Forexpros Weekly Wrap-Up 17 August 2012

Closing the Week with Forexpros

by Forexpros Staff

The dollar rose against most major global currencies on Friday after U.S. consumer sentiment figures beat expectations.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index for August hit its highest level since May at 73.6, up from 72.3 last month, outpacing economists’ forecasts for a 72.4 reading.

In U.S. trading on Friday, EUR/USD was down 0.28% at 1.2321.

The consumer sentiment report fueled sentiments that despite headwinds from abroad and despite stubbornly high unemployment rates at home, the U.S. economy will continue to grow and put less pressure on the Federal Reserve to stimulate the economy, which would otherwise weaken the dollar.

The bullish consumer sentiment report came in the heels of surprisingly solid U.S. data released earlier this week.

U.S. industrial production outpaced expectations in July, climbing 0.6%, above forecasts for a 0.5% increase.

Retail sales in the U.S. jumped 0.8% in July after a 0.7% drop in June, shooting way past market expectations for a 0.3% increase.

Meanwhile in Europe, German Chancellor Merkel said European Central Bank President Mario Draghi’s comments last month that monetary authorities will do whatever it takes to save the euro were “completely in line” with European policy.

Markets took Draghi’s comments as a hint the ECB is poised to resume buying bonds of debt-ridden countries such as Spain and Italy to lower borrowing costs there.

The greenback, meanwhile, was up against the pound, with GBP/USD trading down 0.28% at 1.5689.

The dollar was up against the yen, with USD/JPY trading up 0.24% at 79.53, and up against the Swiss franc, with USD/CHF trading up 0.28% at 0.9748.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.23% at 0.9889, AUD/USD down 0.85% at 1.0421 and NZD/USD down 0.43% at 0.8069.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.26% at 82.66.

Gold

On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were down 0.08% and trading at USD1,615.85 a troy ounce, up from a session low of USD1,611.85 and down from a high of USD1,620.05 a troy ounce early during the session.

Gold futures were likely to test support at USD1,611.85 a troy ounce, the earlier low, and resistance at USD1,620.05, the earlier high.  Since the U.S. economy entered a  recession over four years ago, the Federal Reserve has taken steps to stimulate recovery, including slashing benchmark interest rates to near zero and rolling out more unorthodox policy tools such as quantitative easing.

Under quantitative easing, the Fed buys Treasury holdings and mortgage-backed securities held by banks, pumping the financial system full of liquidity to further drive down interest rates to boost the economy.

Under such a policy, the dollar weakens and gold rises.

Soft unemployment numbers and sluggish growth rates in the U.S. have sparked talk of more quantitative easing though firming retail sales and other data more recently suggested the Fed may stand down, which sent gold prices falling.

Friday’s consumer sentiment figures sent prices falling even more.

Elsewhere on the Comex, silver for September delivery was down 0.65% and trading at USD28.028 a troy ounce, while copper for September delivery was up 1.15% and trading at USD3.421 a pound.

OIL

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September traded at USD95.70 a barrel on Friday, up 0.10%, off from a session high of USD95.90 and up from an earlier session low of USD94.99.

The Michigan survey numbers fueled sentiments that despite headwinds from Europe and despite stubbornly high unemployment rates, the U.S. economy will continue to grow and demand more oil and fuels going forward.

Ongoing tensions in the Middle East pressured prices up as well, with fears of an Iran-Israeli conflict providing support for the commodity.

Maintenance issues on North Sea oil rigs pushed prices up as well.

Rising prices, however, sparked talk the U.S. government will dip into its Strategic Petroleum Reserves to prevent prices from rising any higher.

On the ICE Futures Exchange, Brent oil futures for September delivery were down 1.38% and trading at USD113.67 a barrel, up USD17.97 from its U.S. counterpart.

Stocks

At the close of U.S. trading, the Dow Jones Industrial Average ended up 0.19%, the S&P 500 index was up 0.19% while the Nasdaq Composite index was up 0.46%.

It was the sixth straight week of gains for the Dow and the S&P 500.

The market was buoyed because the consumer sentiment data came in wake of other indicators that pointed to an improving U.S. economy.

U.S. industrial production outpaced expectations in July, climbing 0.6%, above forecasts for a 0.5% increase.

Retail sales in the U.S. jumped 0.8% in July after a 0.7% drop in June, shooting way past market expectations for a 0.3% increase.

Apple shares, meanwhile, rose to an all-time high of USD648.11 a share after Jefferies hiked its price target on the stock to USD900 from USD800 a share and reiterated a buy rating.

Leading Dow Jones Industrial Average gainers included United Technologies, up 2.03%, Travelers Companies, up 1.70%, and Caterpillar, up 1.60%.

The Dow Jones Industrial Average’s worst performers  included Merck, down 1.37%, Intel, down 1.02%, and Pfizer, down 0.92%.

European indices, meanwhile, finished up.  After the close of European trade, the EURO STOXX 50 rose 0.61%, France’s CAC 40 rose 0.23%, while Germany’s DAX 30 finished up 0.64%. Meanwhile, in the U.K. the FTSE 100 rose 0.31%.