USD survives steadily

After one of the most volatile weeks in the Forex Market this year, this week got off to a slow start- however, today's busy events will sure put an end to this week's relatively smooth sailing.
The speculator news that the European Union may by coming to the rescue of its deficit ridden member, Greece, put the brakes on the EUR/USD downwards slide - causing the dollar to distance itself from last Friday's 8 month high of 1.3595USD/EUR. In hopes of containing the debt crisis that many fear could spread to Portugal, Spain, and Italy, the EU is meeting all Thursday in Brussels.

With risk appetite rising, the dollar also came under pressure versus the sterling, dropping to 1.5750 from Friday's 8-month high near 1.5530.After a slow start to the week, shortly after midnight yesterday the UK simultaneously released two interesting reports - the British Retail Consortium showed retail spending increased at an annual pace of 1.2% in January after surging 6.0% in the previous month to mark the slowest pace of growth in at least 15 years and the Royal Institution of Chartered Surveyor home price balance index increased to 32% from 30% amid expectations for a drop to 27%.

These two reports were followed by the UK's awaited Trade Balance-despite expectations that the UK's trade deficit would contract slightly from its prior level of 6.8B to 6.6B, the deficit unexpectedly widened or December, slipping to a new low of 7.27 Billion Pounds. Following news of the increased trade deficit, the Pound continued to fall against its major counterparts –the EUR/GBP broke to a 3-week high- increasing from the day's opening level of 0.8755 hitting 0.8820 shortly after the trade balance was released.

Later today, we can expect more volatility in the GBP, as the UK will release (at 930GMT) its monthly Manufacturing Production. This major indictor of the economy remained unchanged in the past two months, disappointing the Pound. This time, a rise of 0.4% is predicted. An hour after the release of this report, the BoE will announce its Inflation report- an important quarterly event, in which the central bank projects the inflation and economic growth for a long time forward.

The Bank of England's February Inflation Report is likely to justify only modest policy tightening, with inflation on unchanged rates likely to be shown coming in above target at the end of the two year forecast horizon. On market interest rates, analysts think inflation will be projected below target two years out, with the BOE forecasts endorsing the view that only relatively small increases in Bank Rate will be needed to get inflation back on track.

While falling against both the Euro and the Pound, the USD managed to stay steady versus its neighboring currency- the CAD. However, this currency pair could come under extensive pressure today as both the US and Canada will simultaneously release their trade balance reports. This double hitter event typically ignites a volatile movement in the pair- however, which way the pair will move is yet to be seen.

With Canada's trade balance expected to be almost perfectly balance, analysts are predicting a small deficit of 0.1B, the US is predicting that vast deficit might contract slightly, from its previous level of 36.4B to an expected deficit of 35.8B. While a contraction in a trade deficit might appear as a positive indicator, this is not the case for the US. A contraction in the deficit would signify that foreign countries are less willing to sell goods to America in exchange for U.S dollars- resulting in a depreciation of the dollar.

Shortly after midnight (0030GMT), Australia released its monthly home loans – while analysts were predicting a fall of 4.8%, the Australian Bureau of Statistics reported that the number of home loans extended last December by 5.5%.

This report follows yesterday's Westpack Consumer Sentiment index which slipped 2.6% to 117 from 120.1 in the previous month – a reading above 100 means that optimists outnumber pessimists. While Australian Consumer confidence fell this month, it is still 2.9% above the December 2009 reading and 15.2% above its long term average.

Will the Pound regain its sovereign strength?

Last week the British Pound hit a nine month low, falling victim to the strengthening US dollar, particularly on Friday following the release of a better than expected Unemployment rate. After plummeting 1.9% against the greenback, this week’s events I the Forex market will play an important role in determining if the Pound can regain its sovereign strength.

Britain started the day off early releasing two interesting reports at one minute past midnight. At 00:01 GMT, the government announced the BRC Retail Sales Monitor which supplies as early indication to Britain’s retail (often referred to as the “mini-retail sales”).

Unfortunately, retail sales fell 0.7% in January from the same month last year, while total annual sales grew 1.2%- the weakest January performance in 15 years. Simultaneously, the government released the RICS House Price Balance- this figure shows the balance between areas with rising prices and areas with dropping once.

After reaching a peak of 35% in November, the balance fell back to 30% last December; while this week’s release was predicted to show another dip to 28%, against expectations RICS monthly survey found a net balance of 32% of chartered surveyors reported a rise rather than a fall in house prices.

So far this morning, the GBP has managed to recover slightly against the USD-opening at 1.55894, the Pound managed to increase as much as 0.34% against the greenback, going as high as 1.56426. Later today (930GMT), Britain will release it Trade Balance, predicted to show a smaller deficit of 6.6B versus last month’s report which showed a trade deficit of 6.8Billion. If the trade deficit comes in better than expected, the Sterling could very well continue this daily upward trend.

On the other side of the British Channel, following speculation that European officials meeting this week will agree to assist Greece in tackling its deficit, the Euro managed to regain some of last week’s losses- rallying from an eight month low versus the dollar and a near one year low versus the Yen.

This morning, the early Asian markets witnesses a 0.629% increase in the EUR/USD - with the pair increasing from its eight month low opening price of 1.36547 to hitting a high of 1.47406. The speculator news also fueled the Euro to appreciate against the Yen- the pair increased almost 1%, reaching as high as 123.114.

Across the Atlantic, Canada reported (yesterday) a 5.8% rise in their housing starts for January, beating consumer expectations of 180K- resulting in a seasonally adjusted rate of 186,300 units from an upwardly revised 176,100 units in December.

This report which usually has a significant impact on the Loonie, caused the USD/CAD to fall 0.38% reaching a daily low of 1.06555- however, this positive economic news did not have a lasting effect on the USD/CAD, as the pair closed yesterday at 1.07600.

However, the Loonie’s battle against its neighbor’s powerful currency is not over- tomorrow both Canada and the US will simultaneously announce their Trade Balance.

While Canada is expected to report a near perfect balance of -0.1B, the US is predicting a deficit of -35.7B, versus last month’s -36.4B. This double hitter event usually causes the USD/CAD pair to dramatically fluctuate- potentially giving an opportunity for the CAD to recovery against the US dollar.

Return of the Greenback

After one of the wildest and busiest weeks this year in the forex market, the USD emerges as the clear winner.



Last Friday, the US released their much anticipated Change in Non-Farm Payroll – for the first time, in over a year this report was expected to show to an increase in jobs of 10K last January. Unfortunately, despite analysts’ predictions, the NFP continued to fall by 20,000- reflecting a plunge in construction employment, a drop in state and local government hiring as well as companies decision to boost workers’ hours and overtime instead of hire new employees. Oddly despite a negative NFP, the unemployment rate in the U.S unexpectedly declined in January, to 9.7%-the lowest level since last August. The result of this lower than expected unemployment, fueled the dollar to continue

appreciating against both the Euro and the Pound.

Following last Thursday’s news that both the ECB and the BoE were holding their interest rates at their current historically low levels of 1.0% and 0.5%, respectively, both the EUR and the GBP plummet against their American counterpart. While the Pound fell from its opening price of 1.59004, closed at 1.57656 (falling nearly 0.847%), the Euro reached a new 8 month low, falling a drastic 1.17% and closing at 1.37269.

The tragedy of the Pound and the Euro, continued on Friday following the release of America’s better than expected unemployment rate, as both currencies continued to depreciate against the greenback- with the Euro falling another 0.3635%, closing off the week at an even lower 8 month low of 1.36771 while the Pound continued to plummet to 1.56393.



For the second week in a row, positive news from the US has pushed the greenback towards a strong finish. The only currency that was able to hold its own against the progressively stronger USD, and the positive economic data coming out of the United States was the CAD.



Ninety minutes prior to the release of the US NFP and unemployment rate, Canada announced its employment change of the past month, as well as its current unemployment rate. January’s employment change came out almost three times higher than predicted at 43K versus expected 15.2K (and prior -2.6K). The Canadian Bureau of Statistics reported that while full-time employment rose by 1,400, part-time jobs surged by about 41,500, producing Canada’s fourth increase in employment in the past 6 months. As a result, Canada’s unemployment rate unexpectedly fell from its prior (and predicted) level of 8.5% to 8.3%. Instantly after the release of this positive Canadian economic data, the USD/CAD fell from 1.0750 to 1.0720.



As a result of last week’s intensified hype that the US NFP was predicting an increase in the number of jobs for January, for the majority of the past week, the USD strengthened against its neighbor’s currency. While the positive Canadian unemployment news caused the Loonie to retake some of its lost ground from the USD, the USD/CAD increased a total of 1.03% last week, with the neighboring pair closing at 1.07137.



Later today, the CAD could very well regain some last week’s losses as at 13:15GMT, Canada will announce its Housing Stats. This monthly report, which depicts the annualized number of new residential buildings that began construction on January, is predicting to show an increase of 5K from the previous report (expected 180K versus prior 175K).



Compared to chaotic events of last week, this week seems relatively calm, with the only key economic data of today being the above mentioned CAD Housing Stats. Tomorrow (930GMT), Great Britain will announce its Trade Balance, expected to continue to show a deficit of -6.6B, versus the prior reported deficit of -6.8B. In regards to Trade Balances, on Wednesday both Canada and the US will simultaneously announce theirs. This double hitter event usually causes the USD/CAD pair to dramatically fluctuate- potentially giving an opportunity for the CAD to recovery against the US dollar.