| November 27, 2010 at 6:21 AM |
Dollar Rallies Against All Major Currencies, Advance To Resume Into Next Week's Trade The U.S. dollar rallied against all of its counterparts during Friday's trade as market participants continue to seek safety amid uncertainty in the global markets. In Asia, China warned against military acts near its coastline ahead of U.S. South Korean naval exercises that may lead the region toward war. According to Reuters, the U.S. plans to send an aircraft group led by nuclear-powered USS George Washington for military exercises with South Korea on Sunday. This announcement comes on the back of the death of four people on Tuesday amid North Korean Artillery shells. Thus, the greenback could push higher in the case of North Korea taking extreme actions. At the same time, contagion fears in the Euro-Zone could add additional momentum to the buck. Meanwhile, the dollar index reached its highest level since September 21st, and now looks poised to continue its northern journey as price action recently broke above its descending channel dating back to June. The index is currently testing the38.2 percent Fibonacci retracement level on the June 7th to November 4th downswing. Next week's scheduled event risks may serve to be the catalyst needed for the greenback to push higher. USD traders will be faced with the consumer confidence report, ISM manufacturing, and Nonfarm payrolls. The latter is of particular importance due to the fact that the labor force in the U.S. remains at depressed levels and was a key driver behind the Fed's recent announcement of additional asset purchases. Euro Under Pressure as Fears Surrounding Europe's Debt Contagion Lingers The euro remains under pressure as currency traders fear that elevated debt levels will spread throughout the Euro-Zone like Ebola. Market participants will place Portugal in the spotlight as the region struggles to meet its fiscal deficit. In the coming months, the European Commission will release the budget/shortfalls for members in the bloc. In turn, traders are placing added weight onto the euro amid speculation that the report will be released worst than expected. Meanwhile, Spain is forecasted to meet its targets. However, unemployment remains at elevated levels and will likely weigh on economic activity in the near term. All in all, the outlook for the Euro-Zone is blurry as governments plan to implement tough austerity measures in order to battle their high budget debts, and so long as debt contagion fears remain, the euro will likely face further losses. British Pound Price Action To Be Dictated by Market Sentiment The British pound pushed 1.08 percent lower against the U.S. dollar to end the week as risk aversion regained its footing. Indeed, the currency looks poised to continue its southern journey as technical indicators point to additional downside risks. The Bank of England is in a sticky situation due to the fact that the split among MPC members will likely widen in the coming months as policy makers access the outlook for growth. Indeed, there is a 3 way split among members, but it noteworthy that further purchases by the central bank could cause near-term inflation to push higher and lead corporate borrowers to releverage. As a result, policy makers may wait until the spending cuts to take place in 2011 in order to access its affects on the economy. All in all, the British pound may witness a lackluster performance during the month of December as the central bank takes a wait and see approached with regards to the effect of spending cuts on growth heading until 2011. Investor sentiment will likely dictate price action during next week's trade as the economic docket in Great Britain is fairly muted. http://www.dailyfx.com/ |
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