Dollar Trounced On Global Economic Recovery Optimism
Dollar Trounced On Global Economic Recovery Optimism
Overall: The same old story continues to repeat itself. As economic releases give evidence that the global economic recession is close to a bottom, traders become bullish on riskier assets and sell the dollar. The majority of economic releases, from every region, have been positive recently leading traders to speculate the worst is over and become risk tolerant. On Friday the dollar weakened significantly across the board, dropping against all of the other major currencies. The euro led the way against the greenback, and the other majors followed suit, after it was reported that South Korea’s National Pension Service, which had $187 billion of assets at the end of 2008, announced it had pared its allocation for U.S. Treasuries over the next five years.
The quarterly preliminary GDP figures were released this morning and showed that the U.S. economy contracted at a 5.7% annual pace in the first quarter, resulting in the worst six month performance in five decades. The -5.7% number was smaller than the government estimated last month and larger than economists had forecast. According to the University of Michigan’s index of consumer sentiment, confidence among U.S. consumers rose this month to the highest level since September. The number came in at 68.7, higher than the previous read of 67.9 and also higher than the expected number of 68.0.
The Euro (Eur/Usd) The euro soared on Friday, gaining 210 pips and closing the day above the 1.4150 level. The prospects of a stronger global economy is leading Traders to continue to be risk tolerant, load up on higher yielding assets and sell the dollar. The pair closed at the highest level since December 2008. The euro continues to trade above all of the daily simple moving averages.
The Pound (Gbp/Usd) Cable gained almost 250 pips on Friday, closing near 1.6190, the highest close since October 2008. The pair gained 280 pips for the week and posted its biggest monthly gain (1400 pips) in almost 25 years. U.K. house prices rebounded unexpectedly in May, matching its biggest gain since 2006. The average cost of a home jumped 1.2% to 154,016 pounds after declining 0.3% in April, according to Nationwide Building Society. U.K. consumer confidence matched the highest level in almost twelve months this month as the sentiment index stayed at -27, the same as April.
The Aussie (Aud/Usd) As traders continue to be bullish on the global economy and move more and more into higher yielding assets, the aussie continues to strengthen. U.S. equity markets closed higher on Friday after a strong push during the final hour of trading and further bolstered the Australian dollar, along with gold prices gaining almost $18 an ounce. The pair gained 175 pips on the day, closing above the 0.8000 level.
The Cad (Usd/Cad) Oil prices continue to rise, gaining another $1.66 to close at $66.64 a barrel on Friday. U.S. equity markets closed higher after a strong close and both helped the Canadian dollar to strengthen against its U.S. counterpart. The cad dropped 230 pips as the dollar weakened in the broad market and closed just below the 1.0900 level.
The Swissy (Usd/Chf) The swissy dropped significantly on Friday, losing 170 pips and closing near the 1.0670 level. The Swiss KOF economic barometer came in at -1.86, lower than the expected number of -1.80 and level with the previous read. The pair continues to trade well below all of the daily simple moving averages.
The Yen (Usd/Jpy) Despite equity markets closing higher on Friday, after a strong push during the final hour of trading, the yen dropped 160 pips, erasing Thursday’s gains and closing at 95.25. the pair moved back the 20 and 100 day simple moving averages, which had been broken to the upside on Thursday, and closed below all of the daily SMA’s. For the week, the pair gained 60 pips.
Global Trading Wrap: Global Equities Rise On Economic Outlook
Wall Street: U.S. equity markets closed higher on Friday as traders ended the week with a flurry of buy orders in the last hour of trading. Crude oil gained on the day, closing above $66 a barrel which helped oil related stocks. The markets struggled through most of the day after digesting economic reports that showed consumer sentiment jumped and the economy contracted at a 5.7% annual pace. Dell gained on Friday after narrowly beating analyst estimates despite earnings falling 63%. General Motors (GM) shares dropped to 75 cents a share as bankruptcy looms with a possible chapter 11 filing on Monday. Bank stocks closed higher on Friday, led by Citigroup, Wells Fargo and JPMorgan. The DOW gained 96.53 points to close on 8500.33. The S&P gained 12.31 points to close on 919.14 and the NASDAQ gained 22.54 points to close on 1774.33.
Europe: European stocks edged higher on Friday led by mining and oil related stocks as commodity prices continue to move higher. Optimism that the global economy is on the path to recovery led oil prices to move above $66 a barrel which in turn boosted oil related stocks. BG Group, Total, BP and Royal Dutch Shell all posted gains. The German DAX gained 8 points, the CAC 40 gained 14 points and the U.K.’s FTSE added 30 points.
Asia: Asian markets closed higher on Friday with energy related stocks leading the way as oil prices held steady. Traders, however, were not ready to jump into equity markets with both feet as concerns still exist about the strength of the global recovery. Shippers and commodity related shares rose in Japan as Chinese demand continues to grow. Japan’s Nikkei gained 71 points while the Hang Seng gained 286 points.
Financial Sector: In trade on Friday the XLF, the financial sector ETF, gained 0.13 points (1.08%) to trade at 12.14. It moved higher on strong volume; 161m ETF’s changed hands, slightly below the ten day average of 171.8m. Equity markets closed higher on Friday, after a strong push during the final hour of trading.
Treasuries: Ten year Treasury note yields dropped 13 basis points to 3.47% and the longer term notes posted their biggest two day gain since December. This week’s auction eased concern that U.S. debt sales will be more than the demand. Ten year yields rose 35 basis points in May adding to April’s 46 basis points.
Crude oil: Oil prices continued to rise on Friday, gaining almost 2%, settling above $66 a barrel after economic data from Japan and India overnight suggested the global economic downturn may be close to a bottom. Oil prices have risen approximately 30% in May, the largest monthly gain since March 1999.
Gold Bullion: Gold prices rose strong on Friday as the dollar dropped against all of the other major currencies. Bullion gained almost $18 an ounce to close just above $979 an ounce. Traders often buy gold as a safe haven when the dollar falls.
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com
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