A lot of maybes are now swirling around in the air of the financial markets. Speculation is now rife that the Fed may spring a surprise interest rate cut as they are concerned about the widening spreads in the credit markets. Should that become true, the US dollar would be one of the first to take a hit, and that would be a setback to the currency's ongoing strong uptrend.
On Friday, weakness showed up in the dollar as traders took the opportunity to take profits of long USD positions against the Euro, Swiss franc and the British pound. However, its weekly performance is still a standout. This week the US dollar has finished higher again against its major rivals such as the Euro, Swiss franc, Australian dollar and New Zealand, but down versus the Japanese yen and British pound (a surprise).
Not a bad week considering that the financial markets have been bombarded non-stop by news about Lehman (LEH) - Lehman's impending doom, banks rejecting Lehman, banks showing some interest in Lehman, the US Treasury trying to hard-sell Lehman to other banks (like the Bank of America (BAC)) and so on.
Other bullets that the US dollar has had to dodge were disappointing economic reports from the US. Friday's release of US retail sales data wasn't as positive as the market had expected; sales fell 0.3% in August, worse than the 0.2% rise expected, and sales excluding autos dropped 0.7%, much more than a forecast 0.2% fall. However, a much-better-than-forecast consumer confidence survey (which rose to 73.1 versus 64.0 expected) has taken away some bitterness from the poor retail data.
Below you can see at a glance how the major currency pairs have fared over the week:
EUR/USD: 3rd week of decline
USD/CHF: 9th straight week of advance
GBP/USD: 1st week of recovery in 8 weeks
USD/JPY: 4th straight week of decline
NZD/USD: 3rd straight week of decline
AUD/USD: 8th straight week of decline
Tehnically, Euro has a high chance of rebounding versus the US dollar next week in forex trading. Nearest topside targets are 1.4230, 1.4280 and 1.4320-30. 1.3880 should serve as a safety net for the time being. The Euro is also being boosted by EU's Juncker's comments that Europe is not on the verge of a recession. And contrary to the latest European Commission report and economic data, he said Germany 's economic growth is quite robust and it is "far from" recession.
Next Tuesday, the Fed will announce its rate decision on the interest rates, and the greenback's near-term sentiment will hinge on that.
Grace Cheng is an author and seasoned traveler who loves collecting points and miles, and is constantly planning where to go next using her miles. She is co-founder and editor-in-chief at GET.com and has been featured in CNBC, Forbes, Business Insider, the Financial Times, Chicago Sun Times, ABC News and many other publications. Email: email@example.com.Editorial Disclosure: Any personal views and opinions expressed by the author in this article are the author's own and do not necessarily reflect the viewpoint of GET.com. The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the companies mentioned, and have not been reviewed, approved or otherwise endorsed by any of these entities.