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The U.S. Dollar continued its decline against most of the other major currencies last week, with the exceptions of the New Zealand and Canadian Dollar that were each a few pips lower. Nevertheless, the Dollar’s fall last week was not as dramatic as previous weeks against the other major currencies that each gained only fractionally.

The Japanese Yen was the best overall performer against the Greenback for the second straight week, rising 0.8 percent last week. The Yen was followed by the Australian Dollar and the Euro which both gained 0.3%, while the Pound Sterling gained 0.2%.

Both the Canadian Dollar and the New Zealand Dollar closed last week virtually unchanged, with the Loonie declining by a mere 7 pips and the Kiwi losing by just 4 pips versus the U.S. Dollar.

Overall, the U.S. Dollar Index lost -0.28 points last week to close at 77.04, showing a net loss of -0.37 percent on the week. The Dollar Index is now showing a net loss of 0.82 points or 1.05 percent for the year to date.

U.S. Dollar Declines Further After FOMC Minutes Indicate QE II Imminent

The U.S. Dollar’s net modest decline last week was in part due to the dovish FOMC Minutes released last Tuesday which indicated that the Federal Reserve may soon be ready to implement its second round of quantitative easing as early as November.

The market is concerned that the fresh measures could flood the market with even more freshly printed U.S. Dollars, thereby increasing the U.S. money supply and bringing the value of the Greenback down.

The fractional decline in the U.S. Dollar against most of the other major currencies was also influenced by the mixed nature of U.S. economic releases seen last week. Key employment numbers from the United States continue to weaken, while some numbers “” such as Retail Sales “” showed some improvement.

Another symptom of the overall weakness in the Greenback was the price of gold making yet another all time high last Thursday by trading up to the $1,387.10 level. Nevertheless, it then sold off sharply to close the week at $1,368.37, showing a net gain of $26.00 or +1.92 percent on the week. Also, Crude Oil declined by -$1.41 per barrel or -1.71% on the week to close at $81.25 versus the $82.66 close seen the previous week.

Also putting pressure on the U.S. Dollar last week were comments by Fed Chair Ben Bernanke who stated on Friday that,

“at current rates of inflation, the constraint imposed by the zero lower bound on nominal interest rates is too tight and risk of deflation is higher than desirable,”

This statement hints that the Fed’s pending implementation of a suspected new stimulus package may almost be a done deal from Bernanke’s perspective.

Furthermore, such easing measures may be necessary to breathe some life into the U.S. economic recovery since recent economic data out of the United States continues to be sluggish at best. Also, many economic sentiment surveys still reflect the fundamental lack of confidence in any “recovery” in the United States

The Yen Makes Yet Another New High Against the Greenback

The previous week’s statements by Japanese finance and banking officials indicated the lack of willingness of the BOJ to further intervene to weaken the Japanese Yen near present levels after September’s failed attempt to stem the Yen’s upward trend.

In perhaps another attempt to spark some Yen selling, BOJ Governor Shirakawa stated on Friday that,

“It has become more likely that the return of Japan’s economy to a sustainable growth path with price stability will be delayed.”

Nevertheless, that negative comment still did not stop the forex market from taking the Yen to yet another 15 year high against the U.S. Dollar. The Greenback traded as low as 80.86 Yen last Friday, before recovering somewhat to close the week at 81.41.

Australian Dollar Makes a Fresh Post Float High Over Parity

The Australian Dollar made a new post float high against the Greenback last week, as AUDUSD traded over the key psychological parity level of 1.0000 for the first time since the Aussie was allowed to float against the other major currencies in 1983.

The sharp rally in the Australian Dollar seen late last week was supported by the rise in the price of gold to new all time highs on Thursday. The price of gold reached a new all time high of $1,387.10 before subsequently coming off steeply, although still closing higher on the week.

The Australian Dollar was allowed to float against the other major currencies in December of 1983, and it has never before traded as high at 1.0003 versus the Greenback since that time roughly 27 years ago.

According to some long term chartists, the all time high in the Australian Dollar actually happened way back in December of 1973 when AUDUSD hit the much higher 1.4900 mark.

Forex Market Implications

While the Greenback continued showing weakness last week, the steep decline in the U.S. Dollar seen over the past six weeks indicates that an appropriate correction may soon be forthcoming.

A hint of this can be seen in the steep post high corrective decline in the price of gold, which dropped down as low as $1,352.69 per ounce in early trading on Monday. The Euro was also down considerably in early trading on Monday, falling down to 1.3830 from a high of 1.4158 made during last Friday’s session.

Furthermore, a short term correction for the U.S. Dollar would help consolidate the recent gains in the Euro and Sterling, as   well as in the Australian Dollar that should make another move over the parity level in the not so distant future.

The Kiwi and Loonie also continued to be favored versus the Greenback. Nevertheless, waiting for an appropriate pullback level to go short the Greenback would seem to make sense at this point.

The Japanese Yen is also favored against the Greenback, although with an added degree of caution on long Yen positions since the BOJ may decide to implement further intervention to stem the Yen’s rise at any time that could spark a large retracement.

Nevertheless, once any intervention driven spike in USDJPY has peaked, such a situation would seem like just another good Yen opportunity.

Weekly Recap and Outlook for the U.S. Financial Markets and Dollar –  10/18/2010 The U.S. Dollar continued losing some ground against most of the other major currencies last week, although it fell somewhat less than in previous weeks. The Greenback dropped only fractionally against the other majors, with the exceptions of the New Zealand Dollar against which it rose by a mere four pips and the Canadian Dollar against which the U.S. Dollar was up by just seven pips.          Read full report

Weekly Recap and Outlook for EURUSD –  10/18/2010 EURUSD furthered its recent rally during last week’s trading sessions, gaining ground for the fifth consecutive week and trading to a new recent high at a rate that has not been seen since this past January. EURUSD started off the week with a softer tone as U.S. markets were closed in observation of the Columbus Day U.S. Bank Holiday.   Read full report

Weekly Recap and Outlook for GBPUSD –  10/18/2010 GBPUSD saw relatively volatile trading conditions in last week’s sessions, although the Pound Sterling eventually continued to gain ground versus the beleaguered Greenback. Cable started last week off by trading on a soft note on Monday in the wake of the failure of the IMF meetings over the preceding weekend to alleviate tension in the forex market and as U.S. markets were closed in observance of the Columbus Day Bank Holiday. Read full report

Weekly Recap and Outlook for AUDUSD – 10/18/2010 AUDUSD traded slightly above the key psychological parity level for the first time last week since the Australian Dollar was permitted to float in 1983 against the other major currencies. The move higher in the Aussie was in part driven by the price of gold trading to yet another fresh all time high at the $1,387.10 level last Thursday. The rate started out the week with a strong tone on Monday as U.S. markets were closed in observance of the Columbus Day Bank Holiday.      Read full report

Weekly Recap and Outlook for NZDUSD –  10/18/2010 NZDUSD traded up to hit fresh recent highs during last week’s sessions, before selling off to close the week pretty much unchanged. The rate started the week out by trading with a weaker tone during last Monday’s session as U.S. markets closed for the Columbus Day Bank Holiday.  Read full report

Weekly Recap and Outlook for USDJPY – 10/18/2010 USDJPY continued to fall last week, as Yen traders demonstrated increasing confidence in taking the Japanese currency higher in the wake of the statements made the previous week by Japanese finance officials that indicated the Bank of Japan would not take immediate action to counteract the strengthening Yen. The rate began the week by trading firmer as Japanese markets were closed to observe the Health Sports Day Bank Holiday and U.S. markets were also closed for the Columbus Day Bank Holiday. Read full report

Weekly Recap and Outlook for USDCAD – 10/18/2010 USDCAD traded down below the important psychological parity level for the first time since April of this year, falling down as far as the 0.9979 level last week before bouncing into the close. The pair began the week by trading on a positive note on Monday as U.S. markets were closed in observation of the Columbus Day Bank Holiday. Canadian markets were also closed as Canadians celebrated their Thanksgiving Day on Monday. Read full report

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