EUR Posts on Forex Blog
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
Italian GDP Sends European FX Lower
Aug 8, 2008
Italy, the 3rd largest economy in the Eurozone, reported a preliminary -0.3% reduction in Q2 GDP overnight.
Previously, Italy had recorder a 0.5% increase for Q1 and -0.3% for Q4 2007.
News of the negative GDP has sparked a technical busting rally in the Greenback against the Euro, Pound, and Franc.
The EURUSD is trading at 1.5066, 100 pips below the 50% fibonacci retracement of 50%. This is a sharp drop below the 1.53 - 1.60 range the pair has traded at since March.
The GBPUSD is also seeing technical levels shattered. The pair is trading at 1.9201, 200 pips below the the 1.94 support.
The USDCHF is trading at 1.07, a 5 month high and well above 1.06 resistance.
In related news, ECB Governing Council Member Wellink indicated Friday the ECB was ready to raise rates should CPI climb higher. He also reinforced recent market expectations for negative Euro-zone GDP growth in the second quarter, stating "I think it won't look so good"
fibonacci, Euro, European Central Bank, GDP, EUR
Euro, Pound Fall on European Pessimism
Aug 7, 2008
The Euro is off sharply against most of the majors (EURAUD is currently the only exception). FX markets are adjusting for a rapid slow down in the Eurozone. Indeed, rumors abound that Eurozone Q2 GDP will be negative when reported Thursday August 14 at 2am est. Overall, the economic calendar is laden with UK and Euro reports, which may partly account for the 200+ pips drop in the EURUSD.
For the greenback, today's rally has to be somewhat of a head scratcher. Today&39;s news would have clobbered the dollar last month. Citigroup and Merrill Lynch announced they are buying back a combined $19 billion in securities from investors. AIG earnings disappointed big time. And, their was yet another pipeline attack, this time Turkey.
That the dollar is rallying in the face of such negative news may be a sure sign of a bottom.
The dollar is certainly favored in overnight index swaps, which are pricing in cuts of 50bps for the UK and 25bps for the ECB over the next 12 months. Conversely, the index is pricing in 75bps in US rate hikes over the next year.
Technically speaking, the Euro has fallen below a significant support at 1.53. The 50% fibonacci of 1.60 comes in at 1.5175, which should provide the next significant level of support.
Greenback, Euro, EUR, Pound, USD
EURUSD Preview
Jul 30, 2008
The EURUSSD pair could see significant action the next 2 days.
To recap, the pair remains in a 5 month range of 1.53 - 1.60. In early July, as the Indy Mac collapse and fears over Fannie Mae and Freddie Mac swept through markets, the pair briefly went above 1.60.
In the last 2 weeks, as various levels of the US government moved to shore up banking, and oil has decline some 15%, the greenback has recovered.
Today, despite a 3% rise in crude oil futures, US stocks and the Dollar remained strong. The Dollar came within 66 pips of the the very important 1.55 support. Since April, every trend that has passed through 1.55 has been sustained for no less than 2 weeks.
As the week ends, the EURUSD pair can move on 3 key events.
Thursday
At 5am eastern Eurozone CPI and unemployment will be released.
On CPI, the number is likely to come in as expected (4.1%), as German CPI came in as expected Tuesday. Given recent drops in consumer confidence and growing signs of a slowdown spreading across Europe, the CPI would have to come in sharply higher to justify any speculation of a further ECB rate hike.
The monthly decline in French employment may signal some weakness in the unemployment. Though, any miss is likely to be very narrow at this stage.
At 8:30 am, US Q2 Annualized GDP will be released
Expectations are all over the map on this one. I have seen calls from 1.0% to 4%. Given the impact of stimulus checks and a jobs number that has stubbornly held below 5.8%, annualized 2% or better seems likely.
Tomorrow seems to hold 3 scenarios (Note: I have listed them in the order I think most likely to occur)
- If numbers come in as expected, look for the pair to hover around 1.55 as traders wait for the Non Farm payroll report Friday.
- If US GDP comes in over 2% and Eurozone CPI reads 4.1% or lower, look for the US Dollar to break the 1.55 support.
- Should Eurozone CPI come in extremely hot (4.3% or more) and the US GDP disappoint, look for the Euro to push up to 1.57 resistance.
Friday
At 8:30am US Nonfarm payrolls and Unemployment Rate will be released
While the ADP report can be widely inaccurate, last month, the number was foretelling (coming in at -79k vs -74k in the NFP). Today, the ADP came in at +9k, suggesting the NFP will beat expectations. With initial claims dipping below 400k, and the 4 week average declining, their is definitely room for optimism. Right now, markets expect a reading of -75k.
Should the NFP beat expectations, it will definitely be dollar bullish and expectations for a Fed hike in late 2008 are likely to increase.
At this point, I do think the EURUSD is likely to close below 1.55 this week.
Euro, GDP, CPI, jobs report, EUR, USD
Forex Preview July 27 - Aug 1
Jul 27, 2008
Save for a whirlwind of activity on Tuesday, this week is largely devoid of major macroeconomic reports.
The key macroeconomic themes will once again be
a) European CPI (Germany, Italy, the Eurozone, and Switzerland)
b) US Nonfarm payrolls Friday
With oil falling 15% over the last 3 weeks, European CPI and may come in as expected. A slight stunner considering the recent series of higher than expected readings.
Monday July 28
7:30pm Japan Household Spending
7:50pm Japan Retail Sales and Trade
Tuesday July 29
Germany CPI (expect 0.5% MoM, 3.2% YoY)
2:40am France Consumer Confidence (expect -47)
2:45am France PPI (expect 0.8% MoM, 7.3% YoY)
4am UBS Switzerland Consumption Indicator
8am Germany IFO Business Climate Survey
9am US Case Shiller Home Price Index
10am US Consumer Confidence (expect 50)
7:50pm Japan Industrial Production
11pm German Retail Sales
Wednesday July 30
4am Italy PPI (expect 0.9% MoM, 8.2% YoY)
5am Eurozone Consumer Confidence (expect -18)
9:30pm Australia Trade Balance (expect a drastic shrinking from -965 million to -100 million)
9:30pm Australia Retail Sales
Thursday July 31
1:45am Swiss CPI (expect -0.4% MoM, 4.0% YoY)
5am Italy CPI (expect 0.4% MoM, 4.0% YoY)
5am Eurozone CPI Estimate (expect 4.1%)
5am Eurozone Unemployment (expect 7.2%)
8:30am US Q2 GDP (expect annualized 2.0%)
8:30am Personal Consumption (expect 1.4%, core 2.0%)
Friday August 1
2:30 am Australia RBA Commodity Index
8:30am US Nonfarm Payrolls (expect -75k)
8:30am US Unemployment Rate (expect 5.6%)
10am US ISM (expect 49.2 Manufacturing)
1pm Italy Government Budget
CPI, jobs report, AUD, EUR
Oil, Bank Earnings Drive USD Higher
Jul 17, 2008
FX Traders caught up in the fears of an American financial apocalypse have relented to the change in market perceptions the last 2 days.
Most notably has been an $18 dollar drop in oil futures. Since Fed Chairman Ben Bernanke spoke before the Senate on Tuesday, oil has seen a precipitous drop. 3 factors seem to be driving the drop off:
a) a perception that a global slowdown will reduce oil demand below current forecasts b) A notable uptick in US supplies on Wednesday c) a perceived cooling in Middle East tensions as the US seeks to establish an Interest section in Iran and Israel - Hezbollah exchange prisoners.
Oddly enough, while I believe traders have over reacted to credit concerns recently, I also believe traders are over discounting Middle East problems. The Hezbollah celebrations and political spins of victory seem to increase the chance of an armed conflict. With Prime Minster Olmert stepping down in September, Israeli hawks seem destined to take the reigns of the next government.
On the credit front, the US has seen a significant rebound. US Banckcorp, Wells Fargo, and JPMorgan Chase have beat analysts expectations. And, Fannie Mae and Freddie Mac have rebounded in a big way. Undoubtedly, this was triggered by the 3 prong attack of Bernanke, Paulson, and Cox. IMO, SEC Chairman Cox's banning of naked shorts may have been the biggest impetus for the sudden reversal in the fortunes of these struggling financials.
So where to now?
Good question. For tomorrow at least, things should be Dollar bullish as German PPI plus Citigroup earnings may give a nice little bump up in the EURUSD.
OTOH, if PPI is in the least bit tame, and Citi joins Wells Fargo and JPMorgan, look for a pull back below 1.57.
In the near term, I remain as confused as just about every other financial body on this trade. But, as an old trader friend used to tell me, their is no such thing as a double top. That is, if a market tests a point twice and fails, we are almost certain to see a pull back of sorts. If that is to be the case, the EURUSD could easily fall back to the 1.53 levels.
Greenback, EUR, oil, USD
Is Systemic Risk Over Hyped?
Jul 15, 2008
Certainly systemic risk is a real threat to the US Dollar.
With Fannie Mae and Freddie Mac woes (each down 75% year to date) and other banks encountering credit related problems it is easy to be glum. With record energy and food prices it is easy to be pessimistic about US growth.
But is it really financial Armageddon?
Are traders justified in running up the Euro and Pound in the face of more pessimistic data out of Europe?
In the short term, perhaps yes.
In the medium term, I don't think so.
What the US has going for it
This is not your grandfather's depression.
First, you have a Fed with far fewer constraints vis-a-vis the 1929 Fed. Indeed, the Fed is now run by monetarists who have extensively studied and argued how the Great Depression could have been avoided. Are they wrong? Only the markets can answer that in the long run, but early indications, while sometimes obscured in a sea of negative presidential year rhetoric, are to the contrary.
Consider this, the Fed today has increased expectations for annual GDP growth to 1.0% - 1.6% vs earlier forecasts of 0.3% - 1.2%. In addition, monthly job losses have held below 100k, far below previous recession peaks of 300k+. Q1 GDP was revised upwards from an annual rate of 0.6% to 1.0%. Exports remain a source of growth while inventory is tightening (meaning exporters are only buying what they can move).
And in a great sign for the tech sector, Intel posted prfit gains of a whopping 25% today. I have long suggested the housing recession would end in part with a Web 2.0 / High Def / extreme bandwidth tech cycle.
Second, the US government has bankers in all the right places. Hank Paulson of Goldman Sachs fame runs the US Treasury. And now the US Senate has finally confirmed a banker for the Fed in Elizabeth Duke. These 2 combined can provide an immense amount of insight and necessary guidance in steering the US through the economic storm.
Third, after entering the credit crisis while sitting on their hands, various entities have become innovative and expanded beyond the standard usage of interest rate policies to move markets. This was first demonstrated by the Fed when they negotiated the sale of Bear Sterns to JPMorgan Chase and opened the discount window to investment banks.
And lately, this innovation has gone further. Including a) the Fed opening the discount window to Fanny and Freddy b) the Treasury asking congress to grant emergency powers to expand GSE credit facilities and purchase equity and most recently c) Christopher Cox banning naked shorts on Lehman Brothers, Goldman Sachs, Merill Lynch, Morgan Stanley, Fanny, and Freddy
If the shorts get too bold, and the Treasury is granted permission to buy equity, I trust that Hank Paulosn knows how to coordinate a short squeeze. While perhaps unethical and smacking of market manipulation, it is a possible strategy that Mr. Paulson may use to restore value in Fanny and Freddy, and thus renew investor confidence in the mortgage markets.
As Mr. Paulson said before the Senate today, when you walk down the street with a squirt gun, you are likely to have to use it. When you walk down the street with a bazooka, others are unlikely to test you. So it shall be with the Treasury and GSE shorts.
What the Eurozone has going against them
In short, a crises of false hopes.
Today, some traders are fleeing to the Euro in the mistaken belief it is a safe heaven against a systemic crises in the US.
They could not be more wrong.
Consider the latest data, the ZEW Survey came in at an astoundingly low -63.9, European auto sales are down -8% year over year, Italian GDP has been slashed from 1.0% this year and next to 0.4% in 2008 and 2009, and ECB members now warn of growth risks despite their mandate to keep inflation in check. And that all happened today, when the Euro set fresh new highs.
As things settle down in the US, Euro longs may be in for a rude shock as markets readjust for recent macroeconomic data.
Indeed, ECB Council Member Vito Constancio has sounded rather Greenspanian circa 2004. He warned "Under normal circumstances, a rise in the interest rate by the ECB would have resulted in higher medium-term rates and a higher euro. Well, the exact opposite happened," Sounds like the EU is facing their own conundrum.
With the global economy slowing down, fx traders in late 2008 / early 2009 are likely to see an environment where the US is raising rates while Europe, the UK, Australia, and New Zealand are cutting rates and the Swiss and Canadians at best hold firm. Such an environment will put a smackdown on the current Carry Trades.
Again, don't get me wrong. This is NOT short term advice. I would not put a stop in the EURUSD below 1.5781. But with FX markets currently ignoring macroeconomic data to focus on systemic risk, it is better to keep a clear perspective on the entirety of the big picture.
ZEW Survey, Credit Crunch, Hank Paulson, Bernanke, EUR, 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
FX Markets to Trade on Gloomy News
Jul 7, 2008
Central banks are navigating choppy waters. And so too, are Forex traders.
With so much uncertainty over slowing economies and rising inflation, it is little wonder.
In this double negative environment, the majors are likely to remain confined to recent ranges.
Today was a perfect example. First, the Pound took a dip as UK industrial production dropped -0.8%, a stumble considering expectations for a drop to -0.1%.
90 minutes later, the Euro followed suit, as German industrial production fell at even faster rate. The Germans reported a drop to -2.4%, a major tumble considering market forecasts for a +0.3% reading.
Next it was the Dollar's turn. First, Lehamn Brothers warned that Fannie Mae and Freddie Mac may face their own credit problems, as they may need to raise a combined $75 billion to offset write downs on largely prime loans. And SF Fed President Janet Yellen suggested home prices will continue to deteriorate into 2009. Those 2 reports stoked minor rallies for the Euro and Pound.
With inflation ramping up, markets cooling down, and central banks hoping that slowing economies will bring prices down - their is little reason to believe the forex markets will behave any differently in the near future.
For the duration of the summer the EURUSD will likely to remain between 1.53 - 1.59, while the GBPUSD will likely trade 1.94 - 2.00.
EUR, range bound, GBP, USD
Euro Drops 200 Pips on NFP, Trichet
Jul 3, 2008
With all signs pointing to a possible EURUSD rally - the events let traders down.
After briefly hitting a high of 1.5910, the EURUSD pair has dropped to the lower end of 1.57.
In his morning conference, Trichet repeatedly stated the central bank has "no bias". However, he cautioned that the absence of phrases such as "heightened alertness" and "strong vigilance" was not significant.
In a possible sign for the upcoming G8 summit, Trichet stated "We are convinced that sharp fluctuations between major currencies could have implications for economic and financial stability".
With energy and food inflation high on the G8 agenda, and world leaders gathering next week in Hokkaido Japan, their is some chance of either a forex or energy market intervention.
Meanwhile, in the states, the Non Farm payroll report came close to expectations, losing 62k jobs. and unemployment held steady at 5.5%. Hourly wages grew 0.3% as expected, indicating wage inflation is still not a factor.
However, the ISM service sector slipped back into contraction (48.2 vs expected 52), while the April and May NFP reports were revised down.
Expect the majors to stay range bound until the G8 summit concludes.
Greenback, ECB, G8, EUR, Trichet, USD
Vol a til i ty
Jul 2, 2008
Volatility - tending to fluctuate sharply and regularly.
And that is just what we can expect tomorrow around 5:30am. To make things more exciting, several events throughout the day could could cause reversal.
5:30am est - Europe
European Central Bank President Trichet will likely hold his monthly press conference shortly before or after 5:30am. Markets have already priced in a 25bps hike from the ECB. This event is likely to go 1 of 3 ways
1. ECB raises 25bps, Trichet leaves door open for hikes at the end of the year
2. ECB raises 25bps, Trichet hints at another hike soon, but discounts the notion of a series of hikes
3. ECB raises rates 50bps on expectations of an energy / fx market intervention at the G8 summit July 7 - 9
A host of pressures are certainly on Trichet's shoulders - German unemployment is at a 14 year low, Italian wages are growing, and Slovakian integration on the horizon - the pressure is on..
5:30am est - US
US releases 7 reports - chiefly Non Farm Payrolls (NFP), the unemployment rate, change in manufacturing payrolls, and hourly earnings.
Non Farm payroll Report
ADP, the largest US payroll processor, released a sharply lower number of -79k today. This was vs estimates of -20k. And, they revised May numbers down to +25k from +40k.
While the ADP can be grossly inaccurate, the numbers are backed up the drop in ISM manufacturing released yesterday. According to the ISM, the manufacturing employment reading came in at 43.7. That is the lowest level since May 2003, when the reading came in at 42.4.
With this series of bad numbers, it is unlikely that the NFP comes in near market expectations of -55k. I am now looking for a reading closer to -90k.
Last month, the NFP came beat expectations, but the unemployment rate jumped to 5.5%, sending the Greenback down. It is hard to tell where this number will come in, but I again expect it to be to the downside at 5.7%.
10am - US
The ISM will release their service sector report. While this won't save the Dollar if it has been slammed all morning, it will offer traders to rationalize some consolidation if the EURUSD has skyrocketed.
11am - US
Markets close for holiday.
The best pair to trade tomorrow will likely be the EURJPY.
The muddle of US and ECB data can prove to be too confusing. And while the USDJPY is poised for some upside potential technically, a negative jobs report will undo any of the short term momentum.
The EURJPY on the other hand, while likely be focused strictly on the ECB rate hike.
ECB, jobs report, EUR, Trichet, rate hike, USD
Euro Drops on Weak PMI, IFO
Jun 23, 2008
DailyFX nailed the IFO numbers spot on, but PMI comes in weaker than anyone expected.
Euro-zone PMI came in at contraction levels, sharply lower than expected.
Services slumped to 49.5 (from 50.6 in May, vs expected 50.5)
Manufacturing slipped to 49.1 (from 50.6 in May, vs expected 50.2)
Composite fell to 49.5 (from 51.1 in May, vs expected 50.7)
The German IFO survey came in with the following numbers
Climate 101.3
Situation 108.3
Expectations 94.7
At 7;30am est the Euro is lower against most of the majors.
EURUSD 1.5516 (-0.0101, -0.65%)
GBPEUR 1.2628 (-0.0007, -0.06%)
EURAUD 1.63130 (-0.00310, -0.19%)
EURNZD 2.0477 (-0.0004, -0.02%)
EURCHF 1.6202 (+0.0035, 0.22%)
Read the IFO survey
EUR, IFO, PMI
EURUSD Headed Higher?
Jun 21, 2008
A host of factors indicate the EURUSD will head higher this week and test 1.5800 resistance. But beware, the European Service PMI (June 23) and the FOMC meeting (June 25) may hold down advances.
With Euro-zone inflation hitting 8 year highs a steady stream of ECB comments came out all but guaranteeing an ECB rate hike July 3rd. On Friday, President Jean-Claude Trichet reaffirmed comments from earlier this month, stating "I have no message that would retract what I said"
This was further backed by comments from ECB executive board member Juergen Stark, who stated on Friday "The current inflation rate in the Euro-zone...is unacceptably high...In this environment, the firm anchoring of inflation expectations to conform to price stability is absolute priority"
ECB member Bini Smagh joined in the chorus, commenting that if "inflation is left to creep up, the cost of bringing it down later will be even higher."
Technical analysis confirms the fundamental factors. THE EURUSD has;
- set a new 3 Day high Friday
- crossed the 20 day moving average
- is kissing the 50 day moving average
However 2 events could drag the EURUSD down.
1. On Friday at 4am est Euro-zone service PMI will be released. Consensus is for a slight easing from 50.6 to 50.5 (like the US report, any number above 50 signals growth). Cash thinks this data may surprise to the downside. This view is based on the ZEW report last week, Axel Weber's comments earlier this month that Germany will not see the normal spring bump, and higher than expected inflation.
Of course, Chuck may be dead wrong based on on French wage increases (up 1.1%) and the turn around in Italian industrial orders up 12.8% YoY
2. The FOMC may shock us all.
The ECB has talked of a rate hike and seems certain to follow through. The Fed has talked tough for several weeks now, and may be forced to act. While many are expecting the first rate increase to come in September, Bernanke has used unusual timing to his advantage over the last year. A Fed hike this meeting in unlikely, but don't be shocked to see a hike on the discount window. At the very least, the FOMC statement should include some rather hawkish tones.
technical analysis, EUR, FOMC, USD
EUR Slips to $1.5547 on German Unemployment, US GDP
May 29, 2008
Perhaps the table has turned..
Last week it was the Euro looking like it had a bright future on expectations for a ECB rate hike.
The last 2 days,.a string of positives has put the greenback on a positive footing.
In the latest headlines, German unemployment rose by an unexpected 4k applicants. Expectations had been for a 25k drop. Adding to that, Eurozone consumer confidence fell to a 32 month low of -15. Expectations had been for a stable reading of -12. However, it would be a mistake to miss why the ez confidence number fell. It appears the main driver was a rise in consumer prices across the Euorzone, which rose 3.3%. This is consistent with the inflation rate of 3% reported by Germany yesterday.
On a more positive note, Eurozone Retail PMI rose to 53.1 from a reading of 41.8 in April. This is the largest year-over-year increase in 13 months. Sales rose in Germany and France, but fell in Italy.
Back here in the States, US Q1 GDP was revised up from 0.6% to 0.9%. The revision was largely driven by exports, as the annualized trade deficit fell to $480.2 billion. That is the smallest since 2002. In addition, Dallas Fed President Fisher and Minneapolis President Gary Stern came out with warnings on inflation. You can, and should, read their comments at CNBC.
In other news, Japanese retail sales fell to 0.1%, far below expectations for an 0.6% reading.
The EURUSD has fallen to $1.5533 in early hours on the West Coast. It may test the $1.550 resistance depending on comments later today from Fed Chairman Bernanke (2:30 est) and Vice Chairman Kohn (7pm est). The greenback has climbed to ¥105.164 yen, well above the 10 day moving average.
Greenback, Euro, GDP, jobs report, EUR, USD
EUR, GBP See Minor Breakouts, Retreat on Pessimism
May 27, 2008
Backing up comments from several prominent Germans last week, Q1 GDP for Germany came in at 1.5%. Annualized rates are at 2.6%, the strongest growth in 12 years for the Eurozone's largest economy. Digging deeper, construction and business investment were strong drivers for the German growth. The Euro reached as high as $1.5818.
However, the Euro run was short lived as the Gfk consumer sentiment index fell more than expected. The Gfk data came in at 4.9, far below expectations of a 5.8 reading. All 3 components - economic outlook, spending, and personal income were down. In late trading, the EURUSD is at $1.5709. The pair closed at $1.5775 on Friday.
The Pound reached $1.9825 before retreating. BBA mortgage approvals saw an 8.8% rise in mortgage approvals to slightly over 38,700. However, that is still almost 40% lower than last year. In late trading, the Pound is at $1.9751, slightly below Friday' close of $1.9794.
In other European news, the UBS consumption indicator - which measures domestic demand - fell to 2.18 in April from an upwardly revised reading of 2.25 in March. This is still above the long term average of 1.50, but may be a prime indicator of the global toll of the oil. The CHFUSD was $1.0315 at press time.
Euro, GDP, EUR, GBP, Pound
Euro Up on Comments, UK and US Holidays. But Face It, the Data was Bad This Week.
May 23, 2008
The Euro closed up at $1.5775 on Friday, just shy of the $1.58 resistance. Overall, the Euro gained 1.2% against the dollar this week.
Eurozone data finished a week of negative news with 1 more bad report. The Purchasing Manager's Index (PMI) fell to 51.1, lower than the expected reading of 51.7 and last month's reading of 51.9. Services fell 1.4 to 50.6, manufacturing was also down slightly to 50.5. Germany and France - which are the 2 largest Eurozone economies - experienced significant declines in services.
Despite the string of negative news this week, forex traders remained in bull mode. This was fueled by growing expectations that the ECB may actually raise rates this year despite ever growing signs of a European slowdown.
Traders were also preparing for holidays in the UK and US Monday, when markets will be closed. closed market holidays typically create illiquid markets and greater volatility.
The Euro has a strong chance of testing $1.60 next few weeks, as the US will see a significant amount of macro data next week and then earnings reports from the major financial institutions in early June.
The British Pound rose slightly to $1.9794, testing the $19.8 level. UK GDP came in at 0.4% and remains on pace for an annual growth of 2.5%.
ECB, Euro, GDP, EUR, Pound
EURUSD Hits $1.5814, Then Retreats on Data, French Finance Minister
May 22, 2008
March Eurozone industrial orders dropped 1% month-over-month (MoM), twice the expected drop of 0.5%. Orders were down a whopping 7.3 Year-over-Year (YoY). Some traders who had predicted a testing of $1.60 (*cough* me), were stunned.
French Finance Minister Christine Lagard came out in favor of the Dollar, as she called the Euro's rise against the dollar "a major misalignment". Lagarde backed ECB concern over inflation, but hinted that Trichet may be "overly focused". She went on to say that other tools - including cash, and Trichet's comments when "he opens his mouth" were also available to the ECB chief. (Read more of Lagarde's comments at CNBC
On the other hand, ECB council member Axel Weber (another German, hmm, Eich bein Fx Manipulators?) came out today re-enforcing the notion the ECB may have to raise rates later this year.
In late trading, the EURUSD was at $1.5729
Greenback, Euro, EUR, Trichet, USD
Euro, Swiss Franc, and Pound Move on Latest News
May 21, 2008
The latest round of news from Europe was generally positive for their major currencies.
First, on the heels of the ZEW President Franz's prediction of an ECB rate hike, the IFO business confidence survey was up in 3 categories - business climate, expectations, and current assessment. With that extra kick of good news, the Euro crossed the 1.570 mark, and is at 1.5768 in late trading. Having broken the $1.53 - $1.56 range, the Euro is almost defintely going to test the $1.60 level.
The Swiss also posted their share of good news, with a drop in unemployment. FX traders frequently turn to the Swiss franc when exiting carry trades, the continued global stock sell off may have been a more important macro driver today.
The minutes from the Bank of England showed that only one of nine members voted for a 25 bp rate cut on may 8. With March inflation at 0.8% and annual numbers hovering around 3%, the BOE seems to be handcuffed to a policy of rate cut aversion. However, it should be noted, that Ernst and Young Item Club member Peter Spencer has warned that inflation targeting may cripple consumers. Mr. Spencer suggests that the BOE switch to a core number that excludes energy and food (similar to the US). The Pound is at $1.9707 and may soon $2.00 again.
Bank of England, BOE, jobs report, Franc, EUR, minutes, rate hike
ZEW Predicts More ECB Rate Hikes, US and German Numbers Bad
May 20, 2008
As was expected, the main driving force in Euro FX trades came from the ZEW. However, the devil really was in the details, as the "what" caught traders by surprise. The German ZEW sentiment dropped to -41.4, lower than the expected increase to -37. Worse yet, German PPI came in at 1.1%, far higher than the expected 0.5% reading.
Depsite the bad fundamental news, markets moved on future expectations from the ZEW of an ECB rate hike. Wolfgang Franz, head of ZEW, supplied a mild jolt to the market when he indicated the ECB may increase rates "in the near future". For months now, many traders have thought the ECB was moving towards a rate cut - the global credit crunch, negative Eurozone consumer sentiment, and a crash in housing in many European countries was thought to portend a very bad slowdown. Nevertheless, as Mr. Trichet reiterated last week and yesterday, inflation remains concern #1 for the ECB.
In the US, wholesale inflation was up 0.2% for April, an ok number after the 1.1% jump in March. However, core inflation was worse than expected, coming in 0.4% vs the expected 0.2% increase. On top of the core inflation and record oil prices (which are just insane and way out of whack with the fundamental decline in gas demand + inventory increases), the US government raised their forecast for food price increases to a 4.5% - 5.5% range. That would be the largest annual growth since 1990. Overall, US inflation is up 3% in the last year, making it the largest increase since 1991.
In late trading, the EURUSD was up more than a cent to $1.5660, the GBPUSD was up to $1.9682. The dollar was also off against the Yen and Swiss Franc.
ECB, European Central Bank, inflation, ZEW Survey, EUR, USD
