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No strong drivers for the dollar resulted in volatile trading against its major rival

Discussion in 'Fundamental Analysis' started by forex4you, Dec 14, 2010.

  1. forex4you

    forex4you New Member

    Jul 13, 2010
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    No strong drivers for the dollar resulted in volatile trading against its major opponents. The dollar grew against the euro. The reasons are - no agreement on the debt issue among the European governments, and Moody’s agency downgrading Ireland’s rating and Hungary’s bonds. The greenback raised yen too, since the US long-term 5 and 30-year treasury bonds went up, which had become the main driver for the pair. As for the pound, the dollar lost, since the sterling was supported by its own positive economic statistics. The upcoming week is going to bring a lot of significant data – November retail trade is forecasted with 0.7% m/m growth after the recent 1.2% m/m in October, PPI manufacturing is expected to grow by 0.6% m/m in November and slow down year over – to 3.3% y/y after the previous +0.4% m/m, 4.3% y/y. The same dynamics is likely to be observed with consumer prices - + 0.2% m/m, 1.1% y/y against the prior 0.2% m/m 1.2% y/y. Construction sector is likely to show some positive results – building permits are expected to increase, so as new homes in November. Nevertheless, of most importance to the market is the last in this year FOMC meeting minutes. And though Fed is likely to leave its interest rate without any changes, its comments are of a big interest for the investors.


    The European currency keeps falling against the dollar and the pound. To the yen it registered just a slight profit. The situation in the Eurozone remained tense, so the investors were very cautious, especially regarding the news, that the European leaders couldn’t find consensus concerning the European debt problems and assistance measures to the countries at risk. This week will be rich in significant economics statistics from the Euro zone. Ifo and ZEW indices are forecasted to grow in December. Preliminary PMI for Germany’s and the Euro zone’s manufacturing and services sectors are likely to remain at the same growth rates in December. Final Euro zone’s consumer price index for November is likely to prove that annual inflation totaled 1.9%, like a month before. Nevertheless, even if this good forecast turns out correct, we still don’t have any confidence that the market moods to the euro will change to positive, since the European leading economies (Germany and France) refused to contribute more to the “rescue fund”. This fact is making the euro’s situation even worse, so the outlook for the currency is quite pessimistic for the moment.


    The British pound grew against the dollar on the last session, and though the European problems also influenced the currency, positive economic data from the Islands offset the negative moods, helping the sterling to keep its strength. According to the British institute NIESR, the country’s economic growth in September-November totaled 0.6%, manufacturing sector increased + 0.6%, though industrial production output shrank 0.2% m/m. The BoE meeting, which took place last week, produced no effect to the market, leaving its basic rate and the volume of bond purchases at the same level. Of market’s attention this week will be consumer prices inflation in November, which is expected to be at a high level, as well as employment data – no changes in initial jobless in October are expected. November retail sales are also scheduled for release – the index is likely to have increased +0.4% m/m, +0.7% y/y after the recent +0.5%m/m -0.1% y/y. The UK housing market is likely to demonstrate some negative dynamics – RICS house prices forecast for November - -50 against the prior -49.


    The yen became attractive as the “main” borrowed currency for carry trade as a result of the last session. Japan’s economic data turned out to be controversial as usual. On the one hand, GDP for the third quarter had been revised up by 1.1%, and manufacturing orders in October decreased again on the other. The index dribbled 1.4% lower against the last huge fall by 10.3% in September. Eco watchers index surged, leading indicators index, on the contrary, fell down. Japan’s money supply shows growth slowdown, bank lending reduced, together with consumer confidence. Today’s news block contains October PMI services index with expected growth by +0.3% m/m after -0.9% m/m, Industrial production index, forecasted with the same -1.8% m/m, +4.5% y/y, and Tankan Large Manufacturers index for the forth quarter, expected with the less attractive result - +3 against the prior +8. The yen’s outlook is still influenced by the news from the US debt market and its yields.

    Analysis by: Forex4you.com

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