Forex Weekly Update March 14 2010

Weekly Update

Posted on | March 14, 2010 | No Comments
Dollar and Yen decline as risk appetite continues to improve

The Yen and US dollar declined last week as optimism for recovery extended. World wide equity markets continued there recent improvements and the S&P is hovering around the January high of 1150.
Although losses for the dollar were relatively small ( around 1% against the Euro) the market still remains very short Euro/US dollar. Further gains in Equity markets or even consolidation may push the dollar even lower next week.
Technically the US Dollar index which pushed below 80 last week is close to level that might provoke a bigger mover.
In Euro/Us dollar terms a push through the 1.3850 level could see us back above the 1.40 level and begin a bigger squeeze on shorts:

Sterling was battered early in the week( just shy of 0.92 against the Eoro) after release of trade figures with the deficit hitting a 17 month high. However, it recovered during the week as attention turned the the dollar. Sterling remains vulnerable probably until the election and then even beyond. The lack of a credible plan on the deficit will eventually cause a major negative reaction both in Gilts and the Currency.

The Greek situations has taken a back seat with investors more convinced that they will do enough to be supported by Germany and France. Indeed there is more speculation that a European Monetary Fund will be set up which has helped the government bond markets in the other so called PIGS.
I firmly believe this is merely a temporary pause . Despite all the right noises it seems highly unlikely that sufficient budget cuts can be achieved ( Spain has already jettisoned plans to raise the retirement age from 65 to 67). Of course this may may take months to really surface but Ireland Spain and Portugal will find that tough talking alone will not help them.

Next week sees more data promising increased volatility,perhaps. Notably the German ZEW Survey (Economic Sentiment) and US inflation data.

If we were to see a sustained rally in equity markets and improved economic data together with the abovementioned lull in Euro tensions then just perhaps we may have seen a temporary high already for the dollar. For Euro/ shorts  and Yen and Dollar bulls it could prove very painful.