Currency Pair Overview:  The Dollar Continues To Weaken Despite Positive Economic News

Overall: Despite durable goods orders and new home sales coming in higher than had been expected, the dollar weakened in the broad market on Friday as U.S. equities posted strong gains on the final day of the week in response to better than expected earnings. Traders’ appetite for risk continues to increase, as stocks continue to rise, hurting the dollar because demand for safer assets decline. The dollar closed the day weaker against all of the other major currencies, except the pound, which lost ground after it was reported the U.K. economy contracted much more than expected in the first quarter of 2009. U.S. durable goods orders dropped by 0.8% while the core number dropped by 0.6%.  New home sales decreased 0.6% last month to 356K units sold, better than economists had expected. The release of the stress test results for major U.S. banks that had been eagerly awaited were really a non factor as the Federal Reserve released the methods used but failed to give any real details. Stay tuned….

The Euro (Eur/Usd) The euro capped a strong week by gaining another 100 pips on Friday and closed the week 200 pips higher. The German Ifo business climate came in stronger than expected this morning at 83.7. Economists had expected a read of 82.4. The pair strengthened during this morning’s European session, in line with S&P futures moving higher and broke above the 20 and 100 day simple moving averages, which held as support after the move. The pair closed the day testing the 1.3250 level.

The Pound (Gbp/Usd) Cable continued to trade ‘one day up and one day down’ on Friday, losing 55 pips on the day. The pair traded in a range of more than 400 pips on the week and closed the week lower by 140 pips. The pair dropped significantly during the European session after it was reported that Moody’s is reviewing the U.K.’s triple A debt rating with a view to a possible downgrade. The pair also came under pressure after the preliminary GDP report revealed the U.K. economy contracted 1.9% for the first quarter 2009, worse than the 1.5% contraction expected. Retail sales, however, were a surprise to the upside; coming in at 0.3% after analysts had predicted a 0.3% decline.

The Aussie (Aud/Usd) As was the case on Thursday, higher equity markets and rising gold prices aided in the strengthening of the Australian dollar. The pair gained 80 pips on the day, closing above the 0.7200 level. Rising equities led to an increase in risk appetite and traders continued to move into higher yielding assets as the demand for safety decreased. For the week, the pair closed flat after erasing a 280 pip loss sustained at the start of the week.

The Cad (Usd/Cad) The dollar weakened against its Canadian counterpart on Friday helped by rising equity markets and crude oil gaining almost $2 a barrel and closing above the $50 level. The pair lost 120 pips on the day, adding to Thursday’s 170 pip loss. There were no Canadian economic releases on Friday and next week’s calendar is light, but GDP figures will be released on Thursday.

The Swissy (Usd/Chf) The Swiss franc strengthened significantly against the dollar on Friday, for the second day in a row, and the pair closed the week 250 pips lower. The pair dropped another 100 pips on Friday in what seemed to be a carryover from Thursday’s trade after central bank Vice Chairman Philipp Hildebrand made no mention of additional currency interventions, saying that patience was required to evaluate how current measures will help the economy. The pair closed Friday’s trade below the 1.1400 level.

The Yen (Usd/Jpy) The Japanese yen strengthened against the dollar despite equity markets closing Friday well into positive territory. The pair moved sharply lower during the Asian session, responding to continuing negative reports from the financial industry. However, the pair retraced some of those losses during the European session, moved higher after the positive U.S. economic releases but weakened as the U.S. session headed into the afternoon session. On the day, the pair lost 80 pips, closing just above the 97.00 level. For the week, the pair dropped 200 pips.