US Dollar Could Succumb to Weak Fundamental Forces This Week

The US dollar ended last week mixed across the majors as the currency gained against the British pound, euro, Japanese yen, Canadian dollar but fell versus the Swiss franc, New Zealand dollar, and Australian dollar. However, when looking at the big picture – aka the DXY Index – the greenback remains in the uptrend that started in mid-December, which presents potential for further gains.

[B]US Dollar Could Succumb to Weak Fundamental Forces This Week[/B]

[B]
Fundamental Outlook for US Dollar: Bearish[/B]

The US dollar ended last week mixed across the majors as the currency gained against the British pound, euro, Japanese yen, Canadian dollar but fell versus the Swiss franc, New Zealand dollar, and Australian dollar. However, when looking at the big picture – aka the DXY Index – the greenback remains in the uptrend that started in mid-December, which presents potential for further gains. This bias would be negated on a DXY index break below Friday’s lows near 88.00, and ultimately, the outlook may depend greatly upon risk trends and where equities go in coming weeks.

Looking ahead to data releases this week, the big indicator to watch will hit the wires on Thursday at 08:30 ET. The Commerce Department is forecasted to report that US retail sales fell negative for the seventh time in the past eight months in February, as the surging unemployment rate, tight credit conditions, and a year-long recession weigh heavy on the minds of consumers. More specifically, advance retail sales are anticipated to have contracted 0.5 percent during the month, and excluding auto sales are expected to have slumped 0.2 percent, marking what may end up being a consistent trend through the first half of 2009. The impact of a disappointing result may be mixed for the US dollar, as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further. As a result, it will be important to gauge the impact of the news on DJIA or S&P 500 futures, as a sharp shift could suggest either flight-to-quality or a pickup in risk appetite.

Other indicators to watch that may not be as market-moving, but just as important as a gauge of economic health include: jobless claims, the trade balance, the import price index, and the University of Michigan (U of M) consumer confidence survey. On March 12 at 08:30 ET, both initial and continuing jobless claims are anticipated to rise further, with the latter forecasted to hit fresh record highs of 5,150,000. On March 13 at 08:30 ET, low oil prices could help lead the trade deficit to narrow slightly to $38 billion from $39.9 billion while the annual rate of import price growth could plunge to a new record low of -13.6 percent. Finally, the U of M sentiment index is projected to fall to 55.0 from 56.3, which would mark the lowest level since May 1980.

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