US Dollar’s Future in the Hands of Speculators

The dollar was able to manage its most aggressive rally against its chief counterpart (the euro) in months this past week; but the move would not last. Without a scheduled or unscheduled event to dramatically alter the dollar’s status in the well-worn carry trade, risk appetite would ensure the currency would remain shackled to its eight-month old bearish trend channel. Looking out over the week to come, the most pressing question for any trader is determining if and when the greenback will finally catalyze its next trend. Some may argue that direction is the primary concern; but without momentum and follow through, the result is fundamental chop that leaves the market open to volatility while slowly building up the pressure behind the eventual breakout. So, is there potential for a clear, dollar trend in the week ahead?

While there are a few notable economic indicators scheduled for release over the coming days, the experienced fundamental trader knows there is a low probability that any one (or very likely all of data working in conjunction) could actually leverage such a meaningful change of trend. These indicators’ principal value is in establishing the forecasted pace of economic recovery and, to a lesser extent, offering minor adjustments to the Fed’s time frame for a return to a hawkish policy regime. However, those following the dollar know that the asset’s primary role is as the safe haven and funding currency for the broader market. Therefore, the analysis on this single currency’s future turns into an assessment of overall risk appetite through the global financial markets. Taking a more expansive look at sentiment, there seem to be few scheduled events or indicators that can spark fear or greed all on its own. In fact, the quality of the data is all-in-all relatively reserved. Somewhat counter-intuitively, these may be the ideal conditions to reestablish a true bias. Often times, when there is a major market-moving event due; price action leading up to its release is muted as traders do not want to leverage risk by increasing exposure. What’s more, if the news doesn’t fall far from forecasts or it otherwise doesn’t play into the larger market themes; a modest increase in volatility is all it can rouse. More often than not, it is those times when the docket is otherwise unencumbered that we see sentiment build momentum and define new trends.

Japanese Yen Likely to Range Trade Against the US Dollar

Continued S&P 500 rallies made the safe-haven Japanese Yen the second-worst performing G10 currency to finish the week’s trade, finishing higher only against the similarly-downtrodden US Dollar. All major world equity indices finished anywhere from 2-3 percent above their weekly open except for the Japanese Nikkei 225—raising serious doubts on investor demand for Japanese financial asset classes and reflecting poorly on the domestic currency. Indeed, the fundamental arguments for Japanese Yen strengths are becoming increasingly scarce—especially through times of healthy financial market risk appetite.

Week in and week out, we have repeated that financial market risk sentiment and the trajectory of the S&P 500 would be the major determinant of USDJPY price action. Yet the US Dollar has actually taken top-billing as carry trade funding currency as it now carries the lowest overnight yield of any major world currency. The truly substantive shift in interest rates has meant that the USDJPY’s correlation to risky assets has fallen considerably from its heights, and it is admittedly unclear whether the USDJPY would decline on S&P 500 tumbles. In fact, the rolling correlation between the US Dollar Index and S&P is very near record-highs—emphasizing the Dollar’s sensitivity to risk sentiment.

British Pound Forecast Bullish Versus Euro but watch for BoE Surprises

The British Pound survived a week of fairly lackluster fundamental developments to trade marginally higher against the US Dollar, but a busy week of economic event risk may pose further challenges for the UK currency in the week ahead. Early-week news that Fitch Ratings took a “cautious” view on its outlook for the UK Government Bond’s AAA sovereign rating rattled markets and sent the Sterling instantly lower. The following Bank of England Quarterly Inflation report expressed a similarly cautious outlook for economic growth, and it seemed like the GBP was headed for a break of key support against the US dollar. Yet traders clearly had other things in mind, and the GBPUSD held key technical levels through the week’s close. Whether or not the pair can sustain its defense will likely depend on key event risk in the days ahead, setting the stage for another eventful week of British Pound price action.

Swiiss Franc to Hold Range as SNB Pledges to Maintain Policy

The Swiss Franc ended the week higher against the U.S. Dollar and the Euro, with the USD/CHF continuing to push toward parity as the pair slipped to a low of 1.0034, just 2pips shy of the yearly low at 1.0032, and low-yielding currency is likely to remain range-bound over the following week as investors weigh the outlook for future policy. SNB member Thomas Jordan reaffirmed the central bank’s policy stance during a speech earlier this week and said that the board has reached its goals and does not see any reason to shift policy as it aims “to support an economic recovery during a difficult phase without low rates and an elevated liquidity creating an inadequate evolution

Canadian Dollar Strength May Hinge on Break in Oil

The Canadian dollar was one of the strongest major currencies over the past week, but this was mostly the result of broad US dollar weakness rather than commodity prices since oil prices continued to consolidate between $77/bbl and $80/bbl. Furthermore, fundamental forces didn’t really play into the currency’s moves as there was no major economic data on hand. That said, the one notable indicator was released on Friday, when data showed that Canada’s trade deficit narrowed to a three month low in September. The deficit eased to C$927 million from C$1.99 billion in August thanks to a 3.5 percent increase in exports, suggesting that foreign demand may help to alleviate some of the nation’s economic woes. Going forward, a break in either direction for oil is likely to translate into a similar move for the Canadian dollar versus the US dollar, but the trend remains in favor of Loonie strength.

Overall, upcoming economic reports out of Canada are anticipated to reflect improving conditions. On Monday, manufacturing sales for the month of September are projected to rise by 1.7 percent following a drop of 2.1 percent in August, but the actual results could prove to be even better given the jump in exports during the same period.

On Wednesday, the annual rate of Canadian headline CPI growth for October is projected to bounce back up to 0.1 percent from -0.9 percent, while the Bank of Canada’s core measure is projected to rise to 1.7 percent from 1.5 percent. Such results would suggest that higher commodity costs are providing some support for the headline CPI measures, while improving domestic demand has lifted broader prices. The Bank of Canada said in their most recent policy statement that “overall risks to its inflation projection are tilted slightly to the downside,” but if we see both headline and core measures of CPI climb higher than expected, the Canadian dollar could rally.

Australian Dollar Looks To March Higher Absent Risk Aversion

The Australian dollar rose to a fresh yearly high of 0.9368 against the greenback as continued risk appetite and unexpected job creation in October fueled bullish sentiment. Equity markets continued push higher with the Dow setting a fresh yearly high as traders took comfort in the G-20’s pledge to maintain low interest rates and stimulus programs. However, the RBA isn’t expected to follow the pack as they have already raise rates at their last two policy meetings and markets are currently pricing in an 83% chance that they will continue to tighten at their December (November 30th ) rendezvous. The prospect of higher borrowing costs led to 2.5% drop in consumer confidence, the first in six months. Confidence remains relatively high, but declining optimism could negatively impact domestic consumption which unexpectedly fell 0.2% in September.

The weak demand had raised the prospect that the RBA would take a break from their tightening policy at their December meeting as there are concerns that premature rate hikes could derail the recovery. Additionally, Governor Stevens last week signaled to markets that the strength of the Australian dollar would limit upside inflation risks and give him the scope to slow the pace of future rate increase. However, the surprising job growth re-established expectations for an additional 25 bps hike as it reaffirmed the Governor Stevens statements following November’s meeting that “there have been some early signs of an improvement in labor market conditions. The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.”

The upcoming economic calendar may only add to the likelihood of a rate increase as the wage cost index is forecasted to show a 0.7% rise in the third quarter, adding to inflation concerns. Westpac’s leading index which tracks eight gauges of activity, such as company profits and productivity, to give an indication of how the economy will perform over the next three to nine months is also due for release. If it continues its current trend of improvement then the brighter outlook for growth will add to the case for future tightening. Rising interest rate expectations will continue to be a supporting factor for the Australian dollar which could see the com-dollar eventually look to test its all-time high. However, the RBA will release their minutes from their November meeting which could hint at the prospect of keeping rate steady at their next meeting which could weigh on the Aussie. Additionally, the high yielder loses its attractiveness if risk appetite wanes which could be the case this week with equity markets up against technical resistance levels. - JR

New Zealand Dollar Fundamentals may Soon Overwhelm Risk Appetite

The New Zealand dollar is living on borrowed time. Risk appetite single-handedly lifted this currency from a six-year low following the hit it took during the worst financial crisis in modern history; and it is only a matter of time before the aggressive rally collapses under it s own weight. Is this kiwi dollar really destined to pace investor sentiment? Yes. Not only does the currency maintain a yield that through history has kept a significant premium over its counterparts; but its mere presence among the list of most liquid currencies can be attributed to its appeal as a place to park capital. In fact, under most scenarios (even a revival in the demand for yield); it is likely that the kiwi will not only retrace its gains but it may actually pace the over-due correction.

While it is possible that the New Zealand dollar could struggle or tumble even if sentiment is steady or rising; it is best to first cover the most direct fundamental scenario: a plunge in risk appetite. Though the Dow Jones Industrial Average and Gold closed their respective weeks at new highs for the year; there is growing skepticism among the trading ranks that the drive can hold up for much longer. Measuring the conviction for both of these markets, volume for both hit new monthly lows. From a more historical perspective, we haven’t seen a rally from equities of this magnitude in recent history. From technical review to fundamental assessment, it is not a stretch to propose values have run astray of the economics that support them. The return of idled investor funds from the harbor of safe haven assets back into the speculative arena has filled in for the lack of reasonable yield income with the thrill of capital gains. However, eventually a balance will be struck where the speculators will be tapped and what remains to be invested will belong to those managers that are cautiously awaiting the return of dividends, yields and other stable rates of return. When the tides turn, the collapse from profit taking will likely be more severe (though not as deep) as the initial rally.

Daily Report: Aussie Rises on Employment Report, Dollar Consolidates

Australian dollar rises today on the back on unexpectedly good employment report. The job market expanded for another month by 24.5k in in October versus expectation of -10.1k contraction. Though, unemployment rate climbed from 5.7% to 5.8% as expected. AUD/USD soars to as high as 0.9368 so far. While upside momentum is diminishing a bit, there is still no clear sign of topping in Aussie yet and the current rise in AUD/USD might still extend further to a test of 2008 high of 0.9849. Against Euro, EUR/AUD, took out previous low of 1.6079 and dives to as low as 1.6017. We're still expecting further downside in the EUR/AUD cross towards lower trend line support at 1.5702 next.

Mid-Day Report: Sterling Pounded By BoE King's Comments

Sterling was knocked down earlier today after BoE Governor King said that the bank is "completely open mind" on extension of the quantitative easing program. King believes the program is "working and the risk of another depression has "sharply diminished". Nevertheless, it "will be a long, hard path back" to a robust economy. Also, King reiterated that "The depreciation of sterling should lead to a recovery in economic activity." Sterling is sharply lower against Euro and dollar after the comments.

In he Quarterly Inflation Report, BoE forecasts for GDP growth and inflation outlook. These estimates were made based on assumptions that the benchmark interest rate, currently at 0.5%, rises to market expectation of 1.1% in 3Q10 and 2.1% at 1Q11, as well as asset purchase program of 200B pound. BOE also anticipated inflation will rise sharply in the near-term and exceed the target level of 2% in 2012.

Also released from UK, unemployment rate was unchanged at 7.8% in September, better than expectation of a rise to 8.0%. Claimant count also rose less than expected by 12.9k in October.

Elsewhere, dollar dips to new low on dovish comments from Fed officials. Dollar Fed Fisher said that inflation is likely to remain subdued for some time and the near-zero interest rates are appropriate. He said growth was likely to be "suboptimal" into 2010 and 2011, with unemployment a "vexing problem." San Francisco Fed Yellen said the prospect of a “jobless recovery” in a speech yesterday. Atlanta Fed Lockhart expects a "relatively subdued" growth pace this quarter and beyond.

BOE Upgraded Forecasts on Growth and Inflation

At the quarterly Inflation Report in November, the Bank of England raised forecasts for GDP growth and inflation outlook as economy has expanded again and will not slip back into a recession. These estimates were made based on assumptions that the benchmark interest rate, currently at 0.5%, rises to market expectation of 1.1% in 3Q10 and 2.1% at 1Q11, as well as asset purchase program of 200B pound.

According to the quarterly Inflation Report, the UK's economy will undergo a 'slow recovery' and 'the outlook for inflation in the medium term is somewhat higher than the August report, reflecting the stronger projected distribution for GDP growth... the risks of inflation being above or below target are broadly balanced by the end of the forecast period'.

Although the nation's GDP surprisingly contract -0.4% qoq in 3Q09, the central bank revised up its GDP forecasts and signaled revisions of 3Q09 data. According to the BOE, upward revisions reflects the increased asset purchases, the lower interest rate path implied by market yields, the lower level of the exchange rate and a stronger outlook for world demand.

The BOE also anticipated inflation will rise sharply in the near-term and exceed the target level of 2% in 2012. According to the report, 'the risks of inflation being above or below the target are broadly balanced by the end of the forecast period. The outlook for inflation in the medium term is somewhat higher than in August, reflecting the stronger projected distribution for GDP growth'.

Australia Unemployment Rate Preview and EUD/AUD Outlook

(November 12, Thu) Australia unemployment rate - October: After a surprising increase in payrolls (+40.6K) in September, a modest decline in employment (-10K) is expected in October. This should have pushed the unemployment rate +0.1 percentage points higher to 5.8%. Although economic recovery has been robust in Australia, unemployment rate may continue to rise from current level in coming months. However, the peak should be lower than what was expected by the market in the first half of the year.

In September, the number of persons looking for full-time work increased by 9500 to 497 400 and the number of persons looking for part-time work decreased by 13 300 to 161 200. This halted the recent trend that workers looked for part-time jobs due to reduction in full-time unemployment. We believe the number of workers looking for full-time jobs should have increased further in October.

Also, aggregate monthly hours worked increased 13.4 million hours to 1522.4 million hours in September. This was driven by improvement of economic conditions. The trend should have continued in October.

Daily Report: Yen Recovers on Risk Aversion, BoE & ECB Watched

Yen recovers some ground today as Asians stocks dip after late selloff in US equities. Dollar follows by paring some of this week's losses as crude oil is back below 80 level while gold trades below 1090. Risk aversion would probably give the Japanese yen some further support as Japanese Nikkei closed below head and shoulder neckline support which should confirm medium term reversal. However, dollar's fate will continue to be tied between risk aversion and strength in gold.

FOMC statement overnight was largely inline with markets' expectations. Fed decided to leave the Fed funds rate unchanged at 0-0.25% and reiterated to keep it low for 'an extended period'. The Fed also listed conditions that warranted an unprecedentedly low level of interest rates: low rates of resource utilization, subdued inflation trends, and stable inflation expectations. In the meeting, policymakers also modestly upgraded its assessment of current conditions and reduced the amount of agency debt it purchased. These mildly positive factors partly offset the dovish tone of the post-meeting statement. More in FOMC Review: The Fed Disclosed Parameters For Making Rate Decisions

No Surprise from FOMC, Stocks Higher, Dollar Lower

Fed left rates unchanged at 0-0.25% as widely expected. The wordings that rates will be kept at exceptionally low level for an "extended period" of time was practically unchanged. After all, there was nothing special from the FOMC statement. Markets struggled to find directional initially after the release but dollar bears won the battle as markets digested the statement. The greenback is sharply lower against European majors as well as commodity currencies while stocks managed to climb again after some retreats.

Intraday bias in the dollar index remains on the downside for the moment and fall from 76.82 might still extend further even though 61.8% retracement of 74.94 to 76.82 at 75.65 is already met. Persistent strength in Gold and crude oil would likely continue to pressure the greenback in general. Nevertheless, we'd continue to expect strong support above 74.94 low to conclude the pull back from 76.82 in the dollar index. That could be translated into a retest of recent high in EUR/USD, GBP/USD and AUD/USD though.

Mid-Day Report: Dollar Remains Pressured ahead of FOMC

Dollar weaken sharply across the board today as Gold makes another record high of 1096 and is marching to 1100 level. Crude oil also follows by breaking 80 level too whole stocks rebounds strongly in general. ADP report showed the job market in private sector contracted -203k in October, slightly higher than expectation of -187k. Nevertheless, prior months' data was revised up from -254k to -227k. Challenger report also showed strong improvement of -50.7% fall in planned layoffs in October. Nevertheless, ISM non-manufacturing index missed expectation and fell slightly to 50.6 in October. Main focus now turns to FOMC rate decision and statement.

ECB Preview: Trichet's Comments a Prelude for New Economic Projections in December

As there's only one month to go for the release of a new set of staff projection in December, we will probably not get much new information from the ECB at November's meeting. Policymakers should leave the main refinancing rate unchanged at 1%. In the accompanying statement, it will be reiterated that growth and inflation risks are ‘broadly balanced' and interest rates are ‘appropriate'.

ECB President Trichet's tone may turn more optimistic in the press conference given stronger-than-expected economic data in 3Q09. Eurozone's manufacturing PMI rose to 50.7 In September from 49.3a month ago, indicating the first expansion in 17 months. Consumer and business confidence also improved in the second half of the year. Germany's Ifo business climate index surged to 91.9 in October from 91.3 a month ago. That's the highest reading in 13 months. Although the new set of staff projections (with 2011 projection included for the first time) will be given in December, we look to see if the President would prepare the market for potential change at this meeting. In fact, the ECB will probably have big upward revisions on economic growth given strength in economic activities. The central bank's growth projection for 2010, which stands at +0.2%, seems to be too conservative.

FOMC Preview - No Change in Policy Rate, Upgrade in Economic Outlook

The Fed is expected to leave the Fed funds rate unchanged at 0-0.25%. What the market interested in the most is whether the Fed will change the statement, '... economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period', that appeared in September. Concerning economic forecasts, the Fed should have upgraded its outlook on growth given strong economic data released since last meeting.

We anticipate policymakers to keep the above-mentioned statement with the phrase 'an extended period' retained. The Fed prefer to see the job market stabilize and recovery more sustainable before exiting from the current ultra-expansionary monetary policy.

Concerning asset purchases, the $300B Treasury purchase program was completed in the final week of October. In the September meeting, the Committee announced extension of the MBS and agency debt program through 1Q10. We believe not much new information will be given in November.

RBA Raised Cash Rate By 25 Bps. Further Tightening Will Be Implemented 'Gradually'

Inline with expectations, the RBA raised cash rate by +25 bps to 3.5% in November. While acknowledging solid economic growth, the central bank highlighted this month that appreciation in AUD would dampen price pressure and the trade sector. Other comments were similar to what appeared in October's statement.

The RBA increased its policy rate for the second time in 4 months, making it the first central bank to hike interest rate twice in this year. Policymakers' views on economic outlook were broadly unchanged from the prior month. RBA believed that 'the recovery is likely to continue during 2010 and forecasts have been revised higher'. Expansion in major economies is modest while growth in Australia will be boosted by the nation's trading partners. For instance, strong growth in China 'is having a significant impact on other economies in the region and on commodity markets'. Moreover, the job market has shown signs of improvement and the rate of unemployment is now likely to peak at a considerably lower level than earlier expected'.

Concerning general price level, the central bank forecast 'inflation should continue to moderate in the near-term, but now will probably not fall as far as earlier thought … Both CPI and underlying inflation are expected to be consistent with the target in 2010'. We believe the RBA might have underestimated inflationary outlook given recent surge in hose prices.

Attention should be paid on the RBA's warning that 'the rise in the exchange rate is likely to constrain output in the tradable sector and dampen price pressures'. AUDUSD has risen almost +3% since the last meeting and rallied +29% year-to-date. Strength in AUD is probably a reason for the RBA to restrain rate hike.

Pound Pares Losses After Exaggerated Rally

The pound reverted its losing trend from last week’s end, specially versus the euro, as traders interpreted the winning streak as inadequate, as U.K. could be starting its first signs of economic recovery.

The pound has been facing extreme volatility as investors remain confused regarding the directions it may take in currency markets, considering the actual conjecture of the British financial scenario. Today, the pound rose specially versus the euro, as even if the U.K. posted negative growth numbers last week, analysts suggest that next quarter will bring back optimism towards the United Kingdom’s economy.

EUR/GBP traded at 0.9109 as of 21:45 GMT from a previous rate of 0.9235 yesterday.

If you want to comment on the Great Britain pound’s recent action or have any questions regarding this currency, please, feel free to reply below.

Intervention Fears Set Brazilian Real Down

The Brazilian real, ranking among the best performers in currency markets this year with the Australian and New Zealand dollar, experienced another day of losses as the government may take further action to halt the current national currency rally.

The Brazilian real suffered another day of pessimism as speculations suggest that the national central bank could be ready to take further measures, after setting a tax for international capital inflows towards Brazilian equities markets last week, declining attractiveness for the real as fears that a good currency performance may be once synthetically halted by policy makers.

USD/BRL traded at 1.7205 as of 21:25 GMT from an opening rate of 1.7178 today.

If you want to comment on the Brazilian real’s recent action or have any questions regarding this currency, please, feel free to reply below.

Canadian Dollar Declines on Increasingly Negative Scenario

The Canadian currency, which even flirted with parity towards its U.S. counterpart, declined once again today reaching the lowest levels since the beginning of the month, as stocks and commodities impacted the loonie’s attractiveness in a negative way.

The loonie is being a victim of its national central bank policies since it stated that a strong currency could stop plans of an economic recovery in the country, influencing traders’ perception towards the Canadian currency as the Bank of Canada may intervene in its currency performance, automatically creating a negative sentiment, which gained force today as such declarations were repeated. A part from BOC comments regarding a strong loonie, financial markets did not provide support for Canada’s currency to grow, considering the nation’s exporter profile that lost attractiveness as stocks and commodities, specially the crude oil, underperformed today.

Global Equities in Tandem

1990-1995 DIVERSIFICATION WORKED

Global diversification proved effective in international portfolio investing due to:
Disparity in growth rates among major economies;
Brunt of world recession;
Relative inefficiencies in international portfolio investments (Emerging Markets Hysteria had yet to unfold)

* Fed raised rates 6 times for a total of 250 bps (Feb, Mar, Apr, May, Aug, Nov)
** The Peso Crisis and the Uprising in Chiapas
*** Capital Exodus from Mexico heightened triggered overall loss of confidence in Emerging Markets. This was compounded by the collapse of Barings Bank
GDP growth in industrialized nations: 1992= 2.1%, 1993= 1.4%, 1994= 3.3%, 1995=2.7%

1994-1996 TRANSITIONS

Broadening global recovery, US bail-out of Mexico, and the US entry into the "New Economy" paradigm all led to improved global market sentiment, which brought markets more in line.

GDP growth in industrialized nations: 1995= 2.7%, 1996= 3.2%

1997-2000 UNIFORMITY

As world economies begin to sustain their recoveries and cross-border protfolio flows accelerate, global stock markets move in tandem, making global diversification harder to achieve, simply based on geographical plays.

GDP growth in industrialized nations: 1997= 3.4%, 1998= 2.4%, 1999= 3.2% 2000 Forecast = 4.2%

ECB: Rates to Remain Steady by Angelo Airaghi [Guest Analyst]

The unemployment rate remains high in the U.S and in Europe and could rise further over the short term. However, new orders are improving and a turnaround might be near. The European Central Bank (ECB) meets this week in Venice (Italy). Rates should remain steady, although an exit strategy for next year could be ready.

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U.S.: Home prices to increase.

The U.S. economy is slowly moving out of the deep recession of the past two years, albeit the data remains volatile and unstable. Ups and downs are normal during turning points. Some sectors perform better than others, but an equilibrium should emerge as time passes by. The manufacturing industry, as an example, is performing again, since exports to major economies are increasing. In reality, the U.S. manufacturing ISM index declined to 52.6 in September, but it remains above the benchmark of 50 for the second straight month. In fact, 13 out of 18 industries registered some gains and improvements are broad-based among various economic sectors. The housing market remains nevertheless the leading force. Home inventories are declining and prices are beginning to rise. Current affordability and tax incentives are driving the market and the trend should continue in the coming months as well. However, the move could be subdued by the new saving mentality which focuses on reducing debt and improve personal finances.

The U.S Dollar is Still Under Pressure by Angelo Airaghi [Guest Analyst]

Household activity could remain moderate for some time, since unemployment and debt rate are high in the United States. Inflation is near the low, but prices are going to heat up again over the medium term.

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U.S.: household’s spending mild.

The U.S. dollar has resumed the downtrend against major currencies and the decline should continue over the medium term supported by fundamental and cyclical factors. In the United States, the public debt is increasing, the global economy is improving and interest rate differentials with key countries are widening. Inflation remains modest for now, it moved 0.2% in September, but it is expected to increase in the coming months, as the declined determined to the lack of request appears to be fading. As a result, commodity prices are preparing to move higher, while the speculation about an up-move of interest rates is mounting. In reality, it might take some time before rates will be on the move again in the U.S. and in Europe. Nonetheless, the domino’s effect set last week by the Reserve Bank of Australia appears to be in motion, along with cyclical and technical components that favors a weaker green back. With the economic growth in process, the U.S. dollar is no longer the safe haven currency. For the third straight month in a row, in September, the U.S. industrial production rose 0.7% (-0.3% expected) from August + 1.2%. Manufacturing production moved up 0.9% supported by autos and parts production, which rose 8.1% from 6.1% in August and 17.1% in July. However, output improved 0.5% excluding the auto components.

EUR & GBP Buoyed by Korman Tam

The dollar relinquished its earlier gains against the majors, slipping back beneath the1.50-level versus the euro and remaining mired past the 1.66-handle against the British pound. The Dow Jones and S&P 500 were higher on the session, while crude oil held steady above the $80 per barrel mark. The initial catalyst for the greenback’s reprieve was speculation overnight that China would soon mitigate its economic stimulus packages, tempering the shift to riskier assets.

There was a barrage of G7 economic reports released on Thursday. The US data included weekly jobless claims, the September leading economic indicators index and August monthly home prices. Weekly jobless claims unexpectedly crept higher to 531k from an upwardly revised 520k in the previous week. The August monthly home price index revealed further declines, down 0.3% versus a 0.3% increase in July and lower by 3.6% compared with a year earlier at -4.2%. Lastly, the September leading economic indicators index beat consensus estimates, climbing to 1.0% from a downwardly revised 0.4% from August.

USD Slumps on Blockbuster JPM Earnings by Korman Tam

The beleaguered dollar found no reprieve in the Wednesday session, extending its losses to fresh 14-month lows against the euro and Australian dollar to 1.4934 and 0.9156, respectively. A shift to riskier assets was triggered by a stronger than expected earnings report from JP Morgan Chase, prompting advances in the US equity bourses with the Dow Jones, Nasdaq and S&P 500 all gaining by more than 1.2% by afternoon trading. The Dow Jones edged higher toward the psychologically key 10,000-level, briefly breaching above it on an intra-day basis for the first time in a year.

The economic data released earlier in the session were largely mixed, consisting of retail sales, import prices, export prices and business inventories. The headline retail sales figure was better than estimated, albeit still declining by 1.5% for September versus a 2.7% from August. The excluding automobiles retail sales figure beat consensus estimates also, posting an increase of 0.5%, better than calls for a 0.2% increase from 1.1% a month earlier. The August business inventories figure revealed a 1.5% drop from a 1.0% decline in July.

CAD Slumps on BoC by Korman Tam

The dollar was mixed in the Tuesday session, climbing sharply higher against the Canadian dollar past the 1.05-figure while sliding versus the euro just shy of the 1.50-level. The US economic reports released earlier today were largely disappointing. The September housing starts figure missed consensus estimates for an increase to 610k units from 598k units, instead dropping to 590k units. The September building permits reading also disappointed, falling to 573k units versus 580k units a month earlier. Meanwhile, the headline PPI figures for September were weaker than anticipated, declining by 0.6% m/m and 4.8% y/y. The core PPI readings also missed forecasts, declining by 0.1% m/m and edging up by 1.8% on an annualized basis.

Dollar Tumbles to Fresh 14-mth Lows by Korman Tam

The dollar sold off sharply across the board in the Wednesday session despite a dearth of US economic data earlier in the morning. The greenback plunged to a fresh 14-month low against the euro past the psychologically key 1.50-level to 1.5040, a new 15-month low versus the Swiss franc at 1.0038 and 14-month low against the Australian dollar at 0.9326. A shift into riskier assets continues to be detrimental for the US dollars as traders price in improving conditions in the global economy. Crude oil prices climbed higher today, rallying above the $81 per barrel level by afternoon trading.

The Fed’s Beige Book provided an optimistic assessment of the US economy, saying conditions have stabilized or improved modestly in many sectors since its last report. The Fed said that reports of gains in economic activity outnumber the declines, though the improvements are small and scattered. However, it tempered its assessment by saying adding that labor markets are typically characterized as weak or mixed, albeit with pockets of improvement.

Oil Rebound Pushes Canadian Dollar Up

The Canadian currency, which was losing earlier versus the U.S. dollar on pessimism before the G-7 meeting, managed to revert a losing trend as the crude oil rates surged beyond $70 a barrel, raising attractiveness for the loonie.

The loonie has managed to end another week gaining versus its U.S. counterpart, since it erased early losses today backed by a rally in the crude oil rates, which are one of the main raw materials produced in Canada with a final destination the U.S. The Canadian dollar ranked among the top 3 best performing currencies among the 16 majors together with the South Korean won.

Mexican Peso Down on Commodities and U.S. Unemployment

This Thursday was marked by a weak performance for the Mexican currency as the crude oil, one of the main Mexican exports to the U.S. declined further, and jobless claims in the U.S. came with worse-than-expected figures.

The United States is the country of destination for 80% of Mexican export products, and as unemployed people applied for benefits last week more than forecasts suggested, the Mexican peso was influenced negatively,. Crude oil rates also influenced negatively for the peso’s outlook, since Mexico is a large oil producer.

Pounds Ends Another Week Down on Crisis Concerns

The pound has been one of the most affected currencies by the credit crunch last year and during the past three weeks it suffered another substantial decline as the U.K. economic scenario continues to deteriorate and this Friday risk aversion is high again pushing investors towards safety.

Today the British currency found obstacles to climb in both domestic and international economy scenarios, as risk aversion rose globally.Nationwide Building Society indicated today a worse than previous forecast for house prices increase in the U.K., raising concerns on the real estate market which was one of the most impacted by the global slump last year, especially in England. Equities markets in the U.K. and overseas also had a negative day before a G-7 meeting which may approach sensitive topics regarding the economic future in the world’s wealthiest nations, forcing investors to opt for safer assets and damping demand even further for the U.K. pound.

Euro Falls Before G-7 Meeting

The euro, which has been one of the strongest currencies among major pairs this year, fell today before speculations suggested that a Group of 7 finance ministers meeting this week will approach the current euro strong valuation, raising concerns and damping demand for the Eurozone currency.

A drop in the euro price versus most of the 16 main traded currencies could be perceived today in markets before G-7 central bankers meeting in Sweden today is likely to discuss the current euro rates and eventually provide statements indicating that a strong European currency, at certain levels, may cause problems for the economic recovery in the region, causing traders to evade euro-priced positions opting for the U.S. dollar and higher-yielding options in the South Pacific region. The yen was one of the few currencies which was unable to gain versus the euro, as reports in South Korea shifted attractiveness out of Japan in the Asiatic region.

Canadian Dollar Roses Sharply on Commodities

The Canadian dollar, one of the most dependent currency to stocks and commodities, climbed significantly today as optimism pushed the crude oil and gold rates up, suggesting that the global economy will improve demand for Canadian exports.

The loonie, as the Canadian dollar is often referred, witnessed a significant rally today being the sharpest climb in September provoked by optimism that increased risk appetite among traders as commodities rose and the International Monetary Fund cut its forecast for global economic declines, adding to the already positive sentiment in trading markets today.

Brazil’s Real Drops From Year High on U.S. Jobless Claims

The Brazilian currency touched a one-year high versus the dollar and the pound this week but was unable to continue its rally as U.S. jobless claims came worse than what economists expected, decreasing appeal for emergent market high-yielding currencies.

The Brazilian real is an extremely commodity-linked currency, and today, a report indicated an increase in jobless claims in the U.S., affecting negatively equities and commodities markets worldwide, making traders to purchase safer assets and abandon some less attractive opportunities in Brazilian markets, forcing the real down from a one-year high versus the dollar.

BULLION RATES

Closing rates as On Tue, September 15, 2009Bullion rates in Rupees per 10 gramsKarachiSilver Tezabi(24-ct)385.71Gold Tezabi26185.00LahoreGold Tezabi(24-ct)N/AGold Tezabi(22-ct)N/AGold Tezabi(21-ct)N/ASilver Tezabi(24-ct)N/ASilver Thobi(bar)N/AMultanGold Tezabi(24-ct)N/AGold Tezabi(22-ct)N/ASilver TezabiN/ASilver ThobiN/ASource: Business Recorder

Energy Prices

Commodities	Price	Change	Change %
PETROLEUM ($/bbl)
Nymex Crude Future	68.47	.45	.66
Dated Brent Spot	66.81	.33	.50
WTI Cushing Spot	68.02	.06	.09
PETROLEUM (¢/gal)
Nymex Heating Oil Future	173.29	1.24	.72
Nymex RBOB Gasoline Future	177.34	-.29	-.16
NATURAL GAS ($/MMBtu)
Nymex Henry Hub Future	2.67	-.06	-2.27
Henry Hub Spot	1.88	-.18	-8.74
New York City Gate Spot	2.00	-.27	-11.89
ELECTRICITY ($/megawatt hour)
Mid-Columbia, firm on-peak, spot	31.98	2.03	6.78
Palo Verde, firm on-peak, spot	24.17	-2.69	-10.02
BLOOMBERG, FIRM ON-PEAK, DAY AHEAD SPOT/ERCOT HOUSTON	23.88	1.40	6.23
BLOOMBERG, FIRM ON-PEAK, DAY AHEAD SPOT/ERCOT HOUSTON	23.88	1.40	6.23