Though its progress was restrained by the same liquidity drain that reined in risk trends, the dollar managed a broad recovery this past week. Yet, the conviction behind this move comes with a heavy dose of doubt.
Despite the continued and prevalent threat of aggressive dovish policy action by the European Central Bank, the Euro remained buoyant against its major counterparts for the second straight week as volatility strikes every other major asset class around the world expect for FX.
A further pickup in market sentiment should continue to fuel the near-term rally in the USD/JPY, but the fundamental developments coming out next week may keep the dollar-yen contained within the wedge/triangle formation as the Bank of Japan (BoJ) remains upbeat on the economy..
The British Pound was the only major currency to strengthen against the US Dollar in a holiday-shortened week of trading, but can it continue higher? The high-flying Sterling will need support from the Bank of England to hold near multi-year peaks in the week ahead.
Gold is off sharply this week with the precious metal shedding 1.7% to trade at $1298 heading into the weekend. The sell-off comes on the back of the strong performance in US equity markets with all three major stock indices closing higher by 1-1.7% on the week.
The Australian Dollar’s month-long winning streak ran into resistance last week as the build-up in RBA policy expectations stumbled.
The market seems pretty certain that the New Zealand central bank will usher in the strongest wave of monetary policy – and thereby carry increase – of the majors.