USD - The greenback had another mixed performance last week as it steadily lost ground against the EUR and GBP-breaching the critical $1.50 level versus the former-while recouping previous losses vis-à-vis the JPY and CAD.  The undulating dollar was whipsawed by risk sentiment, and the continuing carry trade phenomenon in which investors borrow in the low yielding USD to fund their investments in other higher-yielding currencies and assets.  Lackluster data releases last week removed some steam from the recent ostensible forward momentum in the markets, casting a shadow of doubt on the timing and magnitude of a full-fledged economic recovery:  PPI (-0.6% in Sep. vs. 1.7% earlier); Housing Starts Index (590K in Sep. vs. 610K exp.); Initial Jobless Claims (531K for 10/17 vs. 515K exp.).  Nevertheless, a robust pop in both the Leading Indicators Index (1.0% in Sep. vs. 0.4% prior) and Existing Home Sales (5.57M in Sep. vs. 5.09M prior) helped to instill confidence again in the markets late last week, bolstering risk sentiment, and hence, deflating the USD.  With the DJIA bobbing up-and-down near the psychologically and technically significant 10,000-level, the greenback appears to be riding a similar roller coaster, but in inverse fashion.  With a battery of key data releases on tap for this week, markets will have plenty over which to ruminate.  Though expectations are for a continued sprinkling of sanguine data, this morning's disappointing Chicago and Dallas Manufacturing Indices (-0.81 in Sep. and -3.3% in Oct., respectively) suggests that the crucial manufacturing sector remains depressed, further insinuating a difficult road towards economic recovery.  With US interest rates at historic lows, and the FOMC intimating a loose monetary policy for the foreseeable future, the USD will likely remain on the defensive and will continue to be influenced by global risk sentiment.

EUR - The euro remains firm vs. the dollar, holding near 14-month peaks at $1.5061.  The single currency  broke  through  $1.50  last  week  as  building signs of a global economic recovery encouraged risk appetite.  Europe continued to show signs of improvement as the Eurozone Purchasing Manager's Index rose to 53.0 in October, making further gains above the 50-level, separating growth from contraction.  Industrial new orders also rose by an above-forecast 2% in August.  As one of the prime beneficiaries of dollar weakness, the euro appears primed for further gains, which if too rapid, may threaten the region's nascent economic recovery.  Due to this, euro gains in the near term will likely be tempered by market participants wary of European authorities expressing concerns about euro strength.

GBP - Sterling was no exception to the wide spread USD sell-off either gaining 2.7% for a high of $1.6687-its strongest level since August-before selling-off to close the week's session at $1.6306. GDP showed nominal improvement -0.4% from -0.6% q/q, and -5.2% from -5.5% y/y. Retail Sales also inched up slightly last month posting a revised 0.1% increase over the previous month's flat reading of zero; y/y shows an increase of 2.2%. The pound posted declines against the euro as well, on a report that showed Britain unexpectedly stayed in recession for Q3'09, giving policy makers ammunition for maintaining debt purchases to revive growth. Britain's Communication Workers Union began a two-day nationwide strike at Royal Mail Group Plc today after negotiators failed to resolve disagreements over job security and work rules.

JPY - The yen stayed near 1-month lows of 92 against the dollar as new uncertainty about the global economic recovery helped the dollar.  Last week the yen fell against the dollar as the 10-year US and Japanese government bond yields widened in favor of the dollar.  Bond yields widened to 210-bps, which helped attract Japanese investors.  Talks of investors using USD as the new currency to fund the carry trade may also be helping the dollar against the yen, together with a fall in equities.

CAD - The loonie saw a sharp drop-off from its recent dominance over the USD giving up 3% (1.0576) off recent lows to finally settle at 1.0538 to close the week. Canada's dollar fell the most in four months after the nation's central bank intensified its warning that the currency is growing too strong, boosting speculation it will not raise interest rates any time soon. This was, of course, confirmed as the BoC held its overnight lending rate at 0.25% last Tuesday. Analysts are saying that BoC Governor Mark Carney's comments last week concerning threat of action to stem gains in the nation's currency may only have a fleeting influence on currency traders. Carney said last week that investors lost their focus on the central bank's commitment to meet a 2% inflation target, and said action to weaken the Canadian dollar is an option. Crude oil continued its ascension on the back of a weak USD, climbing 5% for a YTD high of $81.90. Natural gas did its part as well reaching its highest level since January at $5.16 before backing-off to close the week at $ 4.69.

- The peso chart for last week read like a mountain range reaching a peak of 13.08 vs. USD following a plunge to a valley of 12.8284 (a year-to-date low) before finally closing the week at 12.8811. Unemployment for September crept up again to 6.41% from the August reading of 6.28%. Retail Sales continued to decline showing -5.5% in September from the prior reading of -4.8%. Concerns arose over the passage of President Calderon's 2010 budget on speculation the Senate won't pass a part that includes tax increases, increasing the odds of a credit-rating downgrade.

CNY - The yuan rose modestly vs. the dollar to 6.8278.  The PBoC said the dollar should remain its principal reserve currency but also called for the share of euros and yen to increase.  China holds $2.27 trillion in USD and any change in its reserve mix can seriously affect the dollar's value.

Last Week's Currency Highs and Lows and Forecast


Highs and Lows Last Week



1.5063 - 1.4929

1.5120 - 1.4900


92.24 - 90.08

93.50 - 90.50


1.6693 - 1.6241

1.6610 - 1.6200


1.0229 - 1.0034

1.0000 - 1.0200


0.9329 - 0.9113

0.9400 - 0.9115


1.0590 - 1.0267

1.0680 - 1.0300


5.0202 - 4.9415

5.0100 - 4.9600


0.7635 - 0.7368

0.7600 - 0.7300


13.1496 - 12.7971

13.2000 - 12.8000


1.3997 - 1.3872

1.4060 - 1.3880


32.418 - 32.253

32.555 - 32.200


7.5692 - 7.2832

7.5800 - 7.3000