Dec 8, 2010

Dollar slide and commodities boom

The dollar strength last week was a very short lived one as dollar index ended at 79.32 in Asian trading today, a sharp turn from the high of 81.195 on 30-Nov. What drives this I am not clear and I am not attempting to put an explanation at every direction the market takes or argue that market is rational. Let me summarise a few key events and the market reaction that follows:
1-Dec: Dollar retreated slightly as market was waiting on sidelines ahead of an eventful week.
2-Dec: Strong US housing data started a downward trajectory for the greenback for the whole of the week. Was it a sign of boost in risk sentiment or market selling the dollar to take some gains?
3-Dec: Disappointing non-farm payrolls and higher than expected unemployment rate (9.8%) in US had market questioning the US fundamentals again. Down the dollar goes.

At the same time as US economy shows signs of vulnerability, the commodity markets are roaring. Risk sentiment at work again? Anyway, gold resumed its rally to reach another record high near 1430; crude oil  breaks through 90 pyschological level.

So far this week, as I'm writing this, fx markets are generally stable. There are news about imminent rate hike by China this coming weekend and talk about QE3 but market does not react strongly. Recent EU finance ministers meeting did not arrive at any new decisions.

Market in brief:
Source: Bloomberg

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
GBP
BRC Retail Sales Monitor Nov
0.70%
--
2.40%

AUD
RBA Rate Decision Dec
4.75%
4.75%
4.75%

JPY
Leading Index Oct P
97.2
97.3
98.6

CHF
Unemployment Rate Nov
3.60%
3.60%
3.60%

GBP
Industrial Production M/M Oct
-0.20%
0.30%
0.40%

GBP
Industrial Production Y/Y Oct
3.30%
3.90%
3.80%

GBP
Manufacturing Production M/M Oct
0.60%
0.30%
0.10%
0.20%
GBP
Manufacturing Production Y/Y Oct
5.80%
5.40%
4.80%
4.90%
EUR
German Factory Orders M/M Oct
1.60%
1.90%
-4.00%

CAD
BoC Rate Decision Dec
1.00%
1.00%
1.00%

--
GBP
NIESR GDP Estimate Nov

--
0.50%

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