Dollar Closes Higher for Week against a Basket of Currencies
After reaching a 15 month low early in the week, the U.S.
Dollar closed higher for the week against a trade-weighted basket of
currencies.Technically, this closing
price reversal, once confirmed, often leads to a 2 to 3 week retracement.The daily chart suggests that a move through
77.50 is necessary to turn the main trend to up.
The low for the week for the Dollar was posted shortly after
Fed Chairman Bernanke mentioned his concern for the Dollar in a speech.Although he never said the Dollar was too
weak, he did say that the Fed would monitor its value to make sure that it did
not interfere with its mandate to shore up employment and maintain price stability.
At first this statement seemed like the similar lip-service
the Treasury usually produces when asked about the Dollar. Traders definitely
reacted this way when they sent the Dollar lower and stocks higher.The next day, however, European Central Bank
President Trichet stated he agreed with Bernanke then proceeded to talk up the
Dollar.In my opinion, it was the
statement by Trichet which had the most impact on the Dollar as it put an end
to the rally in the Euro.
Also this week, President Obama asked the Chinese government
to adjust the price of the Yuan to help make the Dollar more competitive.This was met by a stern response by Chinese
officials who called for the U.S.
to get its own house in order first.Last week, the Chinese government announced that it was willing to
change the methodology it uses to value the Yuan.Global pressure is most likely to force them
to follow-through with their plan.This
news helped slow down the pace of the Dollarâ€™s decline this week, and may have
been a contributing factor to this weekâ€™s rally.
The recent barrage of negative reports about the Dollarâ€™s
demise may have enticed trend traders to overload the Dollar on the
short-side.If a trap was set and an
excessive amount of shorts bit on the Bernanke comment, then the Dollar is set
up for a huge short squeeze.This weekâ€™s
closing price reversal could be the first sign that a massive short-covering
rally is just starting.
This week, traders left higher risk assets in droves.This was especially evident in the equity
markets by the closing price reversal tops in both the S&P 500 and
NASDAQ.An early end of the year
liquidation could be taking place in equities which could add additional upside
pressure on the Dollar during the holiday shortened week coming up.
Gold traders donâ€™t believe the Dollar will rally as
this market closed near the high for the week.If they do believe then they are disguising it well.This is why traders should be careful about
going aggressively long the Dollar. The Dollar will not rally much without some
indication that gold traders are willing to cut back on their buying activity.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
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POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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