Weekly FX roundup: Dollar pressure continues

By Hussein Sayed, Financial Analyst ACM Middle East & Asia

The US Dollar (USD) continued to suffer as better than expected Q3 earnings results from Intel, JP Morgan, Goldman Sachs, and Google drove the Dow Jones Index to above 10,000 key resistance level; while crude oil prices also broke above the $75 per barrel price to close at $78.53.

Gold marched to a record high above $1,070, before closing at $1,051 on Friday.

Retail Sales in the US fell by 1.5% in September, led by a contraction in auto sales as the 'Cash for Clunkers' programme ended, although the figure was still better than expected.

Meanwhile, the Empire State Manufacturing Index soared from 18.9 to 34.6 in October, but the Philly Fed survey missed expectations dropping to 11.5. Federal Open Market Committee (FOMC) minutes for September's meeting suggested that the Fed is more optimistic about the economy but still cautious about the downside risk.

If it was any consolation, the dollar managed to recoup some of its losses by the end of the week; but the question on a lot of investors' minds is; 'will it manage to change its down trend direction looking ahead?'

The next two weeks will give us a better picture on corporate earnings, which I believe would be the major market mover. Should the earnings be disappointing, the dollar could be headed towards a significant pick up; better than expected earnings, however, could lead the greenback to new lows against its major counterparts.

Strong sterling performance

The Sterling (GBP) had the best performance last week, rising 3.2% versus the dollar, boosted by speculation that the Bank of England (BoE) will momentarily halt its asset purchase programme, which has almost used up to £162bn of the £175bn fund.

Next week could be volatile for the Sterling, with possible movement dictated by two major releases - on Wednesday, traders will be awaiting the minutes of the central bank's latest rate decision, while Q3 GDP will be out on Friday. Both figures will determine whether or not the BoE will continue its asset purchase programme, and accordingly the sterling's upward or downward movement will be determined.

Euro rise continues

Meanwhile, the Euro (EUR) rose to a 14-month high against the dollar, almost testing the 1.5 key resistance level. Traders ignored the German ZEW economic sentiment which dropped to 56 in October, as risk appetite continued to push the pair higher. Euro Zone exports fell by 5.8% month-on-month in August, suggesting that the EU is struggling in the face of the Euro's strength.

Will the EUR/USD pair break above the 1.5 level next week? On Monday and Tuesday, Euro Zone finance ministers will gather for their regular monthly meeting. The Euro's strength had been an important topic last week with many comments from EU finance ministers, and the topic should be another hot topic at next week's meeting.

Traders will also keep an eye on the German IFO business confidence and industrial new orders report, but as mentioned, focus will mainly be on the results of the finance ministers' meeting. A break above 1.5 mark would suggest a new target for the Euro at 1.55.

Aussie continues to climb

In Australia, Reserve Bank of Australia (RBA) Governor Stevens signalled an end to the period of economic weakness, saying Australia escaped the global crisis relatively unharmed. Rate hike is expected from the RBA next month, and the Aussie will most probably remain strong for the next couple of weeks, probably moving towards 0.98 by December.

On the data front, RBA meeting minutes are due on Monday while the Australian leading index will be out on Tuesday.