Sep 15 2008
The Greenback Continues to Rally After Local Correction
Last week was a wild week for the US dollar as it experienced a hefty amount of volatility, before range trading to end the week’s session. Early in the week the greenback traded at 1-year high’s versus the Euro, hitting levels below 1.40. Much of the bullish dollar movement at the beginning of the week was attributed to a combination of positive response from the Fannie and Freddie bailout, falling oil prices and disappointing performance from the Euro-Zone. By weeks end, concern over the effects of Hurricane Ike on US oil supply/demand and a batch of negative US data reversed trends and sent the US on a bearish run, closing at just over 1.43 against the EUR.
Fundamental data from the US last week was not great as a batch of major indicators, such as Pending Home Sales, Trade Balance and Unemployment Claims all disappointed. The announcement of Lehman Brothers bankruptcy pushed the USD down on fears that once again another major US bank was collapsing. Though at the beginning of the week Hurricane Ike appeared to have subsided, it gradually gained steam and ripped into the Texas area, dangerously close to precious Oil reserves. Oil prices, which had been a major catalyst in the bullish dollar movement, were suddenly threatened by rising demand and fear of loss of supply; this, however, lasted just until weeks closing as the markets opened yesterday with Light Sweet Crude selling for under $100/barrel.
Looking ahead to this week, we can expect even more volatility as we await several key US figures. Highlighting this week will be CPI, TIC Net Long-Term Transactions, Building Permits and the FOMC Interest Rate Statement. Though most are forecasted to stay inline with previous results, we can still expect the unexpected from the Federal Reserve. As in the past, Federal Reserve Chairman Ben Bernanke could surprise when it comes to the current 2.00% US interest rate, as investors should be attentive to the direction of the USD leading up to tomorrow’s rate statement. Today we await the release of the Empire State Business Conditions Index, monthly Industrial Production and Capacity Utilization. All three are expected to release with less than favorable results and will likely compete with falling oil prices in how the USD direction is determined.
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