Fri 17th Dec: Positive numbers from the US led to a sell off in the majors

The dollar bounced back sharply yesterday as encourgaing data releases hit the market and thus triggered a round of profit booking which led to a 2 cent shed off in the single currency.
The US Q3 current account deficit came out lower than expected at $164.7 billion while the Philly Fed index- an index of manufacturing sector- came out much stronger than expected at 29.6. There was positive news even on the jobs front with the weekly jobless claims dipping sharply by 43k to 317k.
As if this was not enough President's Bush's comments that the current account was concern to the administration and tough choices would need to be made on the spending front also helped put the dollar in a strong position.
The euro's fall could potentially led to further sell off in the single currency during the late afternoon after the release of Germany's IFO data, which is again expected to stumble below expectations.
The Yen also suffered losses against the greenback as the market expects a round of intervention from the Bank of Japan ahead of today's crucial CPI data.
A stronger than expected retail sales data from UK helped Pound curtail some of its losses as it trailed in the $1.93 levels.

Thru 16th Dec: Meagre capital flow drowns greenback; Bush-speak ignored

The Dollar was hit across the board by the lowest US capital flow for the year at $48.4 billion (drop by 29%) due to a 57% slump in foreign purchases of US bonds and stocks.
This exacerbated the dollar’s descent as portfolio inflows into the US fell short of covering the country's record trade deficit (that also touched a record high of $55 billion). The currency's losses also stemmed partly from position adjustments as trading volumes slow down to a trickle ahead of the year-end.
The dollar tumbled around 1.7% against Yen after a BoJ survey suggested that sentiment among Japanese companies was better (Tankan survey) despite a series of weak economic data.
Sterling too was given a leg up by a TICS data showing a 4.6% increase in US treasury holdings by the British central bank.
Prez Bush took the markets by surprise by lending a sympathetic ear to Italian PM Silvio Berlusconi, (on a tour to Washington) on his worries about euro’s strength hurting E-12 region’s exports. Bush noted that there was a renewed drive to cut U.S. budget deficits that should help the weak dollar and cited the recent Fed rate hike indicating Greenspan's awareness of greenback's plight. But such hazy remarks from the President did nothing to halt the traders from further selling of dollars.
The markets await the U.S. current account data for Q3, to be released later in the day, which also doesn’t portend well for the greenback.

Wed 15th Dec: Fed delivers as expected, Tankan protects further slide in the Yen

The US Federal Reserve Board kept its promise to deliver yet another quater point rate hike in its benchmark Fed Funds rate to take it to 2.25 percent and at the same time maintained its commitment to follow suit in the meetings to come.
Although the Fed's tone was less hawkish on the growth in the labour market-after soft November payroll figures- and on inflation, it continued to hold on to its "measured pace rate hikes in the future" phrase suggesting that rate hikes in subsequent meetings were on the cards.
It should appear that Fed would ideally like to move towards a level of 3.5 to 3.75 percent of the Fed's funds rate before it takes a pause over the next year as still the real rate of interest in the US is below one percent.
These levels of interest rates are described by the economists as the "neutral level" and is conducive for growth in the economy.
Earlier during the session the dollar escaped damage from the release of the highest ever trade deficit figures at $55.46 billion- the main culprit in this 9 percent rise was the rising cost of oil imports.
On the other side of the Pacific the release of Japanese business sentiment survey- the Tankan report came within expectations and the traders thus heaved a sigh of relief as news from Japan had of late been disappointing.
This helped the USD/Yen pair to pare losses from 105.55 levels towards early 105 levels in the early morning trades.

Tue 14th Dec: Markets oblivious to stronger data; dollar drifts lower

Caution prevailed in the currency markets as traders preferred to adopt a wait and watch policy ahead of US trade figures, the FOMC rate hike decision and capital flow data.
The Euro stabilized amid the 1.3250 levels as players unwound positions in anticipation of events and data lined up ahead, edging above 1.33 as traders overlooked data from the US.
The retail sales figures beat market expectations showing a 0.1% rise, and the ex auto number registered a 0.5% increase. Unimpressed by the stronger than expected figures, traders pushed the US currency lower as focus remained firmly on likelihood of widening trade deficit.
Sterling posted some gains to move above the 1.92 levels against the dollar as manufacturing orders rose, and overcoming faltering output volumes in the UK.
Yen breached the 105 levels, refraining from posting further gains as tankan survey is expected to show a decline in business confidence.
With market expectations of weaker data releases from the US, dollar could come under pressure as traders find reason to remain short dollars.
Conversely any improvement in data will help the dollar recover some more lost ground.
More importantly, the market will be persuing the Fed's accompanying statement for clues whether further interest rate hikes are on the cards.

Mon 13th Dec: Dollars ends calm giving signals of a likely storm

Dollar continues to find support from the prospect of higher US interest rates, as it grew for the 3rd straight session.
A stream of US economic data - the rising consumer sentiment and an appropriate increase in the core Producer Prices - did little but confirmed the prospect of another 25 points hike in the US interest rates at the FOMC meet this week.
The European currencies ended flat with Euro finally closing the week at 1.3225; while Pound was last seen trading at 1.9150.
The Yen was particularly badly hit as the economic growth data released over the week showed Japan's economy have started finding it hard to grow in the third quarter, while other reports showed an unexpected fall in core machinery orders signifying a drop in the business investment. The key data released were enough to push the currency to a low of 106.
We expect the non-dollar currencies to trade lower on account of profit booking before the year end. However, fresh trading position next year can push the Euro beyond 1.35. The long unheard oil prices are back in news once again.
Oil prices settled under $41 for the first time since July with dealers booking profits on a widely expected move by the OPEC cartel to curb production in excess of its official output ceiling. The move by OPEC was to curtail oil production was primarily to defend the oil prices from falling any further.