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The U.S. Dollar shot up against all the major currencies last week on renewed risk aversion due to the unstable debt situation of the financially weaker members of the European Union, with rumors about a pending Irish default swirling around the market.

In addition, last week was the first week since early October that the Greenback did not make a new 15 year low against the Japanese Yen, and it even appears that a reversal may now be in place for that pair.

Furthermore, the commodity dollars all declined considerably when gold sold off sharply after making a new all time high of $1,424.42 per ounce on Tuesday. Crude oil also sold off after trading over $88.00 per barrel last week.

The U.S. Dollar Index rose by +1.53 last week from 76.55 to 78.08, and showed a net gain of 2.00 percent on the week. The Dollar Index is now showing a net gain of +0.22 points or +0.29 percent for the year to date.

The U.S. Dollar’s strong performance last week had the New Zealand Dollar dropping by -2.9%, giving back most of last week’s +4.9% gain, while the Australian Dollar also declined by -2.9%.   Furthermore, the Euro closely followed the drop in these commodity currencies by losing -2.6% on the week, while the Japanese Yen shed -1.3%.

For its part, the Canadian Dollar was off by just -0.9%, which made the Loonie one of the week’s better performers overall among the major currencies. The Pound Sterling was last week’s best overall performer against the Greenback, and lost only -0.3% net on the week.

The United States economic calendar was fairly sparse last week as the Veteran’s Day Bank Holiday was observed by U.S. markets on Thursday. The U.S. Trade Deficit was the main item last week coming out at a deficit of -44B versus a consensus of a -45B deficit.

 

U.S. Dollar Rebounds Strongly Versus Euro on Risk Aversion

 

The Greenback’s strength against all the other major currencies last week came about largely from the renewed worries in the European Union over Irish debt as Credit Default Swaps for Irish sovereign debt went above 600 basis points last week.

The CDSs for the sovereign debt of some other European countries also widened substantially and this prompted a wave of risk aversion among investors that favored the U.S. Dollar.

The Euro came sharply off of its weekly high of 1.4085 made early in the week after rumors swept the forex market about a Greek style default on Irish debt.

The rate then consolidated at lower levels on Wednesday after a Portuguese bond auction managed to raise 1.24B Euros in six and ten year bonds. This rather well subscribed result fell at the upper end of the expected 0.75B – 1.25B Euro range.

 

Wednesday also saw London clearinghouse LCH.Clearnet announce a new 15% margin requirement on Irish sovereign debt positions. This then apparently prompted a bank run in Ireland.

The United States economic calendar was fairly sparse last week, and the U.S. Trade Deficit was the main item out last Wednesday showing a deficit of -44B versus a consensus of a -45B deficit.   The Veteran’s Day Bank Holiday was observed by U.S. markets last Thursday that subdued trading somewhat.

Friday then saw the Euro trade off again to hit its weekly low point of 1.3573 after the yield on Irish 10 year bonds soared to more than nine percent on rumors that Ireland was to get an 80B Euro joint IMF and EU bailout package.

Commodity Currencies Take a Dive

The Aussie and Kiwi were down the most versus the Greenback last week, after having seen significant gains during the previous two weeks, and even after the price of gold reached another all time high last Tuesday.

The Kiwi had gained +4.9% the previous week, but gave back much of its gains as it fell -2.9% last week. Although corrective, the move was influenced by renewed risk aversion stemming from the European debt situation as the market seemed to ignore the otherwise favorable data for New Zealand seen last week.

Also off by -2.9% was the Aussie, which had pushed over the psychological 1.0000 parity level and traded there most of the previous week. The Aussie Dollar’s notable decline was also helped along by a mixed bag of Australian economic data out last week that included an unexpectedly large jump in the Unemployment Rate to 5.4% from the expected 5.0%.

The Canadian Dollar was hurt the least among the com dollars, falling just -0.9% versus the U.S. Dollar last week. It was initially supported by firm crude oil prices that went over $88 per barrel on Thursday, but then sold off sharply on Friday to close lower on the week.

Japanese Yen Fails to Make New High While Pound Sterling loses a Fraction

The Japanese Yen was also down for a change last week, declining by -1.3% overall against the U.S. Dollar after consistently making new 15 year highs every week since two weeks after the BOJ implemented its currency intervention program to help stem the Yen’s persistent strength in mid September of this year.

The BOJ stated in their monthly report early in the week that,

“Japan’s economy is likely to grow at a slower pace for some time, but is expected to return to a moderate recovery path thereafter.”

 

The Pound Sterling proved to be the best overall performer against the U.S. Dollar last week, losing only -0.3% on the week. The rate was under pressure early in the week due to the tension surrounding the Irish sovereign debt situation. Nevertheless, GBPUSD turned around and rallied sharply after the BOE released its quarterly Inflation Report last Wednesday.

In the report, the U.K.’s central bank indicated that inflation in Britain would increase somewhat in the near term. The BOE also said U.K. inflation would likely remain above the central bank’s 2% target level through 2011 due in part to the increase in revenues from the VAT tax and rising import prices.

Weekly Recap and Outlook for the U.S. Financial Markets and Dollar – 11/15/2010 The U.S. Dollar gained ground against all of the major currencies last week as risk aversion once again took center stage in the world market. The rise of the U.S. Dollar last week came on the heels of the previous week’s unveiling of the QE II stimulus measures by the United States Federal Reserve and was spurred by growing concerns over the sovereign debt of Ireland and other financially challenged member nations in the European Union. Read full report

Weekly Recap and Outlook for EURUSD – 11/15/2010 EURUSD retraced a significant amount of its previous rise as the U.S. Dollar gained versus the other major currencies last week on the back of rose risk aversion due to Irish debt worries. The week began on a soft note, with EURUSD trading off of its weekly high of 1.4085 on Monday after talk spread in the market of a Greek style default on Irish debt. In response, the five year Credit Default Swaps on Irish sovereign debt increased and stayed above 600bps. In terms of economic data releases out on Monday, the German Trade Balance showed a surplus of +15.6B compared with +13.2 anticipated, and German Industrial Production fell by -0.8%, considerably worse than the increase of +0.6% anticipated. Read full report

Weekly Recap and Outlook for GBPUSD – 11/15/2010 GBPUSD fell fractionally last week as Sterling held onto much of its recently attained ground against the Greenback. The rate started the week out on a soft note by trading off of its weekly high of 1.6212 on Monday after concerns in the Eurozone about Irish debt had a predictable negative effect on Cable.   Read full report

Weekly Recap and Outlook for AUDUSD – 11/15/2010 The AUDUSD traded with rose volatility last week after the previous weeks’ extended rise which had taken the Aussie firmly above its key parity level compared with the Greenback. The week began with the rate trading lower after the Australian ANZ Job Advertisements rose by only +0.6% for the month, which was considerably lower than the previous number, which was revised upward from +0.7% to +1.1%. Read full report

Weekly Recap and Outlook for NZDUSD – 11/15/2010 NZDUSD gave back most of its formidable gains made the previous week as the Greenback rallied against all of the major currencies. The pair began the week by trading on a softer note in the absence of any significant economic data coming out of New Zealand or the United States. The rate then traded softer from its weekly high of 0.7939 made on Monday and continued its slide on Tuesday, declining sharply as rose risk aversion took its toll on the currency and despite the price of gold making a new all time high of $1,424.42 per ounce. In addition, the Kiwi came off sharply after New Zealand’s Prime Minister John Key voiced his opinion that the rate would probably trade over 0.8000 in the near term and that this would be detrimental to New Zealand’s exporters. Read full report

Weekly Recap and Outlook for USDJPY –   11/15/2010 USDJPY gained back some ground last week, having the first week without making a new long term low for some time. The week began on a soft note after the BOJ’s monthly report stated that, “Japan’s economy is likely to grow at a slower pace for some time, but is anticipated to return to a moderate recovery path thereafter.” Also on Monday, Japanese Leading Indicators came out at 98.9% compared with a consensus of 99.4%. On Tuesday, USDJPY made its weekly low, with the Yen strengthening after China announced new measures to decrease “hot money” inflows due to concerns over the U.S. Fed’s new QE II measures announced last week. In addition, China raised its reference rate for the Yuan by 0.17% to 6.658 against the U.S. Dollar. Read full report

Weekly Recap and Outlook for USDCAD – 11/15/2010 USDCAD gained ground net after trading around its key parity level for most of last week, with the exception of Friday when the pair rallied sharply. The rate began last week by trading on a firm note during Monday’s session after the Loonie weakened when Canadian Housing Starts came out at +168K, which was considerably lower than the market consensus of +181K. Read full report

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