week

The U.S. Dollar Index finished the week near its high after sharp breaks in the British Pound and Euro drove it sharply higher on Friday. The close above a retracement zone by the Dollar puts it in a position to challenge the high for the year at 81.70. It was a volatile week for the Dollar.

The U.S. Dollar soared early Friday following a surprise 50 basis point hike in China’s bank reserve rate. Additional strength was provided by a better than expected U.S. Retail Report. The Dollar pared some of its gains after the University of Michigan Survey fell unexpectedly. Forex market trading has been erratic ahead of the week long Chinese holiday and the extended U.S. weekend.

The trading week ended with traders still fearing a widening and deepening debt situation in the Euro Region. Optimistic traders are looking for some solution to be reached by either a “pseudo-bailout” by the European Central Bank or European Union. Legally, the ECB or EU cannot offer an outright bailout package so they may have to figure out a way to get around this restriction.

The U.S. Dollar closed sharply higher for the week, boosted by a weaker Euro, news that China was tightening its monetary policy and an increase in demand for lower yielding assets. Late in the week, the Dollar flattened out after President Obama proposed restrictions on financial institution trading.

U.S. equity markets finished lower for the week after buyers failed to surface following today’s better than expected U.S. Initial Claims Report. End-of-the-year profit-taking was most likely the catalyst behind the drop in prices.

U.S. equity markets are called higher after a strong turnaround on Friday. The lack of any major economic events and calmer conditions in the market regarding European debt issues is helping to drive up demand for more risky assets. Thin trading conditions means the possibility of violent swings.

Dollar bulls who wanted to see growth in the labor market and an increase in consumer spending received the latter in the form of a better than expected retail sales report and a jump in consumer sentiment.

After reaching a 15 month low early in the week, the U.S. Dollar closed higher for the week against a trade-weighted basket of currencies. Technically, this closing price reversal, once confirmed, often leads to a 2 to 3 week retracement. The daily chart suggests that a move through 77.50 is necessary to turn the main trend to up.

Trading ended in the stock index futures on Friday with the three major indices getting hit hard by selling pressure. Lower demand for higher risk assets was the theme today as traders took profits and failed to buy on the dips. The recent sharp rise in the equity markets has led many traders to feel that current prices are overextended given the state of the economy.

After a sharp sell-off earlier in the week, which took a basket of currencies to a 14-month high versus the Dollar, the greenback managed to post a small gain. The strong comeback in the Dollar was helped on Friday by an early sell-off in stock index futures and a weaker than expected consumer confidence figure.

The U.S. Dollar closed the week mixed on the daily chart, but higher on the weekly chart. Weak economic reports highlighted by a disappointing employment report helped boost demand for the lower yielding Dollar.

The U.S. Dollar overcame early weakness to post a weekly closing price reversal bottom. This move doesn’t turn the trend to up, but is a strong indication that the Dollar will rally for 2 to 3 weeks. A follow-through rally through .7734 next week is needed to confirm the reversal bottom. The main trend will turn up following a breakout over .7997.

The markets started the week off with a big drop on Monday after the markets had been pushed to their highs of the year on good earnings. The Dow dropped 2% while the S&P fell 2.4% and the Nasdaq, leading the decliners, fell 2.8%. After this slight pull back on Monday however, the markets pulled off four straight days of solid gains to finish the week higher.

This past week we saw positive earnings propel all of the indexes to major highs and levels not seen since last year. On the week the Dow jumped 300 points or 3.4%. The Dow was propelled by strong earnings from many big companies that lifted the markets but one main contributer to the Dow’s rally was Caterpillar (CAT).