Correlation In Question

Daily Forex Fundamentals | Written by AC-Markets | Aug 10 09 07:55 GMT |

Market Brief The Greenback rallied on Friday, erasing its huge losses from the beginning of the week, after dropping to a new 2009 low against most major currencies. The comeback of the US Dollar was supported by US unemployment data and nonfarm payrolls. Even though employment market is still weak the US nonfarm payrolls fell just by 247K below the 320K expected. The bigger surprise was the drop in unemployment rate which fell down to 9.4% from 9.5%, being the first drop in unemployment since April 2008, while most analysts forecasted the rate to jump by 0.1% to 9.6%. The first reaction on the employment data was sending the dollar lower, because as we used to see, good economic data boosts risk appetite and traders move towards high yielding currencies and sell the US Dollar. This time USD ignored risk sentiments and responded positively on the released data, arguing that investors are possibly back to fundamentals, where positive data in the US pushes the dollar higher and vice versa. Friday's employment data generated speculations that the US will be leading the way to economic recovery outperforming other developed countries, and reinforcing the expectations that Fed will start changing its monetary policy and possibly raise its current funding rate from 0 - 0.25% by the beginning of 2010. Is it possible the correlation between stocks/high yielding currencies/risk appetite and US Dollar begins to delink? Are we back to Fundamentals? Has the Dollar Bottomed? Those questions could be on everyone's mind now, but in my opinion it's still early to judge! We have to watch the market closely this week and see how it will respond to coming data. Other important events last week was ECB and BOE meeting, where both decided to keep their interest rate unchanged at 1% and 0.5% respectively. There was nothing surprising in ECB's press conference regarding exit strategies, interest rates, or monetary policy, but the surprise came from BoE which decided to extend the asset purchase program by 50 Billion Pounds, as recessions was deeper than expected. This had put pressure on the pound and led the GBP/USD pair to drop approximately by 200 pips. This week Focus will turn on FOMC meeting. Even nothing is expected to change regarding interest rate or the QE program, but we'll see whether Mr. Bernanke's tone will be more hawkish this time, especially after the Job data released on Friday. Other Important data from the US to watch closely this week would be trade balance, retails sales, CPI, and consumer confidence. From the Eurozone, the Q2 GDP will be released and expected to show that economic contraction had slowed, we'll also have the EU CPI. From UK, employment report will be released, and the Bank of Japan will be meeting for the rate decision where no changes are expected. ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.