Welcome to my first weekly briefing. Each week I will try and put up my views on where I think things are heading.

US Dollar: The Dollar has continued to lose ground over the holiday break, after peaking at a recent high just before Christmas. The end of the dollar rally has been driven in part by adjustments to oversold dollar positions, low liquidity at the end of the year and by a number of economic releases which came out worse than expected, such as new home sales (E 718K, A 647K) and durable goods (E 0.5%, A -0.7%).

As traders start returning to their desks on wednesday after an inebriated new years eve, we will see liquidity return to the market. Traders may decide to keep the momentum going against the dollar. However, this week will be a big week with a number of major reports being released in the lead up to NFP Friday. If the reports are coming out lower than expected, we will see the USD take a plunge driving the EUR/USD back towards old highs. If the reports come out higher, the USD could strengthen a little.

Where is all of this heading? I am still a perma bear on the US Dollar. Sure there will be lots of twists and turns for and against the dollar in the coming months, but the Dollar index hasn’t hit the bottom yet. This is because the G-7 nations at the moment are playing a competitive game of “seeing who can devalue their currency the most” to try and prop up their dying export economies (which in turns props up employment and keeps their domestic economies running smoothly). The US currently has their printing presses running the fastest (see estimate of US M3 money supply from www.shadowstats.com). Once you couple that with a bit more subprime contagion, you just can’t help but be a dollar bear.

Euro (EUR): In the past week, the Euro has strengthened against the USD due to the end of the USD dollar rally. CPI figures will come out on Friday, but I think most eyes will be on the US.

Yen (JPY): The movements of late on the Yen have in some part reflected the changing tide on the USD. The Yen side of the pair has been in a listless state as traders are uncertain as to how far to dip their toes into the carry trade and Japanese economic data has been a bit mixed as well, providing little incentive for traders to work the Yen.

Pound (GBP): Ever since the pound dropped below the 2.00 level, traders have been nervous to drive it above 2.00 (despite recent moves on the dollar). This is partly because the BOE has been acting more dovishly than expected of late and housing prices in the UK are at their lowest since 2006. .

Aussie Dollar (AUD): Stronger metal prices and a weakening dollar at the moment are driving the resumption of the trend on the Aussie. The high metal prices have been driven in part by demand out of China and India’s manufacturing sectors. Metal prices also tend to rise with gold prices. As the worlds investors fear devaluing currencies, they will put their reserves into the yellow stuff to help protect its value, thereby driving the price of gold up.

Loonie (CAD): Stronger Oil prices and a weakening dollar at the moment is driving the resumption of the trend on the Loonie. However, oil is currently testing new highs at the moment and the CAD could easily jump one way or the other, depending on whether crude oil prices break through a $100 a barrel or bounce back.

Yuan (CNY): It is well known that the PBoC have been shifting their reserves out of US Dollars and Bonds in order to protect the Yuan. This coupled with a weakening US Dollar and a strengthening Chinese economy will mean that the Yuan will maintain its bullish outlook. The only thing to look out for is Chinese intervention in their own currency. However, in November the PBoC declared that it would use the exchange rate to fight inflation, clearing the way for the bull run to continue.

This entry was posted on Monday, December 31st, 2007 at 4:12 am and is filed under My Trading Journal. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.