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It was Friday the 13th yesterday, but the US currency wasn’t at all spooked. While the US stock markets closed the week almost flat (Dow up 0.8%; S&P 500 down 0.05%), the US dollar had a roaring good time in the currency markets. The US dollar just clinched the biggest weekly gain against the Euro since 2005 and the biggest weekly rise against the Japanese yen since December 2004.
You could say that Bernanke’s speech on Tuesday initiated the strong turnaround in USD sentiment; he said that US economic risks have diminished and he’s paying attention to the weak dollar. Increasingly over the past few months, a weaker dollar seems to be negatively correlated with oil prices although whether a causal relationship exists between these two is another issue altogether. Many, including the US Federal Reserve, are worried that the dollar’s weakness has come to a point whereby its benefits are being outweighed by the negative ramifications in the current economic situation. Dollar weakness ain’t that sexy anymore.
For traders who are counting on a July’s rate hike from the ECB to boost the Euro in a sustained way, they may have to look elsewhere, for Trichet and other ECB members have said last week the market shouldn’t be expecting a series of increases from them. July’s hike could be a one-time event.
Canada and France For Stronger Dollar
Finance minsters from the Group of Eight nations have gathered for the G8 meeting on Saturday. France’s finance minister Christine Lagarde said, “The strengthening of the dollar seems very satisfying to me.” Canada’s finance minister Jim Flaherty is also on the side favoring a strong US dollar. He said that strong US currency “can help on the inflationary side because of the difference it makes with a low US dollar in terms of oil prices.”
Could Greenspan’s Words Inspire More Gains In USD?
Former Fed chairman Greenspan said Friday via satellite today to a conference in Mexico City that the financial markets have shown a “pronounced turnaround”‘ since March when Bear Stearns was rescued from collapse. He also said “there is a reduced possibility of a large, intense recession”, and that the Fed will have to put “increasing pressure on the money supply and reserves” to combat inflation, and “as a result you will see interest rates rising”.
Last week’s pip tally for the four major currency pairs:
EUR/USD - fall of 540 pips
USD/CHF - gain of 400 pips
USD/JPY - gain of 400 pips
GBP/USD - fall of 400 pips
EUR/USD’s nearest support is around 1.5280, and if the pair breaks successfully below that area, more bearishness could ensue. USD/CHF’s upside targets are possibly around 1.0560, 1.0590-1.0600. Nothing’s for certain in the markets, so keep on top of economic releases as always, and watch the charts.
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My guess is that the greenback would be stronger vs GBP, EUR. It’s time for Euro to go down.
The dollar has a lot of potential to go higher!