Tuesday, February 15, 2011

USD gained against most currencies on Egypt's turmoil

*USD –* The USD gained against 14 of the 16 most actively traded
currencies last week as Egyptian President Mubarak's 30-year rule
came to an abrupt end. After three weeks of demonstrations, which
remained mostly peaceful, the calls for political change became too
strong for the Egyptian dictator to ignore, forcing him to cede power
to the military. Global markets have generally embraced the democratic
change as a positive for the region with global commerce, oil
transport through the Suez Canal most notably, largely unaffected. The
dollar also benefited on signs that the US labor market is humanizing,
albeit slowly. With weekly jobless claims dropping by the most in more
than two years, investors appear bullish on the US economy. Markets
will but closely monitor retail sales, housing, and inflation data due
this week combined with the Obama administration's 2012 budget
proposal that calls for $1.1 trillion dollars in cuts over the next

*EUR –* The EUR starts the week by dropping against all of its
most-traded counterparts on expectations that officials will again
struggle to bridge differences over expanding the Eurozone's
"bailout" fund. The ordinary currency also came under difficulty
ahead of schedule in the European session on speculation that the
restructuring of West LB AG, a German state-owned bank bailed out
during the financial crisis, is flaw.
Further compounding the euro's woes, Ireland's main opposition
party said that it wants to renegotiate the country's EU-IMF loans,
and Greek officials criticized demands from both the EU and IMF.
Portuguese debt also gave investors cause for concern as yields on
10-year bonds rose to 7.37%, small of the 7.64% reached last week, but
still providing enough difficulty to lead most to believe the third
Eurozone member will seek EU help.

*GBP –* Inflation data will be the key driver for Sterling this
week. Consumer prices are expected to increase 4.0% on Tuesday. This
follows last month's increase of 3.7% - which was the highest
reading since November 2008. This, coupled with Wednesday's
quarterly inflation release by the central bank, has the market
speculating that the BoE will bring to somebody's attention rates
sooner rather than later in an effort to stave off inflation.
Sterling has already gained 2.6% against the greenback this year,
currently trading at a key psychological level of 1.60. The data this
week should provide further direction for the pair and show whether a
go above that level can be sustained.

*JPY –* JPY has managed to hold on to marginal strength against the
USD through European trading, but is moving to near flat as the North
American trading day session starts. Q4 Japanese GDP contracted as
expected, but while recording a –0.3% q/q and appearing somewhat
better than the expected number of –0.5% q/q, a downward revision to
Q3's data took away the relative upside growth surprise. USDJPY has
recaptured some upside initiative, despite trading slightly lower
today, in line with the upside difficulty on US-Japanese shorter term
yields. Look to 84 as primary resistance, though a trade past this
level opens up a shot at the 4.5 month high near 84.50.

*CAD –* The CAD gained against all of its G10 counterparts last week
as strong North American economic data increased speculation that the
BoC will tighten monetary policy. The Canadian economy unexpectedly
posted its first trade surplus in more than 10 months last week as
rising energy and metals prices buoyed the largest jump in exports in
nearly three decades. The BoC has left rates at 1% since late
September. At the Bank's December meeting, Governor Carney said that
exporters needed to regain competitiveness hurt by a strengthening
currency and slowing global demand by investing in productivity. With
exporters clearly rescue their competitiveness, markets have begun to
expect the BoC to consider tightening policy as soon as next month.

*MXN –* The Mexican peso in excellent health from last Friday's
weekly low after Mexican Finance Minister, Ernesto Cordero, commented
that policy makers may auction off more monthly dollar options. This
may help soften the impact any sudden outflow of capital would have on
the peso. Despite the recovery, the peso is still under difficulty,
with USD/MXN remaining well above the 12.0000 support level. Fresh
strikes and protests in Cairo over better pay and work conditions has
renewed tensions in the Middle East, prompting investors to shy away
from riskier, emerging market assets.

*AUD –* The AUD starts the week back above parity with the USD after
diminishing below the mark last Friday for the first time in three
weeks. The Aussie has fallen out of investor favor as of late, with
markets on edge over unrest in the Middle East. Investors have also
been less keen to buy the AUD ahead of key Chinese data this week that
may suggest Australia's largest trading partner may continue to
tighten its monetary policy. Trade data this morning has encouraged
investors as Chinese imports outpaced exports, but the Chinese New
Year holiday likely distorted the data. Investors will be focused on
Tuesday's inflation data out of Plates, with expectations for higher
interest rates likely providing significant resistance for even the
high-yielding AUD.

*Last Week's Currency Highs and Lows and Forecast*

*U.S. Economic Indicators*

Source: Fxstreet.com

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