Fundamental Overview – Market Movers 11/29/2010

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The greenback continued to show a lot of strength, making nice gains against the vast majority of major currencies last week,Only the  New Zealand Dollar made a nice +0.6 percent gain versus the green note.

The past week’s talk of defaults from Irish banks continued to some extent last week as the Irish financial crisis remained the focus of international financial markets for most of the week and substantially affected the forex market.

The Japanese Yen declined last week and was the biggest loser against the Greenback among all the major currency pairs, falling by -1.2 percent. The Yen was followed by the Pound Sterling, which shed -0.9 percent, and the Canadian Dollar also lost -0.9 percent against the Greenback.

Furthermore, the other commodity dollars turned in a mixed performance with the Australian Dollar losing only eleven pips or -0.1% on the week and ending virtually unchanged, while the New Zealand Dollar was the only major currency which gained ground against the U.S. Dollar last week, rising by +0.6 percent.

The Euro — which was under considerable pressure last week due to the crisis situation in Ireland — closed on Friday of last week also virtually unchanged against the Greenback, ending the week lower by a mere seven pips.

Overall, the U.S. Dollar Index rose by +0.42 last week from 78.08 to 78.50, and it showed a net gain of +0.54 percent on the week. The Dollar Index is now showing a net gain of +0.64 points or +0.83 percent for the year to date.

The United States economic calendar picked up last week versus the previous week; however, U.S. economic releases remained mixed. Positive exceptions were the Retail Sales number out early last week and the Philly Fed Manufacturing Index that each showed considerable improvement for the U.S. economy.

Specifically, U.S. Retail Sales improved by +1.2 percent last week, versus a previous +0.7 percent number that was revised up from +0.6 percent, with the market consensus expecting only a +0.7 percent rise. Also, the Philly Fed Manufacturing Index released on Thursday was by far the most impressive economic release for the United States last week. The important indicator came out at 22.5 versus a previous reading of just 1 when the market’s consensus was only expecting a 5.1 number.

U.S. Dollar Continues Gaining on Risk Aversion

The Greenback’s diminishing strength last week seems to have had much to do with the diminishing level of risk appetite in the market among international investors. Risk aversion increased considerably in the wake of the uncertainty in the European Union that was led by the Irish financial crisis coming to a head last week.

The Euro’s problems began the previous week with the Irish bond market taking a significant hit after margins were doubled from 15 to 30 percent by LCH.Clearnet for investors holding Irish bonds. This news and rumors of an imminent Irish bank bailout prompted a run on Irish banks and general nervousness among investors.

The critical situation in Ireland continued weighing on the Euro and soon became the focus of international markets as investors around the world reacted with concern to the developing debacle.

The Irish situation also put additional pressure on the debt markets of Spain and Portugal fueling a rally in the CDSs for the debt of those countries. Nevertheless, the situation seemed to have been brought under control by the end of the week with Ireland finally accepting a joint IMF/EU emergency bailout package.

EURUSD reacted considerably to the events by dropping significantly early in the week. Nevertheless, it managed to rally back on Wednesday, Thursday and Friday as the prospects for a viable solution involving Ireland accepting the emergency joint debt relief package from the EU and IMF became more likely towards the end of the week.

After the dust had settled, the Euro ended the week on Friday off by a mere 7 pips overall versus the previous weekly close, and so was virtually unchanged against the Greenback for the week.

Commodity Currencies Mixed

The Greenback turned in a mixed performance against the commodity dollars last week. It rose against the Canadian and Australian Dollars while declining against the New Zealand Dollar, as the price of gold and crude oil declined for the second consecutive week.

The Greenback gained +0.9 percent against the Canadian Dollar in the wake of mixed economic numbers out of Canada and safe haven buying of the Greenback. The Australian Dollar ended the week unchanged for the most part, closing down eleven pips or -0.1%.

For its part, the New Zealand Dollar was the only major currency which gained against the Greenback last week after having lost -2.9 percent the previous week. The Kiwi gained +0.6 percent overall last week and benefitted considerably from higher than expected New Zealand inflation numbers out last Thursday.

The inflation numbers showed New Zealand’s PPI Input had increased by +0.7% for the quarter, compared with an expected rise of only +0.4%. In addition, New Zealand’s PPI Output had increased by +1.2% for the quarter versus a consensus of a mere +0.6% rise.

The high producer price inflation numbers came after a notable decrease in the N.Z. unemployment rate from 6.9 percent to 6.4 percent seen earlier in the month. The combination makes the likelihood of an RBNZ rate hike considerably more likely in the near term to combat possible inflationary pressures.

Yen and Sterling Weakest Performers against the Greenback

The Japanese Yen and the Pound Sterling were the weakest of the major currencies last week against the U.S. Dollar.

The corrective rise of +1.2 percent in USDJPY comes after the rate continued making lower lows — with the exception of the previous week — since mid September when the BOJ most recently entered the currency market to intervene in order to bring down the value of the Yen.

The Pound Sterling also declined against the Greenback last week, falling by -0.9 percent. According to an estimate published in the Sunday Telegraph over this past weekend, British banks have more than £140B in exposure to Ireland and its current financial crisis. As a result, any worsening in the Irish crisis situation could put further pressure on Sterling, as well as on the Euro.

Weekly Recap and Outlook for the U.S. Financial Markets and Dollar – 11/29/2010 The U.S. Dollar gained considerable ground against all of the major currencies last week amid increasing uncertainty among investors over the Irish, Spanish and Portuguese financial situations in the European Union. The increased risk aversion was further exacerbated by increased aggression from North Korea against South Korea, which strengthened the Greenback considerably against all of the major currencies last week. Read full report

Weekly Recap and Outlook for EURUSD – 11/29/2010 Last week’s trading sessions saw EURUSD come off considerably after having closed the week before almost unchanged. The pair started the week off by gapping higher on Monday to make its weekly high of 1.3785 before then leading lower. The pair then fell sharply after Moody’s Investor Services warned the market that it might have to make a multiple notch downgrade for Irish debt. The rating agency noted that the rescue package from the EU and the IMF would, “crystallize more bank-contingent liabilities on the government balance sheet, and increase the Irish sovereign’s debt burden.” Over the previous weekend, the Irish government had agreed to the joint EU/IMF bailout program, which is currently estimated to be between 80 and 100 Billion Euros. Read full report

Weekly Recap and Outlook for GBPUSD – 11/29/2010 Last week’s trading sessions saw GBPUSD give up considerable ground as investor risk aversion based on European financial concerns hurt the Pound, in addition to unrest among North and South Korea lending safe haven support to the U.S. Dollar.   Read full report

Weekly Recap and Outlook for AUDUSD – 11/29/2010 The Last week’s trading sessions saw AUDUSD fall sharply as the Aussie was hurt by increased risk aversion among international investors due to the worsening European financial crisis, and the U.S. Dollar benefitted from saber rattling among North and South Korea.   Read full report

Weekly Recap and Outlook for NZDUSD – 11/29/2010 Last week’s trading sessions saw NZDUSD drop sharply on the back of a flight to quality that benefitted the U.S. Dollar after the previous week’s modest rise. Read full report

Weekly Recap and Outlook for USDJPY –  11/29/2010 Last week’s trading sessions saw USDJPY continue its rally on the back of growing risk aversion that permeated financial markets due to the Irish financial crisis and safe haven U.S. Dollar buying that emerged as the risk of armed conflict among North and South Korea increased. The week began on a relatively quiet note, with the USDJPY rate dropping somewhat initially as the Japanese observed their Labor Thanksgiving Day Bank Holiday on Monday. Read full report

Weekly Recap and Outlook for USDCAD – 11/29/2010 Last week’s trading sessions saw USDCAD trade in a volatile range as the U.S. Dollar benefitted somewhat from increased risk aversion and safe haven buying. Read full report

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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