Wow – what an event-packed week for the currency markets!
At first the Middle East crisis seemed to be dominating the action. But of course, by the end of the week, the focus had shifted to events much closer to home.
With a terror plot apparently failed in the UK, Sterling finally took a breather from hammering the US Dollar.
The Dollar had been on the back foot after Tuesday’s decision by the Fed to leave US interest rates unchanged after 17 consecutive hikes. But by last night it was rebounding as the latest Al Qaeda threat emerged as an attack on aeroplanes leaving the UK.
So "cable" has taken a dip, much-needed after GBP/USD shot so much higher, so fast.
Gold and Oil have had a pretty up and down week too, both being driven by the same news as the dollar. Once again Oil touched $78 per barrel. But it was unable to hold these levels and looks like closing the week below $74 as the market is once again caught "long" and traders find they need to unwind their positions. Gold looks steady, closing slightly lower on the week.
It’s been a mixed bag for equities too, with the FTSE only about 30 pips down on the week. The Nikkei is actually some 400 pips higher from its low for the week. In New York, the US Dow Jones looks at this stage likely to end some 200 pips lower from Monday's open.
As for currencies – the most active and liquid market in the world - the rise in the dollar enabled us to follow our plan and buy Sterling on a dip. It looks now like the Pound has found a base near 1.8900 ahead of the weekend. The Pound remains strong versus the likes of the Japanese Yen, too - with the week's best performer probably being the New Zealand Dollar. It has benefited from it geographical location and high interest rates, making it a safe haven trade after yesterday's events.
Despite stronger than expected US data today showing import prices above expectation – plus strong advanced retail sales indicators - the dollar has so far failed to hold onto the gains it made earlier this afternoon.
US inflation data next week will be keenly awaited in the trading rooms, what with the release of both PPI and CPI for July likely to give further clues on Fed policy.
If these numbers come in at or below expectations then I think we will see further dollar weakness. That kind of news would endorse the Fed’s latest decision to stick at 5.25%.
In any event I do not see this recent dollar strength being anything other than a blip. The longer-term trend is still in place – Dollar down!
Until next time,
Tom Tragett
For Profit Watch
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