The trading week ended with traders still fearing a widening and deepening debt situation in the Euro Region. Optimistic traders are looking for some solution to be reached by either a “pseudo-bailout” by the European Central Bank or European Union. Legally, the ECB or EU cannot offer an outright bailout package so they may have to figure out a way to get around this restriction.
The International Monetary Fund was mentioned as a suitor but the IMF was awfully quiet this week. Pessimistic traders are looking for the situation to escalate to Portugal and Spain, putting additional pressure on the Euro in the short-run. If a solution is reached over the week-end, then the Euro is likely to open sharply higher as shorts will pay anything to cover positions.
The Dollar had a volatile day before settling sharply higher for the week. Early in the session, the U.S government reported that another 20,000 jobs were lost last month. Expectations were for a 25,000 to 40,000 increase. A surprise drop in the unemployment rate from 10.0% o 9.7% shocked the market, triggering a wild intraday move.
After the report, the primary focus of traders returned to Greece’s deficit problem. Demand for safer assets rose and the Dollar was able to post an 8-month high. This trend is likely to continue next week. Traders fear that the debt issues in the Euro Region are deepening. Therefore demand for less risky assets will continue to rise.
The GBP USD finished the week sharply lower. Risk aversion and a weak economy are pressuring this pair. Earlier in the week, the Bank of England left interest rates unchanged and voted to end its quantitative easing program; however, it left the door open for further stimulus if deemed necessary.
Fear drove traders into the Japanese Yen, thereby weakening the USD JPY for the week. Friday’s down move was muted by the friendly U.S. jobs report, triggering a light short-covering rally. The USD JPY has room to the downside and trader talk is saying that the Bank of Japan has no plans to weaken the Yen. Choppy conditions will prevail, however, if U.S. economic news continues to come out better than expected.
The weakening Euro and news that the Swiss National Bank intervened to defend its currency against the Euro and to prevent deflation helped lead to a higher finish in the USD CHF. Continued weakness is expected to pressure the Swiss Franc. The SNB is expected to continue to aggressively defend its currency against a rapid rise and extreme volatility.
The USD CAD closed up for the week, but lower on Friday. Weak gold, crude oil and equities underpinned this pair all week, but Friday’s slight recovery in stocks and gold help to limit losses.
The AUD USD and NZD USD finished the week sharply lower. The news that the Reserve Bank of Australia held interest rates in check at its last meeting ignited weakness earlier in the week. Lower demand for higher yielding assets fueled a massive liquidation later in the week. Friday’s daily closing price reversal indicates a possible short-term bottom. Watch for a follow-through rally to confirm the short-term bottom on Monday.
Risk aversion and weak economic reports pressured the NZD USD throughout the week, but Friday’s closing price reversal bottom indicates oversold conditions may trigger the start of a short-covering rally.
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