Weekly Review 2/2/2009:
It was a volatile week for the EUR/USD pair. Starting the week with the US Dollar weakening, but then continue on a bullish note. Existing Home Sales defeated forecast and rose unexpectedly in December from 4.40M to 4.74M units. The Fed decided to leave interest rate untouched in the range between 0%-0.25%. The Fed also released this week that it is prepared to purchase longer-term Treasury securities and that inflation pressure will continue but will moderate in the coming quarters. The House of Representatives approved Obama's simulative package in the extent of 825 billion dollars. Ahead of us this week, Pending Home Sales expected 0% vs. -4% previously, ADP Nonfarm Employment Change on Wednesday (Determines the change in the level of people employed during the last month, excluding the farming industry) expected -582K vs. 693K previously and Unemployment Claims expected 590K vs. 585K previously.
Euro responded to the expectations that the ECB will lower interest rate due to credit losses that spread through Europe and declined against most major currencies. Looking ahead, Final Service PMI expected at 42.50 as previously. Also this week, Interest rate decision on Thursday.
The British Pound recuperated this week as sentiments towards the Pound are turning bullish due to the broad feeling that the selling of GBP was related to exaggerated fears caused by global banking sector and in the UK in particular. Some analysts believe that the day we see the GBP at $1.50 level is not far. The GDP fell more than expected to -1.5% vs. -1.2% forecast. Looking ahead this week, Services PMI on Wednesday (determines the activity level of purchasing managers in the services sector, with a reading above 50 indicating expansion) is expected at 40.30 vs. 40.20 previously. Investors are waiting for the interest rate decision on Thursday that is expected to drop by50 BS to 1.00% from 1.50%.
JPY traded on a volatile note this week, starting the week strong as talks of rate reduction by the ECB along with Nikkei stability supported the JPY. Later during the week, as risk aversion entered the market, the JPY weakened. Ahead of us this week, Average Cash Earning expected at -1.50% vs. -0.70% previously.
Gold continued to strengthen during the week, breaking the $900 an ounce level, as the metal, along with other hard assets are viewed as protection when inflation accelerates.