The U.S. Dollar’s fortunes reversed considerably last week, as the Greenback rallied on increased risk aversion after China showed disappointing import figures. Also helping the Dollar’s fortunes was the FOMC’s indication that the Fed would be buying long term Treasuries with repayments from agency debt and mortgage backed securities.
The Greenback gained significantly against all the major currencies, with the Euro losing 4.2%, Sterling coming off 2.4% and the Yen falling 1.0% on the week. The Commodity Dollars also fell considerably versus the Greenback, with the Kiwi falling a whopping 3.9%, the Aussie down 2.9%, and the Canadian Dollar down a more moderate 1.3% on the week.
Dollar Rises Against All Other Major Currencies
The biggest rise in the Greenback was against the Euro, where the Dollar gained 4.2% aided by continued economic uncertainty in the Eurozone on the part of the ECB. This was followed in magnitude by its change seen versus the New Zealand Dollar against which the Dollar rose 3.9%.
More moderate U.S. Dollar losses were sustained against the Australian Dollar of 2.9% and the Pound Sterling of 2.4%. The Japanese Yen and the Canadian Dollar held onto their recent gains the best, only falling 1.0% and 1.3% respectively.
Forex Market Implications
Despite last week’s impressive run in the Greenback, the fundamental outlook for the United States continues to be questionable. With the FOMC’s statement and plans to implement what many are calling “QE lite” or a mild form of quantitative easing, the U.S. Dollar still looks like it is being set up for a fall, rather than actually being capable of making a sustained rally.
Another factor which should be considered is the situation in China. A weakening economy in China tends to signal a global economic slowdown. This will in turn affect the U.S. Dollar considerably, especially if one takes into account the amount of exposure that the PBOC — the Chinese central bank — has in Dollar denominated investments.
While shorting the almighty Dollar may seem like lunacy given last week’s strength, this continues to be the favored play since the U.S. Dollar index has been steadily dropping for the last nine weeks, thereby indicating a global retreat from the U.S. currency.
The Japanese Yen presents a good example, having risen to fresh 15 year highs last week before eventually settling somewhat lower on the week. This indicates that this latest U.S. Dollar rally may merely be a significant pullback, rather than a reversal.
Weekly Recap and Outlook for the U.S. Financial Markets and Dollar – 8/16/2010
The Greenback roared back last week on renewed risk aversion in the currency markets along with the FOMC’s surprise plans for the Fed to reinvest agency loan repayments it was receiving into long term Treasuries. The Fed’s new modified version of quantitative easing which was announced on Tuesday also hit the stock market, causing the DJIA to lose over 3% last week. In addition, the Fed made good on their “extended period” to hold down rates, leaving the benchmark Fed Funds rate at 0.25%, as was widely anticipated. Read full report
Weekly Recap and Outlook for EURUSD – 8/16/2010
The Euro started near its weekly high of 1.3307 against the Greenback last Monday after the previous Friday’s disappointing U.S. Non Farm Payrolls number. Nevertheless, the rate soon started to fall in spite of mostly good numbers seen out of the Eurozone. For example, the German Trade Balance out on Monday came in showing a 12.3B surplus, near the 12.4B surplus anticipated, and considerably better than the 10.6B surplus seen last month. In addition, the Eurozone Sentix Investor Confidence survey index showed considerable improvement, printing at 8.5 against the market consensus of just 2.1. This was substantially higher than the former reading that was the negative -1.3 level. Read full report
Weekly Recap and Outlook for GBPUSD – 8/16/2010
GBPUSD fell substantially last week as the U.S. Dollar came back with a vengeance against all major currencies. The rate began the week by trading down from its weekly high point of 1.5995 that was seen on Monday. Monday’s U.K releases included the RICS House Price Balance which declined by -8% — a fall that was significantly below the market’s consensus of a rise of 5% — with predictable negative implications for Cable. In addition, the previous number was revised down from the 9% level to 8%. Read full report
Weekly Recap and Outlook for AUDUSD – 8/16/2010
AUDUSD traded off substantially last week, with the sharp drop exacerbated by slowing import numbers out from China that indicated a potential future slowdown in the global economy and also raised risk aversion in the forex market. The week started as the rate traded off from its weekly high level of 0.9204 seen on Monday after Australian ANZ Job Advertisements came out showing a disappointing rise of 1.3% on the month against a previous print of 2.8%. In addition, Australian Home Loans fell by -3.9% for the month against the lower expected drop of -2.1%, although the previous number saw a significantly upward revision from 1.9% to 3.0%, thereby neutralizing the overall effect. Read full report
Weekly Recap and Outlook for NZDUSD – 8/16/2010
The Kiwi was sold off especially strongly last week, as the commodity dollars and the Euro lost favor. The rate initially opened on Monday near its weekly high point of 0.7338, but lacking any important economic data out of New Zealand, the rate soon fell under pressure as the Aussie sold off significantly. Read full report
Weekly Recap and Outlook for USDJPY – 8/16/2010
USDJPY gained overall last week as the Greenback recovered some of the previous week’s losses, despite having made fresh 15 year lows. The pair started the week on a positive note Monday as the Japanese Current Account came out with a surplus of ¥1.36T versus a consensus of a ¥1.44T surplus and Japanese Bank Lending which dropped by -1.8% year on year versus a previous decline of -2.0%. Read full report
Weekly Recap and Outlook for USDCAD – 8/16/2010
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USDCAD rallied last week on the back of greater market risk aversion, although also being propelled higher by the general corrective strength shown by the Greenback. The rate began the week near its low point of 1.0253 seen on Monday that was most likely still being influenced by the poor Canadian and U.S. employment data that had been released the previous Friday. Read full report