U.S. Dollar Finishes Higher for Week after Posting 14-Month Low
After a sharp sell-off earlier in the week, which took a
basket of currencies to a 14-month high versus the Dollar, the greenback
managed to post a small gain.The strong
comeback in the Dollar was helped on Friday by an early sell-off in stock index
futures and a weaker than expected consumer confidence figure.
About mid-week, the Dollar was under pressure because of a
FOMC minutes report which suggested the Fed had no basis for raising interest
rates in the near term, despite comments from Bernanke the week before.The minutes showed that the FOMC was
considering increasing the amount of stimulus to help the economy out of
recession.Fed Chairman Bernanke implied
the week before that the Fed was already considering a tight monetary policy
should the economy show signs of recovering.Bernanke‚Äôs comments supported the Dollar, but the FOMC minutes gave
traders the green light to sell Dollars.
While weakness is in the Dollar seems justified, the pace of
the decline should be of some concern because global economic conditions are
not that great to warrant an outright attack on the Dollar.At times it seems Forex investors are
ignoring weak economic reports and are instead focusing on the upside momentum
in the equity markets to be their guide.Taking long positions against the Dollar because of the strength in the
stock market could backfire on traders particularly in the Euro if global
investors decide to begin limiting their demand for higher yielding assets.
The Euro closed up on the weekly chart, but managed to form
a daily closing price reversal top on the daily chart.Based on this pattern, a follow-through to
the downside next week could trigger a short-term correction to 1.4724 to 1.4781.Traders should also watch for comments from
the European Central Bank regarding the rapid rise in the Euro and its possible
detrimental effects on the Euro Zone economy.
The biggest gain for the week was posted by the GBP
USD.After trading down to 1.5706
earlier in the week, the British Pound rallied sharply higher.Speculation that the Bank of England would
end its asset buyback program earlier than expected helped to ignite the rally.This speculation was triggered by positive
comments which suggested the program was working exactly as expected.
The USD CAD finished lower for the week, but in a position
to rally further because of a reversal on the daily chart late in the
week.Traders were nervous as this
market approached parity with the U.S. Dollar and because of comments from
Prime Minister Harper.In a statement,
he said he was concerned about the rapid rise in the Canadian economy and its
possible negative effects on the economy.On Friday, the USD CAD received a boost from another bearish Canadian
The USD CHF is poised to mount a short-covering rally.Weak Swiss retail sales helped boost the
Dollar versus the Swiss Franc on Friday.Buyers stepped in when the market approached the July 2008 bottom at
1.0010.The daily chart indicates a
rally to 1.0569 to 1.0676 is likely.
The USD JPY rallied this week, buoyed by comments from
Finance Minister Fujii who retracted comments from earlier in the month that he
favored a strong Yen.Current data
suggests that Japanese investors are betting on a recovery in the Dollar.The current chart formation suggests a rally
to 92.88 to 94.04 is likely over the short-run.
Demand for higher yields and speculation of interest rate
hikes helped to drive the AUD USD and NZD USD higher earlier in the week.Both markets reached 14-month highs during
the rally.A sharp break in equity
markets early on Friday helped trigger a profit-taking break in the Aussie and
Kiwi as traders feared the start of the long awaited correction in U.S. equity markets.
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