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The US dollar has been fluctuating a lot in the past few days, moving sideways or weakening, especially due to the European Union’s decision to help Greece with their deficit.

The dollar gained against most majors in the Forex market. While the exports and imports of the US increased in the past week, the trade balance came out at -40.2 billion, which is worse than the expected -35.8 billion.

Crude oil closed at $74.5/barrel for a 0.9% increase, while gold closed at $1073/ounce for a 0.4% decrease. The Dow Jones weakened by 0.20% and the NASDAQ weakened by 0.14%.

After the euro gained from easing uncertainties, it fell once again against the dollar.

This drop is largely due to the German government’s announcement that the European Union may delay the announcement of an aid package for Greece.

Uncertainty struck once again as Fed Chairman Bernanke alluded to possible rate hikes and the loans to Greece remained without guarantee. The EUR/USD pair traded at a high of 1.3812 and a low of 1.3676.

The GBP declined against the dollar and the euro due to concerns about the Bank of England’s announcement of a possible decrease in economic growth.

Manufacturing production came out better than the expected 0.4% at 0.9% and Governor Mervyn King announced intentions of extending bond purchases.

The GPB/USD pair traded with a high of 1.5764 and a low of 1.5570. The USD/JPY pair traded at a high of 90.06 and a low of 89.25.

Due to a lack of major economic changes in the US, the dollar didn’t gain or drop much from previous values.

The Dow Jones and the NASDAQ both weakened, with Dow Jones posting a -1.04% change for a three-month low and the NASDAQ weakening by -0.7%. Gold weakened by a small percentage, closing at $1,062.5 per barrel, while crude oil gained to $71.68 per barrel for a 0.69% increase.

The Pound weakened against both the dollar and the euro, largely due to the recent trend of decline in stocks. The GBP/USD pair traded at a high of 1.5660 and a low of 1.5534, and the pair is currently being oversold as it continues on its downward trend. The RICS House Price Balance came out 4% higher than the expected 28%.

The euro was able to gain on the pound, despite the worries over the Greek, Spanish, and Portuguese economies.

Still, Forex investors’ worries and hesitation are evident as the euro remained unchanged against the dollar. The EUR/USD pair traded with a high of 1.3714 and a low of 1.3621, as it continues to be oversold.

The Japanese yen experienced little change against the pound, dollar, and euro. The USD/JPY pair traded at a high of 89.56 and a low of 89.15.

On Friday, the desire to move out of riskier assets continued on into the US session, though there were pockets of support for certain currency pairs found at the lows in the Forex market.

After a weak retail sales print, the GBP traded on the soft side (+0.3% m/m vs. +1.1% expected) as the impact of the Cadbury takeover appears to wane and the USD started to gain favor.
The EUR, on the other hand, outperformed its peers for a change along with some hopeful talk of a Greece plan to be announced at the weekend (Torres from the European Central Bank commented that a Greek assessment plan would be ready by February 3rd, and in the meantime Greece reaffirmed its commitment to stay in the EU mechanism).

The CAD was also under a bit of pressure, again on a weak retail sales number (this time -0.3% m/m vs. -0.2% prior).
Additionally to the recurring concerns about Greece’s fiscal position, an immediate threat of a China tightening and the effect of US president Obama’s banking reforms, markets were concerned as well about the increasing debate on Bernanke’s re-appointment for a second term as Fed chairman.

Nonetheless, Wall St endured its third consecutive down day with cumulative losses of over 5% and registered their worst weekly performance since the market bottomed last March.

The Bank of Japan started its second day policy meeting today (the first of 2010) under increasing pressure to attack deflation. Governor Shirakawa is on record asking for easy monetary conditions, and there is a chance that the bank’s other options will come into play (i.e. expanding the credit program or increasing its monthly purchases of government bonds).

The slightly positive developments that took place on some of these fronts led to a small rebound in risk during the Asian session today. The GBP made it back to above 1.61 again, but it is still looking a bit shaky.

In an interview for Sunday Times done over the weekend, Chancellor Darling still remained cautious over the economy’s outlook, stating it still needs government support. He was also skeptical about the banking reforms proposed by president Obama (which could be considered non positive for the “City of London”).
With a quiet start to the week on the data front, it will be interesting to see if the slightly better mood from Asia extends into the week.

The data highlights for the rest of the week include UK Q4 GDP tomorrow; the FOMC meeting on Wednesday followed by US durable goods orders on Thursday; and Q4 US GDP on Friday.