Currency Pair Overview: Dollar Closes The Week Strong

Overall The dollar strengthened in the broad market once again on Friday led by the euro which dragged the other European currencies with it. ECB President Trichet’s speech was the catalyst after he failed to reassure the market that policy makers are on the same page with respect to interest rates. The Swiss franc and the pound followed suit by weakening against the greenback, the franc also had the added pressure of disappoint retail sales numbers. Higher equity markets buoyed the Australian and Canadian dollars as well as the Japanese yen. Preliminary University of Michigan consumer sentiment came in above expectations at 61.9, higher than the 58.4 that was anticipated. The dollar closed the week mixed against the other major currencies but sentiment ending the week is certainly dollar bullish. Of course that can change very quickly. Next week’s economic calendar is free from any important U.S. releases until later in the week, but there are plenty of red flag releases from all the other regions, which means the greenback may move in response to regional strength/weakness.

The Euro (Eur/Usd) The euro dropped significantly on Friday after European Central Bank President Trichet failed to convince traders that ECB policy makers are on the same page when it comes to the interest rate policy. Traders are still unconvinced that the ECB will not drop rates below the 1% level. Euro-zone trade balance numbers showed a smaller deficit than expected but the news led to no reaction in the currency. On the day, the pair dropped 160 pips, closing near the 1.3020 level and testing the 50 day simple moving average.

The Pound (Gbp/Usd) cable dropped on the day, dragged lower by the euro and ECB President Trichet’s failure to calm trader’s worries about the interest rate policy. The pair had moved higher at the beginning of the week, breaking above the 1.5000 level and looking at testing 1.5100. However, dollar strength seen throughout the week finally caught up with the pound. The pair closed the week higher but well off the highs. On the day, the pair closed lower by approximately 130 pips, testing 1.4800.

The Aussie (Aud/Usd) The aussie saw limited movement on Friday as the dollar remained strong, U.S. equity markets closed higher but well off the highs of the day and gold prices moved lower and closed below $870 an ounce. Australian import prices came in at -2.8% on a quarterly basis, lower than the -0.4% that was expected. The Australian dollar will be in focus next week as important economic releases are scheduled to be reported including PPI and CPI data. On the day, the pair gained 15 pips after trading in a 60 pip range.

The Cad (Usd/Cad) The cad moved higher on Friday as the dollar strengthened and a Canadian economic report showed that the annual inflation rate slowed unexpectedly last month. The monthly CPI number came in at 0.2%, lower than the 0.3% that was expected. The core number beat expectations coming in at 0.3%. The pair gained 70 pips on the day, moving above the 1.2100 level. Movement in the pair may be stifled at the start of the week as traders wait for the Bank of Canada’s interest rate decision on Tuesday morning. Economists expect the BOC to leave rates unchanged at 0.50%.

The Swissy (Usd/Chf) The swissy moved much higher on Friday as the franc was dragged lower with the euro after ECB President Trichet’s speech and on the heels of Swiss retail sales coming in at -3.8%, much lower than the -0.2% that analysts had predicted. The pair gained 185 pips on the day, closing near the 1.1650 level and took out both the 50 and 100 day simple moving averages along the way.

The Yen (Usd/Yen) The yen traded within an average range on Friday and closed the day only slightly lower, unable to hold below the 20 and 200 day simple moving averages. U.S. equity markets had a hard time gaining any traction despite better than expected earnings reports from Citigroup and General Electric and closed the day only slightly higher. For the week, the pair lost 110 pips closing below the weekly 50 simple moving average.