* USD crumbles in holiday-thinned market
* GBP remains the outcast of Europe
* Risk aversion increases after Bhutto assassination
* Next week: Existing home sales, FOMC minutes and NFP are key?

The Greenback was crushed against most major currencies, with the EUR the primary beneficiary, as softer US data and heightened risk aversion led to heavy position liquidation. The USD’s collapse was exacerbated by reduced liquidity conditions in the holiday-shortened week, which was evident in the persistence of the directional price moves. It’s always difficult to gauge the durability of price developments that take place during such holiday periods-and next week will be another-but I think it’s safe to say that the USD correction higher has come to an abrupt end. Whether the USD will continue falling, however, is another question entirely.  Full text »

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* USD advance continues
* GBP falls into the abyss
* Risk appetite returns after more bad news from sub-prime
* What’s wrong with this picture?

The USD continued to firm against other major currencies this week, even as more sub-prime related losses were announced by major US investment banks. The USD’s gains are as much the result of other currencies being marked down on lower growth and interest rate outlooks as they are short-covering of excessive USD short positioning. Riskier assets, as indicated by JPY-crosses and equities, managed to stage a rebound at the end of the week, largely on the back of news that Merrill Lynch will receive a $5 bio investment from Singapore’s sovereign wealth fund, Temasek Holdings. The news comes just one day after analysts at another investment house suggested Merrill would need to write down an additional $8 bio on sub-prime tainted securities.  Full text »

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* The USD has broken higher; contain your enthusiasm
* Eurozone growth outlook downgraded
* UK housing market continuing to tank
* Challenging trading conditions ahead into year-end

The USD staged a strong rally late in the week, largely on the back of higher PPI and CPI readings and a stronger than expected Nov. retail sales report. At the same time, the outlooks for other major economies continued to deteriorate, with Germany’s IFO economic research institute lowering its 2008 German GDP forecast from 2.2% to 1.8% (2009 only 1.5%), Japan’s Tankan survey pointing to weaker corporate sentiment ahead, and the UK’s RICS housing price balance (price gains minus price declines) plunging to its lowest level since June 2005, while house price expectations fell to 1998 levels. Along the way, the USD broke several major technical levels, most notably 1.4520 in EUR/USD, suggesting this move is for real, but at the same time the overall outlook for the USD remains highly uncertain.  Full text »

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* USD tries higher, but can’t sustain gains just yet
* Risk aversion returns as outlook stabilizes, for now
* Fed rate cut (Tuesday) of 1/4% now expected
* Trichet is blowing smoke on ECB tightening

The USD is closing the week largely unchanged against most major currencies, but the dollar did manage to sustain the break-out from its downchannel in the US dollar index from last week. That breakout, led by gains in USD/JPY last week, was augmented by EUR/USD dropping out of its primary up-channel dating back to mid-August. Follow-through on the break lower, however, was cut short by exceptionally hawkish rhetoric from ECB Pres. Trichet, who went so far as to indicate that some ECB central council members favored a rate hike at this week’s meeting. The biggest loser against the USD was GBP, which plunged on weaker service sector and housing data ahead of the BOE 1/4% rate cut, which was correctly forecast in last week’s report. Even the Canadian dollar managed to recover a lot of lost ground following the ostensibly surprising Bank of Canada 1/4% rate cut, which was also correctly suggested in last week’s report.  Full text »

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