities lower and the dollar higher in the process as traders unwind some of their recovery trades. Another thing to keep in mind is that the Fed has committed to ending treasury purchases by October 31st. This could lift yields which would help the U.S. dollar.

Global Economy Shows Signs of Recovery

Despite the fact that the U.S. economic recovery seems to have stalled (prompting a gain by the greenback in currency trading), there are signs that elsewhere in the world things are intensifying.

Indeed, Asia is showing signs that the economic recovery is picking up. Australia saw an unexpectedly high increase in its inflation, and is expected to raise interest rates again in November. China is reporting that it will see substantial economic growth this year.

So, even though consumer confidence data is dropping in the U.S., and there are some concerns about today's durable goods orders, it appears that elsewhere in the world, the global economic recovery is underway.

Will Asia be able to pull the rest of us up?

German Employment Rises

Today, the euro is finding support in forex trading as employment in Germany heads in a positive direction. The euro is gaining against the U.S. dollar, which is falling today, as better news supports high beta currencies on the FX market.

Germany is very important to the euro zone, which is why good news coming from Europe's largest economy has such an impact. Germany influences the direction of the euro in forex trading, and the fact that the employment picture is starting to improve is good news.

Another bit of help to the euro in forex trading is the fact that the U.S. economy expanded in the third quarter. The news that GDP has expanded is helping matters, and showing that the recession is over (at least in the U.S.), and that economic recovery could be on the way.