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Forex outlook:
The dollar hit a five-week high against the Euro and a three-month peak versus the yen on Monday as investors further trimmed bearish bets on the greenback amid a growing view the Federal Reserve may not cut interest rates this year. The dollar trades around the levels of 1.3470 against the Euro, aroung the levels of 121.40 against the Yen and around the levels of 1.9405 against the sterling.
Surprisingly strong U.S. data last week on housing starts, regional manufacturing, jobless claims and consumer confidence have helped the dollar rebound more than two cents from a record low against the euro hit last month. “The dollar is doing well against the euro and yen and (is helped by) the Goldilocks scenario in the U.S., where's there's not too much worry about a hard landing," said David Powell, currency strategist at IDEA global in New York.
A "Goldilocks" environment describes an economy that is neither too hot that it causes inflation and nor is it too cold that it fuels a "hard landing" in recession. The interest rate futures market showed last week a 64 percent chance of Fed easing in 2007. The stock market's continued strength and comments from Fed officials showing no real jitters about the economy or contagion from the subprime crisis have undermined prospects for Fed cuts. “In terms of the dollar's performance against the euro, long Euro/dollar has been a very crowded trade based on the specs (trading) data last week. Euro longs hit another record high and people are reluctant to bring it any higher without a fundamental story to back it up," he added.
With little major U.S. economic data due this week, investors are further looking ahead to a meeting between U.S. Treasury Secretary Henry Paulson and China Vice-Premier Wu Yi on Tuesday and Wednesday in Washington where they are expected to discuss trade relations, including the value of the Yuan.
Gold U.S. gold futures erased early losses to finish up slightly on Monday as the dollar rose at a steady rate, but a higher greenback and long liquidation could continue to put pressure on the precious metal, dealers said. “Precious metals are making a strong reversal heading into the afternoon, underscoring that the sharp sell off last week was overdone," Ryan said. The Gold future contract is trades around the levels of 663.50$ per contract.
Crude Oil- U.S. crude oil futures jumped more than a dollar to hit three-week highs Monday afternoon on uncertainty over supplies from Nigeria, whose crude oil exports are highly valued for their gasoline-making qualities. Gasoline futures gained sharply, only to back down again on technical selling after the rise appeared unsustainable. ”The uncertainty over Nigeria oil production and the continuing worries over U.S. gasoline supply seem to be behind this latest rally on crude," said Phil Flynn, analyst at Alaron. Crude Oil future contract is trades around the levels of 66.80$ per barrel.
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