The U.S. Dollar finished at a 15-week high buoyed by debt
concerns in Greece
and the Fedâ€™s release of more detailed plans to remove excess liquidity from
the financial system.
The U.S. Dollar opened the week lower after Abu Dhabi ponied up $10 billion to shore up
the debt of Dubai World.This break was
short-lived, however, because speculators bought on the break in anticipation
of more hawkish comments from the Federal Reserve. The Dollar remained steady
after the Federal Reserve released its monetary policy statement on Wednesday,
but soared on Thursday following an S&P downgrade of Greeceâ€™s debt.Friday, the Dollar traded mixed as traders
alternated between demand for risk and risk aversion.
Earlier this week, the Fed offered commentary on the
economy, saying that deterioration in the labor market was â€śabatingâ€ť.This statement was a reaction to the decline
in the unemployment rate earlier in the month from 10.2% to 10.0%.The Fed did reiterate, however, that it will
keep its benchmark interest rate at a historically low level for â€śan extended
Bernanke and his friends also said â€śHousehold spending
appears to be expanding at a moderate rate, though it remains constrained by a
weak labor market, modest income growth, lower housing wealth and tight
credit.â€ťThis statement can be
interpreted to mean the Fed still wants to see people getting jobs, consumers
spending and banks lending money.
The EUR USD finished the week sharply lower.Economic reports were largely ignored this
week as traders chose to focus on the developing debt concerns in Greece, Spain
and Portugal.These problems will not go away until
addressed by the European Central Bank.Some traders feel that the other shoe is about to fall if Moodyâ€™s rating
services decides to downgrade any of these three countries.No one is certain if there are other
countries facing similar debt problems.This crisis may spread to Ireland or Western European
nations. The Fed announcement is old news.Traders should pay close attention to the debt issues.Look for the situation to fester for some
time and maybe even turn explosive.This
could mean serious downside pressure for the Euro.
Despite efforts to hold the British Pound steady, sellers
finally took control to drive the GBP USD lower for the week.Debt
issues in Europe are raising concerns that U.K. banks may face exposure to bad
debt.In addition, the U.K. has debt
ratings issues of its own to worry about.The story that the U.K.
debt rating may fall below AAA is still out there and helping to limit upside
movement.Until the budget gets fixed,
look to be a seller on rallies.
The weakness in the equity markets is triggered another
round of carry trade reversals this week which is helped pressure the Japanese
Yen. On Friday the Bank of Japan left its benchmark interest rate at
0.10%.In addition, it hinted that its
biggest concern remains deflation.Overall there were no surprises in the policy statement.Look for pressure on the Yen to continue if
equity markets continue to weaken.The
unraveling of the carry trade could have significant consequences for the Yen.
USD CAD tried to break out to the upside, but a geopolitical
event on Friday forced traders to think otherwise.Improvements in the U.S. economy
seem to be spilling over to the Canadian side of the border. This means the
Canadian Dollar will become more sensitive to news which affects their exports
- gold and crude oil.If the Iranian
takeover of an Iraqi oil field develops into something, oil prices could shoot
up, taking the Canadian dollar with it.
The USD CHF was up big this week. Traders not only reacted
to the possible hike in U.S.
interest rates but also to the growing debt issues in Europe.
Traders sold the Swiss Franc earlier in the week on concerns the sovereign debt
issues in Europe would adversely affect the
Swiss Banking system.Higher gold prices
could save the Swiss Franc from a hard fall.
The AUD USD seems to be on the brink of falling further as
demand for higher yielding assets declines. Traders pressured the Aussie this
week because of the strong possibility the U.S. will begin raising interest
rates.This event will trim the spread
between Australian and U.S.
rates since the Reserve Bank of Australia
is likely to take a pause in its quest to raise rates, making the Aussie a less
A similar situation is facing the NZD USD.A reduction in demand for higher yielding
assets is pressuring the Kiwi, but losses have been limited because of hawkish
comments from the Reserve Bank of New Zealand earlier this month.This market is now in a position to test the
â€śRBNZ bottomâ€ť at .7043.Taking out this
price will erase all of the gains attributed to the hawkish comments from the
central bank.With the U.S. seemingly
on a path to higher rates, look for more pressure on the New Zealand Dollar.
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