USD Pairs: An Overview

The USD notched significant gains today versus its major counter-currencies, most notably versus the Euro, the Japanese Yen, the Swiss Franc, and the Canadian dollar. The euro took it directly on the chin today, as German ZEW investor sentiment was reported below expectations and below the 50 mark (indicating economic contraction). The economic dynamics in Germany have slowed dramatically, a German economist said after the news release. Meanwhile, worries about Greece's finances are still lingering in the minds of investors, who are concerned that growing deficits and weak growth in the EZ's weaker economies will put increased pressure on the European currency in the coming months. The Euro fell to lowest level against the Greenback this year, dropping below $1.43 and traveling down to test the $1.426 key support level before staging a weak recovery. Traders said that if the EURUSD closes below $1.4290 during the US session, there could be a flurry of Euro selling when Asian markets open. The pair is trading at roughly $1.4290 at the time of this writing.

EURUSD - Today

EURUSD

Weighing on the CAD was today's interest rate decision and dovish monetary policy statement. The central bank held rates steady at 0.25%, lowered its growth outlook, and made a comment that a strong CAD is a risk to the country's economic recovery. On the other side of the coin, the US government released its monthly TIC long-term purchases data, an indication of change in foreign investment in US long-term securities. The data was much better-than-expected, showing a monthly increase of $126.8 billion versus an expected increase of only $30.3 billion. Evidence of increased foreign purchasing of US securities is strongly bullish for the dollar, as these purchases are made after swapping foreign coin for US currency.

The UK reported higher-than-expected monthly consumer inflation data today, which helped the Pound significantly during the day. The inflation data reinforced the view that the Bank of England will allow its quantitative easing program to fizzle out in the near term. Also aiding the Sterling today was the acquisition announcement of UK-based Cadbury, Plc by US-based Kraft Foods, which increased demand for the UK currency. Nevertheless, the Cable lost its gains versus the dollar due to BoE Governor Mervyn King's comment that Britain faces a long period of healing, which makes it tough to determine the direction of the bank's monetary policy. The GBPUSD ended up the day little changed.

GBPUSD - Today

GBPUSD

Separately, another move to tighten monetary policy by China through raising its one-year bill-rate took a bite out of investor risk appetite, giving the USD more momentum against both the yen and higher-yield commodity currencies such as the NZD and AUD. Economic tightening in China could be especially detrimental to Australia.

Crude Oil

Oil rose above $79 a barrel today due to optimism gleaned from a rising US stock market, which outweighed earlier price pressure due to milder global weather patterns and a strengthening USD. Crude rose by almost $1.00 to $79.35 a barrel by 20:00 GMT. Wall Street climbed today as investors bet that a Massachusetts Senate race could crush President Obama's US healthcare reform plan. Opinion polls showed that Massachusetts voters may replace the late Senator Edward Kennedy with a Republican, taking away the Democrats' 60-vote super-majority in the U.S. Senate. Yet, high oil inventories and weakening demand in Europe and North America are still strong fundamental negatives for crude prices. A stronger dollar in 2010 may also put pressure on crude. Many analysts see the Eurodollar dropping to as low as $1.30 this year.

The major wildcard will be China. Chinese demand has a huge impact on oil prices, and thus fourth quarter economic data due out on Thursday will be eyed carefully by oil traders. China's industrial output is expected to show a 20 percent increase in 2009, the biggest rise since February, 2006. Furthermore, China's crude oil imports are expected to rise 15 percent this year as the country launches the second phase of its state petroleum reserve, according to a report by state-run Xinhua news agency. Strengthening demand in China may balance out dwindling demand in Europe and North America.

Crude Oil - Today

Crude