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FX Weekly

Stock Indexes down, Dollar up..

Wed, Nov 4 2009, 20:02 GMT
by Alpari (US) Analyst team

Alpari (US), LLC

Market Focus

•Risk aversion played a key role early in last week’s trading as market participants reacted to falling equity and commodity prices.
•Australian PPI lower than expected (0.1% vs. 0.3% forecast)
•RBNZ keeps rates steady at 2.50% after a slight drop in business confidence.
•Continued declines in consumer confidence (47.7% vs. 53.4 previous) weigh on equities in spite of an increase in the Case Shiller House Index (1.2% vs. 0.7% forecast)
•New Home sales fall to 402k vs. the forecasted 443k
•Risk appetite returns after the stunning 3.5% print from Q3 GDP, with the DJIA closing the day +199 to 9962.


A volatile week with mixed data rounded out a stronger dollar based recovery versus most currencies starting on Tuesday after better than expected housing data was undermined by an unexpected drop in consumer confidence that sent equities lower and the greenback higher. The Dollar Index also benefited from the drop in sentiment, holding onto gains above the 76 handle. EUR started off the week making a yearly high at 1.5062, but closed the week markedly lower and closer to the 1.47 handle. Sterling and Yen were mixed versus the dollar as most of the major gains were against the high yielders and commodity currencies who suffered on the back of a risk averse market atmosphere.

The main focus of the week was GDP number out of the US. The number sent equity markets markedly higher, up +199 during the session in which the GDP was released. However, these gains were short lived. Of the 3.5% growth increase in the U.S economy, almost two thirds of the increase can be attributed to the stimulus package. Increased consumer spending benefited greatly from the cash for clunkers policy – but the stimulus can’t last forever. So, what happens when the money runs out? Most traders referred to this question after the GDP report and realized with GDP out of the way, the focus on the economy is now about growth in employment. If the unemployment claims were any indication, up marginally to 530k vs. the expected 522k, then we’re headed for an interesting year end.

Gold and precious metals suffered on the back of risk aversion last week with a stronger dollar and weaker equities. Gold finished the Friday session off $6.70 and settling at $1,040.40 on the NYMEX. Oil also suffered on dollar strength as market participants booked profits after Thursdays rally with December crude falling $2.74 / barrel. 

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Published on  Wed, Nov 4 2009, 20:03 GMT