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Early Morning FX Data Recap
Aug 12, 2008
GBP
Today' trade balance and CPI data came in worse than expected.
CPI jumped to 4.4% vs expectations for a more modest rise to 4.1%. Even worse, core CPI (which excludes food, energy, and tobacco) rose unexpectedly 1.9% vs expectations of 1.7%.
This inflation data handcuffs the Bank of England, as they are unlikely to cut rates from 5.0% while inflation continues to rise.
OTOH, the UK economy is going to be in bad shape when they finally do cut rates. More evidence for this came in today's trade balance. The June trade balance came in at -£4.414 billion vs expectations for a total deficit of -£4.200 billion.
The GBPUSD tested 1.8970 twice overnight, recovering each time.
EUR
All signs point down for the Euro.
In perhaps the most important news, ECB member Bini Smaghi and Axel Weber indicated that Q2 GDP will be bad for the Euro-zone and Germany.
Mr. Weber indicated that the German economy is expected to experience a "dry spell" in the coming months, while avoiding a recession. His comments also downgraded German GDP expectations to 2% for 2008 and 1% for 2009. Previous projection placed 2008 GDP at 2.3% and 2009 GDP at 1.4%.
Mr. Smaghi warned the Euro-zone will "may have a phase of protracted weakness" in the next few quarters. However, he was quick to tow the party line, stressing it is "important to understand that in this phase inflation is the enemy of growth"
Their you have it, GDP should deteriorate in the Euro-zone and Germany, but the ECG remains focused on inflation and is thus unlikely to cut or raise rates.
The EURUSD is off morning lows but remains below 1.4900.
USD
The US trade balance unexpected narrowed in June to $56.8 billion. This significantly beat market expectations for a rise in the trade gap to $61.5 billion.
Additionally, May was revised lower from $59.7 billion to $59.2 billion.
CPI, trade balance, EUR, comments, GBP, USD
Assessing FX Trades After a Crazy Day in America
Jul 11, 2008
Unless you have had your head buried in the sand, the multiple crises of the day have not escaped you attention.
On the one hand, we have a continuing credit crises in America, (Fannie, Freddie, and Lehman Bros). On the other hand, we have major global political instability (Iran, Nigeria, likely Sudan indictment, failed Zimbabwe sanctions, Russia trying to buy Libyan oil).
So what is a forex trader to do?
Going long the Euro seems like a safe heaven. But did it move on Euro strength, or perceived Dollar / Pound / Yen weakness? I think the answer is the latter.
So what trades do we take on?
At the end of the day, FX prices are largely determined by 2 factors - interest rates and economic outlook. So let's take a look at these 2 factors compared to some of the majors.
USD - Interest rates remain low. And after this week, it is hard to believe the Fed will raise rates in the next few meetings.
OTOH, jobs, trade balance, and the preliminary Michigan consumer sentiment all beat expectations. It is far too soon to have a rosy outlook on the economy, perhaps a slew of earnings next week will help establish some clarity on that factor. Merril, Citigroup, JP Morgan, Intel, and Google will report earnings.
EUR - Trichet has 'no bias'. Several prominent Euro finance ministers and the vice president of the ECB have stressed the need for a balancing of growth and inflation. One can not say with any definitive certainty that interest rates will rise.
On the economic front, the situation continues to deteriorate (though nowhere near as fast as in the US). Trade balances disappointed this week. Production and confidence is falling.
The currency will almost certainly pass 1.61 in the next week, but beyond that the future is uncertain.
GBP - Interest rates remain at 5%. However, many traders and economists actually speculated they would cut rates at their meeting on Thursday, despite their inflation problems.
Like the US, their economy is struggling amidst a credit crunch. Housing continues to fall. Relative to the US, housing may prove to be a bigger problem for the Brits, as they have a higher percentage of toxic debt, and more personal indebtedness.
AUD - Interest rates remain at an astounding 7.25%. And speculators constantly suggest the bank may still raise rates again.
This week, jobs come in positively at almost +30k, wiping out last month's losses. Overall, the economy seems to be humming along. And why shouldn't they? China and India have been great export customers in a commodity driven environment.
NZD - While interest rates remain high, pressure is building for cuts. They certainly won' raise rates anytime soon.
On the economic front, things are worsening as they too suffer from a decline in housing, reduced consumer confidence, and a declining trade balance.
CAD - Interest rates remain stable at 3%, and are unlikely to change next week. That they did not cut as expected by many last month suggests their bias may be to raise rates. Look for any BoC comments next week for guidance.
On the economic front, they continue to do well. Being a large oil exporter with these record prices certainly doesn't hurt. Building permits and trade surprised to the upside this week.
JPY, CHF - No comment.
By my assessment, long term trades should focus on:
go long the AUD and CAD.
short the GBP and NZD.
avoid EUR and USD for anything but short term scalps as their is distinct lack of clarity.
My recommended trade would be long the AUDNZD
CAD, trade balance, AUD, fundamental, EUR, GBP, USD
Euro Trade Narrows, Ex Fed Surprises
Jul 9, 2008
The German trade surplus narrowed unexpectedly to €14.4 billion. This was against a forecast of €18 billion. The French trade balance fell to -€4.5 billion vs an expected €4 billion expected.
Meanwhile, in a bit of unexpected news, ex Fed Laurence Meyer has spoken about the emergency lending facility to investment banks. Mr Meyer, who achieved a PHD in economics at MIT as did the Fed's Bernanake and ECB's vice president Papademos, suggested the emergency lending facility will be extended into 2009. This suggests housing foreclosures, and thus the credit crunch, will extend into 2009.
trade balance, Fed
Trade Balance, US Oil Inventory
Jul 8, 2008
Well it's about time the oil bull took a rest. Fresh off the July 4 holiday weekend, oil has slipped $9.25 in 2 days. Are traders banking on lower than expected holiday consumption? And if so, were they right?
Overseas, markets will move from the wee hours (est) on trade balance reports from Germany (2am) France (2:45am), and the UK (4:30am).
trade balance, oil
Forex Outlook July 6 - July 11
Jul 6, 2008
Welcome to another fun filled week of forex trading.
This is the week of trade reports! Germany, France, UK, and Japan report Wednesday. Canada and the US report on Friday.
Beyond those reports, the week is largely dominated by speaking opportunities. Fed officials have 3 major speaking engagements, and the Bank of England Rate decision comes on Thursday.
G8 Summit July 7 - 9
Sun July 6
9:30pm German Wholesale Price Index (expect 1.0% MoM, 9.0% YoY)
Mon July 7
4:30am UK Industrial Production (expect -0.1% MoM, -0.7% YoY)
11am US SF Fed President Janet Yellen Speaks on Economic Outlook. She is considered an inflation dove.
Tue July 8
8:30am US Fed Chairman Ben Bernanke Speaks on Mortgage Lending
10am US Pending Home Sales for May (expect -2.5% MoM)
2:30 pm US Richmond Fed President Jeffrey Lacker speaks on Economic Outlook. He is considered an inflation hawk. This was demonstrated when he dissented with the FOMC in 4 straight meetings in 2006 by voting for rate increases.
7pm UK Consumer Confidence
Wed July 9
2am German Trade Balance for May (expect €18 billion, -€0.7 billion from previous)
2:45am French Trade Balance for May (expect -€4 billion, -€0.3 billion from previous)
4:30am UK Trade Balance (expect -£4 billion)
5am Eurozone Q1 GDP Finalized (expect 0.8%, same as preliminary)
10:30am US Crude Inventories
7:50pm Japan Trade Balance for May (expect ¥487 billion )
10:30pm Australian Unemployment
Thu Jul 10
7am UK Bank of England Rate Decision (expect hold at 5%)
10am US Fed Chief Bernanke and Treasurer Henry Paulson testify before Congress
Fri July 11
7am Canada Employment (expect +10k)
8:30am Canada International Trade (excludes services) (expect 5 billion)
8:30am US Trade Balance (expect -$61 billion)
Bank of England, trade balance, Hank Paulson, upcoming reports, Fed
Australia Hold Rates at 7.25%
Jun 30, 2008
As was expected, the RBA has held rates steady at 7.25%.
Forex traders are reacting quickly, sending the Aussie down against most of the majors. However, midterm traders need to look at this situation with some consideration.
Yesterday, the TD Securities-Melbourne Institute survey estimated an annual inflation rate of 4.8 %. That is well above the target 2-3% range. Commodity demand from China is likely to continue as their economy is forecast to grow by 10.3% this year.
In the policy statement, the bank noted:
"The rise in Australia's terms of trade that is currently occurring will...add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks."
The minutes from this meeting will be very interesting. One has to wonder how heavily the sharp contraction in PMI (down to the contraction level of 47) factored in their decision.
The full statement:
STATEMENT BY GLENN STEVENS, GOVERNOR
MONETARY POLICY
At its meeting today, the Board decided to leave the cash rate unchanged at 7.25 per cent.
Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.
As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets remain difficult, with credit concerns resurfacing in the past month.
The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, is working to restrain demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly. There have also been some tentative signs of an easing in labour market conditions.
The rise in Australia's terms of trade that is currently occurring will work in the opposite direction. It will add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks.
Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, while the inflation outlook remains concerning, the Board's assessment continues to be that demand growth will be moderate this year. The most recent flow of information has given additional support to that assessment. Inflation is likely to remain relatively high in the short term, and the CPI will be further boosted in coming quarters by the recent rises in global oil prices. Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected.
Weighing up the available domestic and international information, the Board's judgement is that the current stance of monetary policy remains appropriate. The Board will continue to evaluate prospects for economic activity and inflation in the light of new information.
RBA
inflation, interest rates, trade balance, AUD, RBA, Reserve Bank of Australia
Forex Events for June 29 - July 5
Jun 29, 2008
This could be the week the Euro breaks 1.60. A score of data out of Europe, the Thursday's rate decision, and US Non Farm Payrolls could give it the final push.
A list of the forex events likely to move markets this week.
All times listed in eastern standard time.
MoM = month over month
YoY = Year over Year
Monday June 30
4am Eurozone May PPI (expect 0.9% MoM, 6.8% YoY)
4:30am Great Britain May Mortgage Approvals (expect 51k)
5am June Eurozone CPI (expect 3.9% YoY)
5am Italy CPI
Tuesday July 1
12:30am RBA Rate Decision (expect hold w/hawkish statement)
10am US June ISM (expect 49.0)
Wednesday July 2
9:30pm Australian Trade Balance (expect -950 million)
Thursday July 3
1:45am Swiss CPI (expect 0.3% MoM, 3.1% YoY)
7am Bank of England Rates Decision (expect hold)
7:45am ECB Rates Decision (expect 25bps hike, watch commentary)
8:30am US June Non Farm Payrolls (expect -55k)
Friday
US markets closed for holiday
ECB, Euro, interest rates, trade balance, jobs report, RBA, rate hike, upcoming reports
Forex Events June 22 - June 25
Jun 22, 2008
This week will be dominated by US data. The key mover may be comments from the Fed rate decision at 2:15pm est Wednesday.
Events Monday and Friday are clearly Euro positive, Greenback negative. Watch for the Euro to test the 1.5800 resistance on Monday. If it finally breaks the range, we could see an end to the sideways trading of the last few months as the ECB is definitely going to hike rates July 3rd.
New Zealand and Japan, 2 key parts of the carry trade, report significant data late Wednesday evening. Surprises on either side could be an omen for future carry trade volatility.
All times eastern standard time
Monday June 23
4am German IFO - Current and Expectations
4am Euro-zone PMI Services (expect 50.4)
4am Euro-zone PMI Manufacturing (expect 50.2)
Tuesday June 24
4am Swiss UBS Consumption Indicator
9am Case Shiller Home Price Index (expect 168.8)
10am US Consumer Confidence (expect 56.7, a 16 year low)
7:50pm Japan Trade balance (exclude services)
Wednesday June 25
8:30am US Durable Good Orders (expect -0.9% excluding transport)
10am US New Home sales (expect 530k, a flat reading)
2:15pm Fed Rate Decision (expect hold at 2%)
6:45pm New Zealand Current Account (expect -7.5%)
Thursday June 26
7:30am US fed Vice Chairman Speaks at ECB
8:30am US Q1 GDP finalized (expect 1.2% from initial 0.6%, thats big folks. Note, upgraded from 0.6% to 0.9% previously)
10am US Existing Home Sales
6:45pm New Zealand Q1 GDP (expect 2.1%)
6:45pm New Zealand May Trade Balance (expect +150million)
7:30pm Japan CPI
7:50pm Japan Retail Trade (Domestic)
Friday June 27
2:50am France GDP (expect 2.2%)
4am Euro-zone Current Account
4:30am Great Britain Q1 GDP (expect 2.5%)
10:00am US university of Michigan Consumer Confidence (expect 56.8)
European Central Bank, CPI, Carry Trade, trade balance, housing, upcoming reports, consumer confidence, durable goods, Fed, IFO
German Investor Confidence Sinks, Euro Trade Balance Beats
Jun 17, 2008
The ZEW Survey of Economic Sentiment and Expectations hit a 15 year low today. The reading dropped 11 points to -52.4 vs expectations for a 1 point drop to -42.5. This is well below the historical average of +29.2. Expectations dropped for Germany and the Euro-zone as a whole.
Despite the expectations drop, European trade beat expectations to come in at +2 billion. Exports rose 6.2%.
At 7:30am est, the EURUSD has fallen below 1.55 to 1.5485.
Euro, ZEW Survey, trade balance
US Economic Calendar June 9 - June 13
Jun 8, 2008
Monday June 9
Pending Home Sales (expect 82.6, down 0.4)
NY Fed Governor Timothy Geithner Speaks About Economy (8:15am est)
Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn Speak About Inflation (3:15pm)
Tuesday June 10
Manpower Employment Outlook for Q3
Imports (expect $209.1 billion, +$2.4 billion)
Exports (expect $149.7 billion, +$1.2 billion)
Trade Balance (expect -$59.4 billion, +1.2 billion)
Dallas Fed President Richard Fisher Speaks
Wednesday June 11
Quarterly Services for Q1
Beige Book for June 24-25 FOMC meeting
Fed Vice Chairman Donald Kohn speaks
Fed Governor Randolph Kroszner speaks
Thursday June 12
Retails Sales (expect -0.3%)
Retail Sales excluding Auto (expect +0.2%)
Friday June 13
CPI (expect +0.2%)
Core Index (expect +0.1% to 2.2%)
University of Michigan Preliminary Consumer Sentiment (expect 55)
CPI, trade balance, housing, upcoming reports, consumer confidence, Fed
Indian Exports up 23% for the Year, Fall Short of Projections
May 1, 2008
India's exports for fiscal year end March 31 2008 came in at $155.5 billion, up 23% year over year. However, they fell short of the target $160 billion. Exports for 08-09 are unlikely to meet the target of $200 billion. The Indian government has banned some food exports, and is now competing with a weaker US Dollar.
Overall, India's trade deficit widened 45% to $80.4 billion for the year.
Read more at the Times of India and Bloomberg
India, trade balance
