Friday October 16, 2009

The U.S. dollar made a bid to end Friday on a high note on and take back earlier in the week losses against the euro. Strong American industrial output data this morning reminded investors that the recovery is underway and can on occasion surprise to the upside. Some sour earnings data from Bank of America and General Electric also helped remove some rationale for pounding the dollar as equity prices turned south as investors booked profits or simple tempered their outlook.

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The euro rallied to around $1.4960 in a second attempt by bulls to trigger stops above $1.50. If this watershed gives way, one expects to see sustained short-term buying kick-in as weak shorts get flushed out and new longs go hunting for fresh momentum.

The pound was the exception that proves the rule this morning where an ongoing rebound against both the euro and dollar attracted plenty of attention. The pound suffered last week on account of discussion of further quantitative easing, while this week official indications suggest this will only occur in the event it's really needed. And so the pound continues to make alliances with old friends or better stated those who sold it short in the first place. At $1.6363 the pound has added close to one cent overnight. Against the euro the pound has regained close to a penny at 90.95.

Despite an insane day for energy trading yesterday in which crude oil closed at a 12 month high, the Canadian dollar is weaker today amid a broad-based rally for the greenback. At 96.19 cents Canadian bulls are taking a breather after a substantial run-higher in commodity prices. A U.S. report on Thursday showed unexpected declines in U.S. stockpiles of gasoline and distillates, which further fed bulls with a reason to buy.

The Aussie is also relaxing today after a strong week and despite a little pullback to 91.86 cents, the currency will close at its strongest since the first week of August 2008.

The Japanese yen is also losing out to the dollar today and has eased to ¥91.00, which is a sizeable shift from Thursday's opening price at ¥89.37. Finance minister Fujii's overnight comments clearly softened yen bulls' conviction that the Japanese will want to see a stronger yen. Currently the argument for an independently strong domestic economy doesn't hold much water and so the yen appears a little top-heavy to some investors.

Andrew Wilkinson