US Dollar Declines Against Euro and British Pound Even As Oil Is Down By $5

These past 2 days have seen a lot of choppy movements in the financial markets. US stocks embarked on the second straight day of massive gains on Thursday, with the Dow Jones Industrial Average closing up more than 200 points. The Dow is now at 11,446.66, and its two-day gain is 4.4% - the biggest in nearly six years. This 2-day rally of the stock market has been boosted by earnings reports from financial institutions like Wells Fargo [[wfc]] and JP Morgan [[jpm]], but there are many who believe it to be an unsustainable rally.

These days, the pendulum of investors’ sentiment is swinging from one extreme end to another.

As for the US dollar, it has been trading mixed, tracking oil prices and US stocks, while still being influenced by the worse-than-expected Philly Fed data which showed manufacturing activity has dropped for the eighth straight month in July. The dollar advanced against the Japanese yen and Swiss franc Thursday, but went down against the Euro and the British pound.

EUR/USD rose to an intraday high of 1.5895, and USD/CHF met resistance around 1.0260. The Euro is supported by ECB president Trichet’s comments today when he said that the ECB must stop second round inflation effects. Whilst they are not a general phenomenon, he sees signs that the ECB must take seriously. He says the ECB will ensure that price inflation is below 2% over the medium-term.

Oil is down $16 since the start of the week, closing at $129.29 Thursday after making its biggest three-day decline ever. This drop could be attributed to options contracts expiration and/or a change in sentiment with regards to the supply and demand situation now that everyone’s talking about how bad the US economy is. But, don’t be surprised if there is another reversal soon.

Economic Calendar For Friday:

German PPI 0600 GMT

Eurozone trade balance 0900 GMT

Canada leading indicators 0900 GMT

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