Will the Dollar Rally Return in Forex Trading?

Currency trading with the greenback

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.

GFT’s Kathy Lien takes a look in FX360 at what could help the dollar rally return, and give it some legs:

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.