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The U.S. Dollar lost considerable ground against all the major currencies last week, with the exception of the Japanese Yen which lost -1.2% against the Greenback.

The U.S. Dollar’s decline was attributed primarily to the release of QE II, the new quantitative easing measures announced by the U.S. Federal Reserve Bank with the intention of stimulating the weak U.S. economy.

The U.S. Dollar Index declined by -0.72 last week from 77.27 to 76.55, and showed a net loss of -0.93 percent on the week. The Dollar Index is now showing a net loss of -0.73 points or -0.96 percent for the year to date.

The U.S. Dollar’s  dismal performance last week had the New Zealand Dollar gaining by a whopping +4.3%, while the Australian Dollar gained by +3.5% and the Canadian Dollar, rose by +1.5% making up the best overall performers among the major currencies.

Furthermore, the Pound Sterling gained +1.0% while the Euro gained 0.8%. The Japanese Yen, the only loser against the U.S. Dollar last week, declined by a net -1.2% after making a fresh 15-year low early last week.

U.S. Dollar Performance Suffers after Fed Announces QE II and Republican Win

The U.S. Dollar’s weak performance last week came after the U.S. Federal Reserve announced on November 3rd that they would leave the Federal Funds Rate at “¹0.25% and the new QE II stimulus package would consist of a $600B buyback of U.S. Treasury securities by the end of 2011.

The QE amount the Fed announced, was shy of the consensus of the $500B over six months the market anticipated, but because the implementation would be over a longer period “” and also considering the tentative reinvestment the Fed plans to make in Mortgage Backed Securities “” the total amount for QE II would come to approximately $880B through June of 2011.

Nevertheless, economic releases for the United States last week showed considerable improvement in employment and the manufacturing sector giving renewed hopes that the U.S. economy is on the verge of making a turnaround.

Adding to the Greenback’s   weakness last week against the New Zealand and Australian Dollars was the price of gold making yet another new all time high last week. The price of gold rallied to $1,398.13 before closing the week up $37.57 or +2.7 percent.

Economic data out of the United States last week improved a bit compared with the mostly mixed to negative data seen in recent weeks.

For example, the key Non Farm Payrolls data out last Friday indicated the U.S. economy had added +151K new jobs last month which was significantly higher than the +63K number the market had anticipated. In addition, the previous number was revised significantly higher from -95K to -41K. Nevertheless, Initial Jobless Claims increased to 457K while Pending Home Sales declined by -1.8 percent.

In addition to the mixed U.S. economic data and the Fed’s new plans for easing, the U.S. Dollar also felt the effects of the U.S. mid term Congressional elections last Tuesday that increased political uncertainty by splitting Congress among the two major parties.

The U.S. elections gave the Republicans an estimated majority of 239 seats versus the 188 seats for the Democrats in the House of Representatives, while the Democrats continued to maintain a majority in the Senate by an estimated 51 to 46 seats.

Because of the Republican victory in the House of Representatives, the Democrats will find it increasingly difficult to implement their policies and this more challenging political environment may put additional pressure on the U.S. Dollar.

USDJPY Makes a new 15 Year Low Before Trading Higher

The beginning of last week saw the U.S. Dollar make a new 15 year low of 80.24 against the Japanese Yen during last Monday’s session, bringing the rate closer to its post World War II low of 79.75.

The BOJ released the Minutes from its October monetary policy meeting last Tuesday, and the meeting minutes reflected the BOJ’s intention to reduce the Overnight Call Rate from 0.1% to a range of 0.0% –  0.1%. In addition, the BOJ expanded the Japanese asset purchase program to include ETFs and REITs.

With that noted, several BOJ policymakers expressed their concern that,

“if interest rates declined to an excessive degree, the negative effects of that decline would be larger than monetary easing effects, since the financial intermediary function would be impaired by the lower returns of financial institutions and investors.”

Nevertheless, USDJPY recovered considerably in the absence of any BOJ intervention, and it even managed to end the week higher by +1.2 percent overall. This marked one of the Dollar’s better performances in weeks against the persistently strengthening Yen.

Commodity Dollars Biggest Winners Against the Greenback

The New Zealand Dollar was the best performer against the Greenback last week, trading at levels not seen since June of 2008 and rising by an impressive +4.3% on the week.

The Kiwi’s  sharp rise was attributed in part to the new all time high made in the price of gold, the RBA’s surprise rate hike, and the unexpected improvement in the New Zealand Unemployment Rate which dropped to 6.4% versus an expected 6.7%. Also, the New Zealand Employment Change increased by +1.0% in the last quarter, which was higher than the expected increase of just +0.5%.

The Australian Dollar was last week’s second best performer against the Greenback after the Kiwi, rising by +3.5% and making new post 1983 float highs yet again. AUDUSD gained in part because of the surprise move by the RBA to raise the benchmark Cash Rate by 25 bps to 4.75% from 4.50% last Tuesday.

Also giving the Aussie and Kiwi support was a strong Manufacturing PMI number out of China early in the week, which came out at 54.7 versus the 53.5 number expected.

AUDUSD went over parity on Wednesday and continued trading higher the rest of the week. The pair eventually made a new long term high of 1.0182 on Friday before coming off somewhat, although still closing the week above parity at 1.0149.

The Canadian Dollar also rose against the Greenback last week as the price of crude oil gained considerably, rising $5.42 per barrel or 6.66%. on the week Adding to the Loonie’s strength against the Greenback was Canadian Building Permits data, which rose by a whopping +15.3% month on month. This result surprised the market which had expected an increase of only +3.0%.

Forex Market Implications

After last week’s dismal performance, the U.S. Dollar may be ready to continue its downtrend against most of the other major currencies, with the possible exception of the Japanese Yen.

Nevertheless, some caution in shorting the Greenback this week is advised, mainly because of the increasingly oversold condition of the U.S. currency against the other majors that may prompt a corrective pullback.

In addition to the technicals indicating a possible bounce for the Greenback, the U.S. economy seems to be showing some fundamental improvement in key sectors such as manufacturing and employment.

The gains in these fundamental indicators may signal a favorable turn in the U.S. economic picture which will likely be reflected in gains for the U.S. currency against other major currencies over time.

Going forward, the market will now be watching Wednesday’s U.S. Trade Balance and the upcoming G-20 meetings in Seoul, South Korea just before next weekend to get a better sense of the direction of the U.S. Dollar.

Weekly Recap and Outlook for the U.S. Financial Markets and Dollar –  11/08/2010 The U.S. Dollar declined for the most part against the other major currencies last week, with the notable exception of the Japanese Yen against which it rose by +1.2%. Despite rising only against the Japanese Yen last week, the Greenback made a fresh 15 year low of 80.24 on Monday against the Japanese currency before trading higher. Read full report

Weekly Recap and Outlook for EURUSD –  11/08/2010 EURUSD made some headway to the upside last week as the Greenback suffered int the wake of the U.S. Federal Reserve Bank announcing its much awaited new stimulus program known as QE II in the markets. The rate started off the week by trading on a soft note on Monday, making its weekly low point at the 1.3863 level in spite of weaker U.S. economic data. Specifically, the Core PCE Price Index was released showing a flat reading for the month versus an anticipated gain of +0.1%, U.S. Personal Spending rose by only +0.2% versus an anticipated +0.4% rise, and U.S. Personal Income fell by -0.1% for the month versus an anticipated gain of +0.3%.   Read full report

Weekly Recap and Outlook for GBPUSD –  11/08/2010 GBPUSD continued gaining last week, adding to the previous week’s impressive +2.1% gain. Cable began the week on a quiet note, as the rate traded in a narrow range on Monday after U.K. Manufacturing PMI was released at the 54.9 level versus an anticipated 53.2 print. Last Monday saw the release of generally weaker U.S. economic data. In particular, the Core PCE Price Index showed a flat reading for the month compared with an expected rise of +0.1%. Also, U.S. Personal Spending gained by just +0.2% compared with an anticipated +0.4% rise. Finally, U.S. Personal Income fell by -0.1% for the month compared with the anticipated rise of +0.3% the market was looking for.    Read full report

Weekly Recap and Outlook for AUDUSD – 11/08/2010 The Aussie made new post 1983 float highs yet again last week, trading significantly over parity and holding above that key psychological level to close the week above parity for the first time since the currency was allowed to float in the 1980’s.   Read full report

Weekly Recap and Outlook for NZDUSD –  11/08/2010 NZDUSD rallied sharply last week to make a new intermediate high by trading at levels not seen since June of 2008. The week began on a positive note, with the Kiwi trading off of its weekly low of 0.7633 seen on Monday after New Zealand ANZ Commodity Prices rose by +3.5% versus a previous reading of +2.9% that was revised down to +2.8%. Last Monday also saw the release of generally weaker U.S. economic data. In particular, the Core PCE Price Index showed a flat reading for the month compared with an expected rise of +0.1%. Also, U.S. Personal Spending gained by just +0.2% compared with an anticipated +0.4% rise. Finally, U.S. Personal Income fell by -0.1% for the month compared with the anticipated rise of +0.3% the market was looking for. Read full report

Weekly Recap and Outlook for USDJPY – 11/08/2010 USDJPY traded lower initially and then spike sharply higher last week as the BOJ did not make any significant policy changes in response to the Federal Reserve’s fresh QE II measures that came out on Wednesday. The pair began the week by selling off to make yet another 15 year low and its weekly low point at the 80.24 level on Monday, but USDJPY then reversed and rallied sharply. The new high for the Yen was made after news broke that Japanese Average Cash Earnings had rose by +0.9% for the year, which was considerably better than the consensus of a +0.5% gain. Also, the previous number was revised upward from a flat reading to +0.4%.   Adding further support to the Yen last Monday was the release of generally weaker U.S. economic data. In particular, the Core PCE Price Index showed a flat reading for the month compared with an expected rise of +0.1%. Also, U.S. Personal Spending gained by just +0.2% compared with an anticipated +0.4% rise. Finally, U.S. Personal Income fell by -0.1% for the month compared with the anticipated rise of +0.3% the market was looking for. Read full report

Weekly Recap and Outlook for USDCAD – 11/08/2010 USDCAD lost considerable ground last week in the absence of any significant economic data coming out of Canada early in the week. The rate started the week by trading off of its weekly high of 1.0202 seen on Monday as weaker U.S. numbers were released. In particular, the Core PCE Price Index showed a flat reading for the month compared with an expected rise of +0.1%. Also, U.S. Personal Spending gained by just +0.2% compared with an anticipated +0.4% rise. Finally, U.S. Personal Income fell by -0.1% for the month compared with the anticipated rise of +0.3% the market was looking for. Read full report

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