Forex report: Shaky start

There is no single particular theme to help crystallize traders views at the start of what might be a dull trading week in the run-up to the Christmas holiday period. Many consumers preferred the safety of indoors to a trek to the mall in hazardous weekend weather conditions after a blizzard hit the North East of the United States. Many investors will be delayed in returning to normal after two feet of snow in some parts. The dollar earlier pressed up against a three-week high against the euro at $1.4281 before the euro sat up and revered course. The dollar index is slightly lower to begin the week following last week’s 1.6% rise making for the biggest gain in over six months.

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Euro – Fears that thin market conditions may become exaggerated have certainly lived up to expectations recently. The Darwinian-style failure signs and fears surrounding weaker Eurozone nations has had a dramatic impact on the mentality of some traders surrounding the prospects for the euro. Under normal liquidity conditions it’s unlikely that the downgrade of Greece might have shifted the euro’s value to the dollar as much as it has. Currently the euro buys $1.4358. Against the yen the euro is firmer and today buys ¥129.92.

U.S. dollar – Economics Nobel-prize winner, Joseph Stiglitz raised his concerns that the U.S. economy might be running on vapor fumes at present. Mr. Stiglitz warned that the stimulus measures administered thus far might be enough to maintain the economy with a buzz for a while, but that buzz will wear off. Those measures won’t be enough to help employment from falling later in 2010 and declining consumption could weigh heavily on economic prospects next year. He advises the government to prepare for a heavy-spending round next year if they want to catch the economy before it falls again.

Aussie dollar – The Aussie continues to suffer from the weight of post monetary cycle stress. Despite the signs of strength surrounding Asian buoyancy within Japanese trade data, investors continue to lighten the load on the Aussie after the central bank hinted it might not be in a hurry to raise rates soon. Eve though its job may be done already, the yield cushion afforded by the Aussie will remain in place for perhaps the next six months before other central banks are in a position to call for tighter domestic monetary policy. For now the Aussie has few friends and today buys 88.67 U.S. cents.

Japanese yen –Encouraging export data showed a 10th consecutive monthly trade surplus for Japan. Compared to one year ago Japanese exports fell 6.2% making for the smallest year-on-year decline in 14 months. Exports rose in November by 4.9% on the month. Exports to China and Asia rose for the first time in a year. Overall Japanese imports declined by 16.8% compared to one year ago. The yen fell a little against the dollar to stand at ¥90.52.

British pound – The pound is once again falling against both the euro and the dollar today despite a rosier prediction from the CBI trade group. It revised up its prediction for 2010 growth from 0.9% to 1.2% and said it expects growth of 2.5% in 2011. The pound buys $1.6108 and one euro buys 89.11 pence.

Canadian dollar – The Canadian dollar is notably stronger and buys 94.57 U.S. cents to start the week off. Better performances from the prices of gold and crude oil are helping support the Canadian dollar this morning.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers. ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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