Another Battering Week for the U.S Dollar

Last week was characterized by additional Dollar weakness as the greenback declined to a new low for 2009 on the back of improving economic data and reassurance from government officials that the U.S economy is now on the right track, back to a recovery. 

President Obama addressed the nation numerous times during the week, stating that job losses are now bottoming out and that the new impositions, tariffs, will not spark a trade war between the U.S and China. According to Bloomberg news, President Barack Obama stated that he is now very optimistic about the U.S getting a set of rules in place that will prevent another similar crisis to what the U.S economy has experienced over the past two years. Even though he did mention that the U.S economy is far from out of the woods, his overall tone was optimistic regarding the economic future. In addition Fed Chairman Ben Bernanke stepped up to the plate, mentioning that the current recession has ‘very likely’ ended.

On the Forex market the leader of the week was the Euro, climbing vs. the Dollar. Even though momentum was weak on the way up, the nature of the trend was characterized by a slow grind higher. The EUR/USD tested highs seen during last December, and has now entered range last seen during early 2008.
 


Renewed concerns about the UK banking sector acted as a catalyst to drive the British pound below important support of $1.6400 last week. During Friday’s session a telegraph revealed that Lloyds’ banking group failed the FSA stress test and will have to remain under the government’s asset protection program for a while longer. Furthermore the regulator decided that the bank will require an extra £28bn to withstand bad debts.  The GBP/USD plummeted during Friday’s session but seemed to hold its 100 day moving average.  One must note that even though the GBP has shown relative weakness compared to other currency pairs against the Dollar, support of 1.6231 could prevent a major landslide.


 
The EUR/GBP recent rally also extended its gains last week, after breaking above its 50% retracement of this year’s falls.  The EUR/GBP’s recent break above its weekly trend line inspired additional bullish traders to jump on for the ride, taking this pair higher. Due to a much higher return from the Euro-zone and further problems in the U.K, some which are expected to weigh on the Bank of England and prevent officials from attempting to exit their quantitative easing program anytime soon, investors preferred to take the EUR/GBP higher for the week, driving it to target resistance of £0.9.  

 
*courtesy of netdania.com

U.S data continued to show an improving economy

During the week the US released inspiring economic data, which included the aforementioned industrial production as well as Retail Sales, and the Philadelphia Federal Reserve survey. Retail sales jumped in August by the largest amount in more than three years, spurred by widespread gains beyond the expected increases of auto sales from the government's Cash for Clunkers program. The Commerce Department said Tuesday that retail sales rose a seasonally adjusted 2.7 percent last month, after falling 0.2 percent in July. It was the largest gain in three-and-a-half years and beat analysts' expectations of a 2 percent increase. 

The Philly Fed Survey, a broad measure of manufacturing conditions, increased from ?7.5 in July to 4.2 this month. The percentage of firms reporting increases in activity (27%) was slightly higher than the percentage reporting decreases (23%). Other broad indicators also suggested improvement. The current new orders index edged six points higher, from ?2.2 to 4.2, also its highest reading since November 2007. The current shipments index increased 10 points, to a slightly positive reading.

The positive data sparked renewed buying during the week on the equity markets, as the major indices continued to climb during the week. The S&P 500 touched new highs for 2009, closing the week higher by 25.5 points or 2.45%. From a weekly perspective, the S&P 500 continues to move away from its head and shoulder breakout pattern and now seems like it is heading for its 200 weekly moving average, located at 1250 points. Despite that fact, one must note that the daily chart is showing signs of being overbought. Current price levels could lead to a pull back before the next leg higher.

S&P500 - Daily Chart

This week’s data:

Even though the economic calendar is relatively light on data next week the U.S should continue to lead the markets, due to an upcoming interest rate decision. Even though a no change status is expected by most traders, growing speculation that the Fed could raise rates in months to come are weighing on the investors. While the decision itself should pass with no major affect on the price movement, many will be observing the statement that is expected to be released shortly after. Furthermore when taking a glance at yields, one can see that the curve is now pricing in future rate hikes.

In addition to the awaited rate decision, the U.S will release its leading indicators, durable goods, existing and new home sales. The housing data will be closely scrutinized by investors especially as recent data has shown a dramatic improvement, compared to previous months. According to the National Association of Home Builders, confidence edged up again in September, despite an ease in single family starts.