President Obama’s banking-sector proposals are a net negative factor for the US currency as they will tend to undermine the capital account. There is still some scope for defensive flows into the US dollar on a lack of attractive alternatives as doubts over the global economy increase again. The Euro-zone will also remain an important focus and confidence will remain very weak as Greek default rumours persist. EUR/USD can weaken to 1.3970, but Euro support should survive at this level.
The latest US jobless claims was weaker than expected with an increase in claims to 482,000 in the latest week from a revised 446,000 previously. The increase was probably due to seasonal distortions, but the data will be watched more closely next week and another higher than expected figure would cause some unease.
Elsewhere, the Philadelphia Fed index was slightly weaker than expected with a decline to 15.2 for January from 22.5 the previous month. There will also be some disappointment that the orders component weakened back to near the zero threshold which could indicate a slowdown in underlying demand.
President Obama proposed fresh regulation for the banking sector which had a significant impact in undermining risk appetite. In contrast to recent weeks, the dollar did not benefit from the sell-off in stocks and retreated back to the 1.41 region from highs near 1.4030. There will be fears that any measures will trigger capital outflows from the US and also result in reduced net capital inflows which would be an important net negative factor for the US currency.
The US dollar index did push above its 200-day moving average for the first time in 8 months which will tend to reinforce a positive technical stance towards the currency.
The Euro was above 1.41 on Friday as the currency looked to rebound from over-sold conditions.