Can US Dollar Register Another Positive Week?

February 27, 2014

New York (Feb 27)  Having gained for the first time in previous three weeks, US Dollar continued its rally during the current week as geopolitical tensions in Ukraine coupled with improved New Home Sales figure increased the greenback demand. Yesterday, the greenback tested highest level of the month against its major counterparts as New Home Sales jumped 9.6% to 468,000 units in January, surpassing the market consensus of a 3.4% decline to 406,000 units. On Tuesday, the US Conference Board reported a decline in its Consumer Sentiment index to 78.1 in February, from a downwardly revised 79.4 last month.

Euro region currency faced pessimism during the current week as lower inflation numbers fuelled expectations of further monetary easing by European Central Bank in its monthly meeting scheduled for March 6. The single currency ignored seven year high Gfk consumer sentiment for Germany, released on Wednesday and the highest level of German Ifo Business Climate Index since July 2011. Further, the yearly CPI figure for the Euro region confirmed a rise of 0.8% in the price of goods and services purchased by consumer against the preliminary figure of 0.7%, though the consumer inflation figure is still less than the half of ECB's 2.0% target rate. Market players would focus on Flash Estimate of CPI y/y for the Euro region, scheduled for release on Friday, in order to determine the monetary actions by ECB in the upcoming week which can provide strong signal for the near term trend of Euro region currency.

GBP remained under pressure even after the second estimate of its Q4 2013 GDP met the forecast of 0.7% on Wednesday. Australian Dollar kept witnessing the weakness as Private Capital Expenditure q/q for the nation tested the lowest level since September 2009. The New Zealand Dollar also declined against majority of its counterparts as the nation's Trade Surplus declined from the previously downgraded figure, signaling weakness for the export oriented nation. JPY remained positive ahead of various releases scheduled for release later today while CHF kept declining as GDP number together with Employment Level signaled weaker economic scenario.

Precious metal prices which generally trades in reverse direction to US Dollar kept increasing as geopolitical tension supported the safe haven demand. Gold prices tested the highest level since October 2013 while prices of silver touched the highest since November 2013.

Market players carried the last week's strength of US Dollar even though majority of important announcements are still left to release. Newly appointed Fed Chairwoman, Janet Yellen, is to testify against Senate Banking Committee today after bad weather postponed the testimony on Feb. 13. The Fed Chairwoman, in her first testimony to House Financial Services Committee, on February 11, signaled that the US recovery is far from complete and tapering of monthly asset purchase isn't on pre-set course, indicating continuation of loose monetary policy by Federal Reserve. US Durable Goods Orders and Weekly Unemployment Claims are also scheduled for release during the later part of today. Further, important US announcement of the week, Preliminary GDP figure for Q4 2013, is scheduled for release on Friday together with monthly Pending Home Sales number.

Strength of the US Dollar during the current week is still to be confirmed by major economic announcements which bear mixed forecasts. The testimony by Fed Chairwoman can provide signals for the tapering decision of upcoming FOMC on March 18-19. Should it continue promoting tapering by ignoring recent weakness in economic indicators, US Dollar can witness positive sessions. Alternatively, a cautious signal considering recently weaker economic numbers can weaken US Dollar. Further, US GDP figure, which bears the pessimistic forecast can stall the recent strength of greenback should the actual figure matches the consensus. Moreover, market players would keenly watch for the labor market figures, scheduled for the upcoming week, in order to determine the near term movement of the US Dollar.

Source: ActionFOREX

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