Weekly Market Review

During the previous trading week the greenback demonstrated weakening against its competitors.

During the previous trading week the greenback demonstrated weakening against its competitors. Nevertheless, concerns regarding the situation of the European peripheral countries and their weakened ability to raise financing continued to pressure the euro in the beginning of the trading week. On Monday the EUR/USD pair reached its minimum of $1.2871. Later on the euro was supported by the announcement of the Peoples Bank of China regarding their intention to diversify Chinese monetary reserves in favor of US dollar competitors. The sterling demonstrated temporary decrease after the release of the negative UK fundamentals. The Halifax house prices showed unexpected drop below the forecasts: -1.6% against the expected -1.4%. As a result, the GBP/USD pair dropped to the $1.5472 minimums. But over the European problems, the pound managed to strengthen and reach the $1.56 range on the same day.

Flood in Queensland, Australia, continued to pressure the Australian dollar rate. Additional negative influence on the national currency was received from the China trade balance figures, which showed a trade surplus of $13.10B against the expected surplus of $20.75B, since China was a major trade partner of Australia.

By the end of Monday the EUR/USD pair showed growth and reached the $1,29 level. And the greenback showed weakening for the first time in 6 days, as demand for the safe-haven assets dropped.

Certain factors rendered support to the euro on Tuesday. The Japanese government announced of its intentions to acquire sovereign Euro-zone bonds. But according to the opinion of some experts, the participation of the Asian countries in the financial support program would not be enough for the settlement of the European crises. In addition to that, the ECB confirmed its plans to purchase bonds of the European periphery countries according to the Securities Market Program, which supported the euro. The EUR/USD pair consolidated in the range of $1.2910-$1.2990.

The flood in Australia raised concerns over the slow-down of the national economy growth rate. As a result, the Australian dollar continued to drop against the greenback and new monthly minimum has been reached at the level of 0.9818 on Tuesday.

On Wednesday the EUR/USD pair started to strengthen and reached the $1,3000 level during the morning trading. Euro continued to grow after the successful auction of the Portuguese state bonds. Market participants were waiting for the bond auction of Spain and Italy, which were planned for Thursday. In addition, the European leaders confirmed their intentions to expand the Euro-zone financial support program.

The US dollar rate decreased against its counterparts on Wednesday. The GBP/USD pair showed new maximum of $1.5780. But the negative release of the UK trade balance, which turned out to be below expectations, pressured the sterling.

Canadian dollar strengthened, due to the expected positive fundamentals, which may show house prices growth in Canada. At the same time oil traded around the maximum of $91.24, and the reduction in the US oil supply supported the consolidation of the oil rate.

The released Beige book report supported the US dollar at the second part of Wednesday, and the greenback won back its previously lost positions. The report confirmed the increasing number of US economy growth rate signs.

Expectations for the positive auction results pushed EUR/USD to the $1.3140 maximums during the morning trading on Thursday. The results of the state bond auctions of Italy and Spain were very positive, which supported the euro. Intentions of the European leaders to fight the budget crises rendered additional support. The ECB President, Jean-Claude Trichet, said that the uncertainties surrounding the European economic outlook remained “elevated”, but expressed his intentions to raise the principal rate in spite of the budget crises in the region. According to the expectations, the ECB left the principal rate unchanged at the previous level of 1.00%.

The pound advanced to the $1.5882 maximum as the Bank of England maintained its current policy in January. According to the forecasts, the principal rate was left unchanged at the previous level of 0.50%.

The Australian dollar was under pressure on Thursday due to the release of the diverse fundamentals. The employment change for December dropped for 2.3K, while the unemployment rate decreased to 5.0%, when the forecasted level was 5.1%.

Euro grew against its all competitors on Thursday. The EUR/USD pair reached maximum at the $1.3384 mark by the end of the day. The released US fundamentals could not support the greenback. The initial jobless claims suddenly increased to 445K. At the same time the annualized producer price index grew to 1.1%. Credit agencies Moody’s and S&P expressed their concerns over the weakened situation of the US budget perspectives.

The USD/JPY pair traded around the level of Y83.00 during the whole week.