USD 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
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
FOMC Statement Analysis
Aug 5, 2008
As widely expected, the FOMC held rates steady at 2% today.
The key to today's meeting was the statement released along with the decision.
1. They omitted the phrase in June's statement that indicated risks to growth appear "to have diminished somewhat."
Clearly, they are reacting to recent turmoil surrounding Fannie Mae, Freddie Mac, and Lehman Brothers. As I suggested earlier this week, the FOMC is chiefly concerned about liquidity, not inflation.
2. Their was only one dissenter, Dallas Reserve President Richard W. Fisher.
Leading up to the meeting, their had been some speculation that Philly Reserve President Charles Plosser would join Mr. Fisher's dissent. I believe we will see the dissent count rise to 2 or 3 in a meeting before the Fed finally does raise rates. As such, we are at least 2 meetings away from Fed rate hikes.
However, readers should remember that Frederic Mishkin will be stepping down at the end of this month. It will be interesting to see how the dynamic of the Board plays out as Elizabeth Duke essentially replaces the departing Governor.
3. The committee stated "the Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain."
That is pretty clear. Like many other central banks, the FOMC expects a slowdown in the economy to reduce inflation risks, without an increase in rates. However, the geopolitical concerns behind recent oil pricing makes this expectation uncertain.
So how does the US Dollar perform for the remainder of the week?
I think many traders had already bought into the notion the Fed was to be dovish today, and were thus not disappointed.
Across the Atlantic, news continues to sour for the UK and Euro-zone.
Today, the Nationwide survey of UK consumer confidence fell 11 points to 51. Year over year, that is a 46% decline in confidence, the steepest drop in the history of the report. And, industrial output fell to an annual rate of -1.6. In the Euro-zone, retail sales hit -3.1% today, and PMI slipped further into contraction at 48.3 for July.
For Thursday, Trichet and the ECB are unlikely to make hawkish statements. They are more likely to take a page from the FOMC and warn of downside risks with the expectation inflation will soften over the next few quarters on a weakening economy.
Their is a growing chance the Bank of England will signal a rate cut in their statement.
Given that forex markets have been dealing with a weak American economy for several months, the rapid slowdown across Europe and other parts of the world will probably play a bigger factor in trading action over the next few weeks.
Bank of England, European Central Bank, inflation, interest rates, FOMC, USD
Euro, US Numbers In Line
Jul 31, 2008
Key economic indicators out of Europe and the US this morning fell within range of expectations.
At 5am, Eurozone CPI registered 4.1% as expected. While that is 2% better than the ECB mandate of 2% CPI, chances for an ECB rate hike next month appear slim. Deteriorating economic conditions across much of Europe has led the bank to conclude demand will naturally fall off and thus curb price pressures.
This view was further bolstered by a slight up tick in Eurozone unemployment (7.3% vs expected 7.2%) and German employment losses (down 20k jobs).
In the US, Q@ GDP came in an initial reading of 1.9%. However, the big news was a downward revision in 2007 Q4 from 0.6% to -0.2%. Q1 2008 GDP was also revised lower from 1.0% to 0.9%.
The combined events initially sent the EURUSD above 1.56. However, the pair has declined below 1.56 ahead of the Non farm Payroll Report.
Euro, GDP, CPI, jobs report, 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
US Battles the Credit Crunch
Jul 28, 2008
The dual track of limiting naked short selling and increased government powers to help Fannie and Freddie seems to have worked for at least the short term. Since that fateful Tuesday, both stocks have rebounded nicely.
And now the US wants to keep that momentum going. Today, movement was made in 3 key areas.
1) SEC Expanding Curbs on Shorts
In a Wall Street Journal article today, they indicated that curbs to shorts may in fact expand. Other industries such home builders, insurance, and other financials may now be included.
The temporary limits covering 19 financials was set to expire at 11:59pm est Tuesday July 29.
The SEC held calls with a major fund association over the weekend to discuss the issue. Of great concern to funds was the ability for computer traded programs to adjust their software for the new rules. That would seem like a technical problem for the industry rather than a major hang up for the SEC.
2) FOMC to Improve Inflation Transparency
As of today, Committee officials use core inflation to set a sustainable price target for the next 3 years.
In a speech in Washington today, outgoing Fed Governor Mishkin outlined how that might be improved. He suggested 3 key changes.
a) Set a mandate rate like that used in England and Europe
b) Switch to 5 year forecasts
c) Use headline inflation rather than core inflation.
This speech is notable as Governor Mishkin is sometimes thought of as an inflation dove. The wide divergence between headline and core inflation in recent months makes the third point unlikely for the near term. However, a mandate rate (which he has long supported) and 5 year outlooks are plausible.
I am not convinced mandate targets are really useful. The Bank of England, the Royal Bank of Australia, and the ECB seem to be cornered by their rates. In each case, the bank is willing to exceed their mandate in the short term while they wait for their respective economies to slow enough to justify further rate action.
Had the Fed been similarly handcuffed, it is unlikely they would have cut rates as substantially or as fast as they did in the last year. (Though watching Jim Cramer's head explode on national TV would have been great entertainment).
3) Paulson Pushes Covered Bonds
In what could be a major strike against the credit crunch, US Treasurer Hank Paulson announced best practices for covered bonds.
What are covered bonds and why would they help?
Glad you asked.
Like the mortgage backed securities that got the US into this mess, they are mortgage pools backed by cash flow.
I can hear the groans an snores already, but stay with me.
Unlike the CDOs of recent years - the originating institution MUST keep the security on their own balance sheet. That is, they can not sell them off to others. Perhaps the biggest problem with the recent run in mortgage securities is that they were sold off to other institutions. Forcing them to stay with origination should enforce higher lending standards.
More specifically, covered bonds would have the following limits:
- balance stays on asset sheet of lender
- covered bonds can not exceed 4% of lender liabilities
- loans must have documented income
- mortgages over 60 days delinquent must come out of the pool
- investors in the pool must be updated monthly
Today, Europe's mortgage market largely functions under this model to the tune of $3 trillion. In contrast, their are virtually no covered bonds in the US.
Credit Crunch, housing, Fed, SEC, USD
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
Bernanke, Paulson, Cox Take Center Stage
Jul 14, 2008
The US Dollar is likely to see unusually high volume starting at 10am est tomorrow.
At that time, Fed Chairman Ben Bernanke will have the floor to himself when he gives his semi-annual monetary policy report. The discussion will likely center on today's revision to mortgage lending rules and when Mr. Bernanke believes the credit crises will abate.
In an unusual move, Treasurer Henry Paulson and SEC Chairman Christopher Cox will join Mr. Bernanke at at a second hearing. No doubt, the topic of discussion will center around steps taken to prevent the collapse of Fannie Mae and Freddie Mac. This hearing will take place after Mr. Bernanke's monetary policy report.
Senator Chris Dodd, head of the Senate Committee on Banking, Housing, and Urban Affairs has indicated that he is receptive to the proposals put forth by Hank Paulson over the weekend. Senator Dodd stated that "Fannie and Freddie are in sound shape, but fear produces its own results". He further implied that he hopes to add amendments enacting Mr. Paulson's recommendations to last week's housing bill. The bill would then likely pass in time for President Bush to sign by Friday of this week.
US Dollar trades may also see some movement when reports on retail sales, PPI, and the Empire Manufacturing Index are released.
Retail sales are expected to rise 0.5% (1% excluding auto).
Lehman Brothers, the entity responsible for kicking up the Fanny and Freddy storm last week, is looking for 1.3% MoM and 8.5% YoY on the PPI.
The Empire manufacturing index is expected to come in at -5.
The German ZEW Survey will be released at 5am tomorrow, and may surprise to the downside. Industrial production has fallen off dramatically in France and Germany and trade balances shrunk last week.
Credit Crunch, Bernanke, Fed, 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
The Calm Before the USD Storm?
Jun 24, 2008
Bring back Fed Speak.
The Fed will have to craft tomorrow's statement very carefully. Perhaps some good ole' Greenspan ambiguity would be best.
A spat of negative news today confirmed the US economy is facing difficult times. The Case-Shiller index showed a whopping 15.3% annual decline in home prices. The OFHEO report, which tracks mortgages backed by Freddie Mac and Fannie Mae, showed an annual drop of 4.6%. The Richmond Fed Survey dropped to a low of 4.5 And consumer confidence fell far more than expected, to a reading of 50.4 (vs expected 56.5).
Yet the dollar didn't fall of the face of the earth.
Instead, it remained within a fairly narrow range against the Euro, Pound, and Yen. Evidently, traders feel the Fed is turning hawkish.
Aside from a month of hawkish commentary, what fundamentals can rationalize a strong statement out of the Fed?
1. Uptick in Q1 GDP
I can't stress this one enough. Q1 GDP is expected to be revised up to 1.2% later this week. From an initial reading of 0.6% (later revised 0.9%), that is fantastic.
2. The ARM Conversion Wave
Years ago, the Economist put out a great article discussing the housing bubble pre-burst. In it, they included a graph detailing the ARM conversion wave. The wave had a considerable upswing in Spring 2007 (start of credit crisis), another bump Spring 2008, and a final massive bump in 2010. That suggests that housing will see at least a temporary reprieve for the next 18 months.
3. FDI Outflows are Dropping, Inflows are Picking Up
The OECD today reported that foreign outflows have dropped sharply among member nations. Outflows are now expected to come in at $1.14 trillion, down 37% from the $1.82 trillion in 2007. Indeed, lower than the $1.21 trillion in 2006.
And last week, the TIC showed a sharp increase of inflows of $115 billion vs expected $63.3 billion.
4. Durable Goods Orders
The last 2 reports have beat expectations. The latest report will come out almost 2 hours before the Fed statement. Another surprise (especially excluding autos) is a sure sign of US resiliency.
5. Politicians are Dragging Us Down
It is not a great stretch to suggest political speeches are helping to drag down consumer sentiment.
The Fed is charged with remaining out of politics. As such, they should be expected to ignore the constant down talking of the US economy that is coming out of the politicos.
6. The Greenspan Tarnishment
Former Fed Chairman has taken a lot of heat for leaving rates too low for too long. Bernanke must be conscious of this perception. He must show this Fed will not repeat the mistakes of the past.
Expect the Fed to leave rates unchanged with commentary highly suggestive of rate hikes in the near future.
GDP, housing, Bernanke, durable goods, Fed, FOMC, USD
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
Rally in US Dollar Index?
Jun 17, 2008
The folks at Marketclub are calling for a rally in the US Dollar Index from the current level of $74 to a somewhere around $81. That is a whopping 10% swing.
They base this belief on a) their custom triangle trading indicator b) technical analysis and c) fundamental analysis of the marketplace.
Chuck has said for awhile now that the Triangle indicator is surprisingly accurate. Generally when using their indicator, traders can look at weekly charts for trends, and daily charts for entry points. However, with the US Dollar index, it behaves a bit different. Trends are indicated on a monthly level. Their triangle signal has given the first upside signal on the US Dollar Index in 20 months!!
From a technical analysis point of view, the index has been trading generally sideways for the past 4 months. The pivot point formed in early March 08 closely resembles the pivot point formed late 2004 that lead to a 1 year rally.
From a fundamental perspective, their call absolutely makes sense. The Fed has been talking up the dollar for a good month now. Except the Euro and Aussie, moth other banks have somewhat mollified recent commentary (including the BOE today).
Currently Marketclub is giving away a 2 week free trial. This is a rare opportunity that is only offered once a year. Take a few minutes out of your day and see what they are offering, it will be well worth your time.
Watch the US Dollar Index video
Greenback, technical analysis, USD
Majors Roundup For June 16
Jun 16, 2008
The trading week got under way with events all over the world driving currency pricing.
The Pound rose on CPI speculation, and anticipation of a plan from Governor Meyer. The Euro rose on CPI data and ECB comments. The greenback fell early on Empire Manufacturing, an early spike in oil, and Lehman Brothers first quarterly loss. But the damage was slightly muted by a pull back in oil, Fed President Lacker, and foreign inflows of capital.
The GBP was driven up as traders geared up for an anticipated Year over Year CPI number of 3.2%. This will trigger significant commentary from the Bank of England's Governor Mervyn King. By law, the bank will have to present a letter explaining why inflation is above 2%, what will be done to bring inflation back in line, and when inflation is expected to come back in line. Despite signs of a slowing UK economy, the BOE is likely to suggest that rate hikes will be necessary to combat inflation.
In the Euro-zone, year over year CPI came in at 3.7% (above expectations for 3.6%). Additionally, ECB Governing Council member Nout Wellink seemed to confirm currency traders anticipation of an ECB rate hike. He stated that markets "should not react to every change in the environment ... They should look through the information to see the underlying trends"
Reading between the lines, trends have been to focus on fighting inflation, which means more rate hikes.
In the US, the Empire Manufacturing survey fell much further than expected, declining to -8.7 (vs -4.7 expected). Oil futures shot out of the gates to an all time trading high of $139.89 before falling $5 in the afternoon. Additionally, Robert Novak published an article stating anticipations for a rate hike were off base. On the credit crunch front, Lehman Bros reported their first ever quarterly loss of $2.87 billion.
However, not everything was doom and gloom for the USD. US Capital inflow increased to $60 billion (from -$48 billion). Lehman Brothers was able to reduce mortgage holdings by 20% and slash their balance sheet by $147 billion. Additionally, they were able to raise $6 billion in new capital during the quarter. And Richmond Fed President Lacker reiterated "The principal risk is that high overall inflation will become embedded in expectations"
The pessimistic outlook for an economic slowdown spread to Japan, as the government cut expectations. For the second time in a row, the government used the key word 'pause', saying the "recovery appears to be pausing". Backing this assessment, condominium sales fell 17.5% in May.
The big news will happen early tomorrow morning as, the UK CPI and Goldman Sachs reports will be released before US markets open.
At 1am est, the EURUSD is at 1.5522, the GBPUSD 1.96580, and the USDJPY is at 107.79.
ECB, European Central Bank, CPI, GBP, Pound, USD
US Inflation Higher Than Expected
Jun 13, 2008
US Inflation numbers:
Year over year: 4.2%
May Headline inflation: 0.6%
May Core inflation (minus food and energy): 0.2%
IMO, this number all but guarantees a rate hike in the near future - no later than August.
The EURUSD has broken below 1.54 to 1.5339, the USDJPY has passed through 108 to 108.21
Greenback, inflation, CPI, USD
Greenback Moves on Retail Spending, Trading Flat Ahead of CPI
Jun 12, 2008
Bush and Congress can pat themselves on the back - at least temporarily. Consumers armed with extra cash from the stimulus package and a jump in energy prices sent retail sales higher in May.
Sales rose 1%, 1.2% excluding autos. That beat expectations for +0.5% (0.7% excluding auto) rise in retail sales.
The positive retail sales combined with InBev's $46 billion bid for Anheuser-Busch and continued down playing of ECB rate hikes across Europe lead to a strong daytime rally for the Greenback. (Notably, French Finance Minister Christine Lagard again took a pro USD stance suggesting a Euro rate hike might be off the table after this weekends G8 meeting).
The EURUSD fell to €1.542, the GBPUSD to £1.9477. On the other side, the greenback rose to $107.69 against the yen.
In early hours of the Asian session (1am est) the USD appears to be trading flat. The EURUSD (-0.09% to 1.5435) and GBPUSD (-0.06% to 1.9465) are trading slightly to the down side. The Yen is flat at 107.77.
Watch the inflation numbers at 8:30am EST! Headline year-over-year should come in at 4%, while core (excluding energy and food) should come in at 2.3%.
After your done trading the inflation report - you should probably get out of the market ahead of the weekend G8 meeting. Unless you have Trichet on speed dial, in which case, your probably not reading this blog.
G8 meetings can produce massive fundamental swings 5 factors strongly suggest a major policy shift this weekend.
1. A bullhorn like proclamation from the Fed and US govt that inflation is the top priority
2. The (not so) subtle backing down of the ECB from Trichet's comments last week
3. The dual storm of economic downturn + inflation numbers in the UK (and people worry about stagflation in the US!)
4. Softening of the Aussie and Kiwi economies.
5. The Gulf Cooperation Council's affirmation that they will peg to the Dollar when they form a monetary union.
Greenback, inflation, G8, CPI, USD
USD Up Late on Retail Sales Expectations
Jun 11, 2008
After a disappointing Beige Book, forex traders look to a spike in energy and food prices is likely to lead to a bump in US retail sales
Expectations are for a rise of 0,5% (0.7% excluding auto). That number should be taken with caution, as a) the number is NOT adjusted for inflation and b) consumers have clearly cut back on discretionary spending on items such as apparel and furniture. Gas prices have gone from a nationwide average of $3.20 to $4.00 during that time.
Greenback, oil, USD
Whoa - Unemployment Jumps to 5.5%
Jun 6, 2008
US Job Cuts came in at -49k, well below expectations for a 60k loss. However, traders are reacting to a headline reading of a 0.4% jump in unemployment. June is typically a difficult month - as college and high school age employees try to enter the work force.
In detail, construction lost 34k, manufacturing lost 26k, and services lost 39k, health and education gained 54k.
Hourly wages rose to 3.5%, beating expectations.
The greenback is weaker against the majors. EURUSD up 0.57% to 1.5669, GBPUSD up 0.15% to 1.9613, and USDJPY down 0.30% to 105.800.
jobs report, USD
US Non Farm Payroll Preview
Jun 5, 2008
Markets are expecting a loss of 60k jobs in tomorrow's Non Farm Payroll (NFP) report.
The DailyFX has a nice preview of the report. In general, they take a fairly negative view and hint that a 100k drop is not out of the question. Specifically, they highlight that each of the previous 3 recessions has seen jobs drop for 10 months or more. Further, previous recessions have seen monthly job losses spike above 300k. They reveal 10 indicators they are using to predict a number above expectations.
While I agree with their overall thesis, I do think they are jumping the gun.
1. Fed Comments - The Fed has made a number of comments indicating the economy may avoid a severe slowdown. It started last week with comments from Dallas Fed President Fisher and Fed Governor Mishkin's resignation. It continued this week with back-to-back days of comments from Chairman Ben Bernanke.
And today, in comments that may have flown a little under the radar with the RNBZ and ECB statements over the last 24 hours, Richmond Fed President Lacker reiterated that the US may avoid a severe slowdown and that inflation is becoming the main concern.
2. Macro reports this week - The ISM Non manufacturing, ADP, and Initial Jobless Claims all improved. Individually, each of those measures may be unreliable, but taken as a trio they can not be easily dismissed.
I believe economists may be missing a crucial factor in this slowdown - illegal immigration. Job losses are highest in construction and manufacturing. Those are 2 industries that have extensively tapped into the illegal immigrant labor pool. As jobs dry up, they will likely return to their native countries and never show up on job loss reports.
3. Foreclosures are becoming confined to 6 states. The six can broken into 2 groups - those with over development and risky loans (California, Florida, Arizona, and Nevada) and those suffering from job losses (Michigan and Ohio). Beyond those states, housing markets have begun to stabilize. While those states are big enough to remain a concern for the overall health of the US economy, it is important to realize that 44 other states are getting better.
I recommend you read the DailyFX NFP preview
This has been an eventful week in the forex markets - comments from central banks and jobs reports have seen sharp moves in the GBPUSD (200 point swing Monday), the EURUSD (2 big point swings this week - one uip, one down), and the Kiwi (down big against many currencies yesterday).
If you've ever felt you could be better at trading forex around economic news releases, this Elliot Wave Report is a must-read.
jobs report, housing, Fed, USD
Return of the Credit Crunch?
Jun 2, 2008
Just as invesstors thought it was safe to come out and play - the credit crunch returns.
Reverberations from last year's financial market crises awoke the sleeping giant US today. The S&P cut ratings of 3 major investment banks (Lehamn, Merrill Lynch, and Morgan Stanley), warned of a cut to another (Wachovia) and changed the outlook to negative on 2 others (JPMorgan Chase and Bank of America). The lone silver lining from the S&P was kind of a slap and a kiss as they stated that Citigroup was no longer on the verge of a downgrade, but one may still happen over the next 2 years.
In other crunch related moves, Wachovia fired CEO Ken Thompson Sunday - 1 month after stripping him of his position as chairman. Acting chairman Lanty Smith will take over as CEO at a time when losses are expected to grow for Wachovia.
Washington Mutual also joined the fire the headfigure train. WaMu announced that Kerry Killinger will end his reign as chairman starting next month.
But those issues are all lingering effects from the US credit crunch last year.
The real problem may now stem from a crises in the UK.
UK mortgage approvals fell to 58k in April, 7k lower than expected. That is the lowest reading since they started tracking approval numbers in 1999.
With echoes of Bear Sterns still in the minds of many, Bradford ' Bingley closed down a whopping 24%. Shares had fallen as far as 32%. Shares stumbled after a series of bad news - profit will likely fall, the CEO will retire, and rights will be sold at a steep discount. They are the UK's largest buy-to-let lender and 8th largest bank. Profits will likely come in at £150m a whopping £100m short of forecasts. Chairman Steven Crawshaw will retire due to a cardiovascular condition known as angina. (Note angina itself is not a disease, rather a symptom of other diseases such as coronary artery disease). Chairman Rod Kent will take over for Mr. Crawshaw.
But the most stunning news coming from Bradford 'Bingley was a drastic slash in the pricing for rights. TPG (aka Texas Pacific) will buy a 23% stake for $353 million, at a rate of £. That is far below the initial price of £82. The whopping last minute discount helped Citigroup and UBS - 2 banks already suffering terribly during the credit crunch - as both would have been stuck with extra shares from the offering. In April, TPG also injected cash into Washington Mutual.
Since March 2006, Bradford and Bingley has fallen from a market cap of £ 3.3 billion to £405 million. Yikes!
Despite the heavy bout of negativity, signs of a US recovery from the crunch were still to be found. ISM manufacturing rose to 49.6 - 1.1 above expectations. While this is till technically a contraction (above 50 is growth), their is reason to be optimistic as exports hit a 4 year high. In addition, construction fell 0.4%, beating expectations for -0.6 reading. And March was revised up from -1.1% to -0.6%.
The GBPUSD fell 200 points, briefly touching 1.96 before recovering to 1.9640 late in the day. The Yen was the strongest performer of the day - as forex traders fled the carry trade in the wake of credit crunch fears.
Credit Crunch, housing, GBP, USD
Ending Dollar Peg would Not Help Gulf States Fight Inflation
Jun 1, 2008
US Treasurer Henry Paulson met with members of the of the Gulf Cooperation Council (GCC) over the weekend. Among the topics discussed was gulf state inflation and the dollar peg. Currently, 5 members of the GCC 6 (Saudi Arabia, Qatar, Oman, Bahrain, and the UAE) peg their currencies to the dollar. Kuwait, the sixth GCC member, removed their dollar peg in May of 2007 but still faces looming inflation problems.
According to Secretary Pauslon, the GCC agrees the dollar peg does NOT drive inflation "to a significant degree". Secretary Paulson will meet with a delegation from the United Arab Emirates on Monday.
In April, both the UAE and Qatar indicated they were unlikely to remove the peg for the foreseeable future. However, On May 1st, Kuawait Finance Minister Mustafa al-Shimali indicated that some members of the GCC were considering dropping their pegs.
It is important to note the GCC buys more goods and services from Europe. As a result, a Euro peg would have actually increased inflation at a faster pace than the current Dollar peg.
Read more at CNBC
Greenback, inflation, 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
US Durable Goods Beat Expectations, Oil Demand Falling
May 28, 2008
In major news, the US Durable Goods (items lasting more than 3 years) fell 0.5% in April. Analysts had expected a 1.0 - 1.5% drop. The business spending proxy (which excludes defense and aircraft) orders jumped 4.2% - making it the largest rise since December. Shipments (exports) rose 1.2%. And most impressively, electrical orders surged a record 27.8%! This is definitely not a recessionary reading.
Quick Note: Chuck has long thought this US down turn would ultimately end with another tech boom - as the effects of high bandwidth 15 Mbps at home, (OMG I would have thought it impossible when I was on 28.8kbps in 1995), HD (VHS to DVD was a big part of the late 90s boom), and other technology improvements to the web will likely result in a 2nd "dot-com" era. Check out http://www.searchme.com to see what Cash means. That electrical orders were up sharply (partly on orders for High-Def products) is a sign that Chuck may be right.
..back on topic. The US Dept of Transportation reported that Americans drove 4.3% fewer miles in March (thats 11 billion miles). This is the largest drop since the agency started keeping track in 1942. In addition, the EIA reported gasoline demand is down 0.6% this year and will see the first annual decline since 1991. The EIA estimates demand will fall for all of petroleum's finished products - including jet fuel, diesel, and heating oil.
Proving how rumor/momentum based energy is these days - oil futures initially fell more than $2, but rebounded to close $2.18 after Morgan Stanley's Richard Berner forecast $150 per barrel this year. Mr. Berner basis his comments on continued demand from developing countries. However, some asian markets have already started to cut subsidies, and others are likely to follow suit. In a related note, Indonesia pulled out of OPEC today, as they had become a net importer of oil. No - not because of peak oil - but because foreign firms are uncomfortable with local laws and government corruption. The move leaves OPEC with only 12 members (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Suadia Arabia, UAE, and Venezuala).
US Q1 GDP may be revised up from 0.6% to 0.9% today. Keep an eye on that!
In late trading, the USD rose to ¥104.93, the upper end of the ¥102 - ¥105 range, but above the ¥104.90 resistance.
GDP, durable goods, USD
Data Bad, But Dollar rebounds on Oil Drop
May 27, 2008
First, the good news. Oil fell $3.34 (2.5%) today to close at $128.85.
Now the bad news. The Conference Board's Consumer Confidence Index fell more than expected to 57.2. That is the lowest reading since October 1992, which is really scary when we consider that neither the dot-com bust or 9/11 was bad enough to create such negative sentiment. Market participants had expected a reading of 61. Digging deeper, business conditions fell sharply while jobs sentiment remained fairly flat.
In housing, new home sales were up 3.3% from March. However, that number obfuscates the fact that March was revised from 526k to 509k. Year over year, new US home sales are down more than 40%. Given that February to June is the typical apex in new home sales, these weak numbers look concerning. The median price rose by 1.5% to $242.5k, but that too hides the extras thrown in by homebuilders to move units. Echoing the minor improvements in price and sales, April inventory fell to a 10.6 month supply (from 11.1 in March).
The Case-Shiller index was down 14% YoY, the biggest drop since the index was created in 1988.That number can probably be taken with a grain of salt, as it only measures the 20 largest cities and the index did not exist during the late 80s housing bust.
Again, despite the pessimistic news, the Oil number seemed to matter most, as the USD was up against most of the majors Tuesday.
Greenback, housing, oil, USD
Dollar Drops on Homes, Oil
May 23, 2008
The US Dollar was down against most currencies on Friday. The usual suspects - surging energy prices and a further decline in housing - were to blame.
The National Association of Realtors reported that US Home sales slid 1% to 4.89 million units. That was better than the market expected number of 4.55 million units. However, the markets found no reason to be optimistic as supply continued to grow and prices kept dropping.
Home sales were down 17.5% YoY (5.93 million) and a whopping 30% from the peak of September 2005 (7.2 million). The lack of home buying has sent the supply up to 11.2 months - a record level. The median price for existing single family homes declined 8.5% YoY, to a little over $200k.
On the energy front - oil rose $2.67 to close at $131.65. Other futures marched along. Gas rose 6.43¢ to $3.3687, diesel was up 1.9¢ to $4.558, heating futures rose 7.11 ¢ to $3.8461, and nat gas rose 19.8¢ to $11.563.
Bring back the sanity! IMO, no way fundamentals support the energy numbers. Demand for gas is down, gas inventories stand at near all time highs, and several pipeline projects that will reduce risk premiums and make transportation more efficient. These new pipeline routes will begin to open in the next few years.
On the heels of this pessimistic data, the US Dollar finished lower against the Euro, Japanese Yen, Swiss Franc, and Australian Dollar. Notably, the USD was flat against the Pound and up slightly vs the Canadian Dollar.
Greenback, housing, oil, USD
Dollar bounces back on Oil, Jobs, and Bill Gross.
May 22, 2008
The dollar was up against most world currencies today as signs of recovery keep peaking out from the trough of bad news. After hitting $135 in overnight trading, oil slipped to $130.81. Phil Flynn, the famous energy trader, has an excellent article at OnTheBid suggesting the oil bull run may be over. In addition, jobless claims dropped to the lowest in 4 weeks.
Further fueling beliefs that the Fed may now battle inflation, PIMCO Chief Investment Officer Bill Gross came out with strong arguments for battling inflation. He asked others to join him "in lobbying for change in US leadership...and the market's assumption of low relative US inflation in comparison to our global competitors." PIMCO runs the world's largest bond fund.
Now the bad news. The oil spikes of 73, 79, and 90 all led to quarterly contractions. Crude prices have risen 35% since April! Yeah, thats a spike. While the Us has so far avoided outright contraction, the bull run in crude is sure to be felt. In addition, according to OFHEO, house prices fell 3.1% in Q1 2008 YoY, and 1.7% since Q4 2007
The National Association of Realtors will release April existing home sales at 10:00am est tomorrow. The expected number is 4.85 million, the lowest since the number started tracking in 1999. (I wonder how times the existing home sales figure was cited by realtors during the run up? 'Existing home sales are at an all time high! Get in ow or forever be priced out!' Blah). President Bush will speak a short time later at 10:35 est, so don't run away from your TV after the NAR report.
jobs report, housing, oil, USD
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
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
US Dollar Rises On Positive Data
May 19, 2008
An index of leading US economic indicators was up 0.1% on Monday, 0.2% better than the expected. In other good news for the greenback, housing showed a surprising rebound, as construction (+8.2%) and building permits (+4.9%) rose. In addition, Southern California, one of the largest US markets in terms of value, rose 22% from March to April. The data supports the belief of many traders that the US may avoid a recession altogether. While the recovery is slow and weak, the US has not had 2 quarters of negative growth.
The housing data should be taken with a grain of salt. Construction is being driven by new apartment complexes and Spring typically sees an upswing in home purchases In a mixed sign, much of the buying was for foreclosures. While each foreclosure came with the pain of a default, purchases help to set a bottom. I personally thought most buyers would wait a while longer. The fact that people are coming off the sidelines now is further proof the worst may be over for the US.
In late trading, EURUSD is at $1.5527, the GBPUSD is at $1.8510, and the USDJPY is at ¥104.15.
Greenback, housing, USD
A Fundamental and Technical Look at the GBPUSD
May 17, 2008
Starting in early March (right around the time Bear Stearns was bought by JP Morgan), the USD staged a comeback against the Sterling. And then negative US data last Thursday and Friday - contraction in manufacturing, weakest consumer confidence number in 28 years - combined to slam the dollar.
From one fundamental perspective, things look bad for the dollar. While the cheap dollar is definitely helping to boost exports, the trade imbalance hurdle is very high. In 2007, the deficit ran at a whopping $738.6 billion! And that is down -9% from 2006 ($811.5 billion). In addition, other major central banks remain reluctant to cut rates, as was reinforced by the May 8th BOE and ECB decisions to hold interest rates steady. Indeed, Trichet was very clear that inflation - not economic slowdowns - remained the number 1 concern.
Yet glimmers of hope remain for the greenback. Foreign inflow has risen from $56.7 billion in January to $80.4 billion in March. And futures markets show an expectation that the US Fed is done cutting rates, with a 50-50 chance of a hike by October.
It is at confusing times like these that Chuck turns to his good friend - technical analysis. Recently Chuck has became an ardent fan of MarketClub's Trading Triangle. They offer a lot of the standard stuff - a trade score based on common indicators, quotes, and tutorials. But the real meat and potatoes of their analysis suite is their trés cool charting tool. Not only does Cash find this to be a highly intuitive and easy interface (see below), but the indicators are working great. On April 1st, they put out this great video analyzing the GBPUSD pair. Using fibonacci retracements and weekly indicators, they called for a downturn to the 38% retracement level of 1.951 (from the high of 2.10) And low and behold, where did the GBPUSD hit? Just under 1.95. If you are unsatisfied with your current indicators, or just looking to try out a new set, definitely check out Market Club
Greenback, technical analysis, fundamental, GBP, USD
Weak Manufacturing Data, Jobs Sends US Dollar Down Against Commodity Currencies.
May 15, 2008
US Manufacturin data continue to show signs of contraction on Thursday. The Empire Manufacturing index and the Philly Fed showed signs of contraction for a 6th month. The Empire Manufacturing reading came in at -3.2, down from 0.6. The Philly Fed did show some signs of life, rising to -15.6 from -24.9 Overall, Industrial production was down to -0.7%, after the biggest decline since Hurricane Katrina. In addition, jobless claims rose by 6,000 to 371k.
Depsite the bevy of bad news, the dollar was little moved agasinst non commodity currencies. (Perhaps these are lagging indicators?? Hmmmm). The greenback was up against the Swiss Franc and Euro.
Tomorrow could be a bigger day - with Housing Starts and the University of Michigan Confidence Index. reporting.
Read more at Yahoo
Greenback, Euro, jobs report, Franc, USD
US Dollar gains ground on Bad News Europeans
May 7, 2008
The US Labor Department reported Wednesday that worker productivity was up 2.2% for Q1 2008. Labor costs also slowed.
In contrast, Germany reported the worst euro-zone retail sales since 1995. Britain reported declining production and a lower consumer sentiment.
The Euro fell to $1.5401 (-0.0132),and the Pound fell to $1.9531 (-0.0199).
The European and British Central Banks will meet Thursday.
Read more at CNN
ECB, Euro, USD
Worst of Credit Crisis Over - US Sec Treasury Paulson, Merril CEO Thain
May 7, 2008
Both the US Secretary Hank Paulson and Merril Lynch CEO John Thain came out with a positive outlook on the credit crisis Wednesday.
In an interview with the AP, Hank Paulson remarked "we're closer to the end of this than the beginning." However, he cautioned that rising fuel prices will reduce the effect of the stimulus package. The first batch of stimulus checks went out last week - some via direct deposit, others via mail.
CEO Thain indicated that investment banks are likely to reduce the massive losses reported over the last year. He cautioned that banks with large consumer exposure were likely to see some more pain. Specifically, credit cards and home loans are likely to see more delinquencies going forward. On a positive note, Mr. Thain indicated Merrill was unlikely to seek more capital.
It is important to note that Mr. Thain worked at Goldman Sachs while Hank Paulson was the CEO. This 1-2 punch of optimism is almost certainly coordinated.
Read more at MSNBC and CNBC
Credit Crunch, Hank Paulson, USD
Greenback Up Against Swiss Franc, Yen, GBP
May 6, 2008
US Treasuries continued to gain ground against other currencies. Against the Yen, the Dollar was trading at 104.81 (+0.12). The dollar aslgo gained ground on the pound sterling (+0.15) and the Swiss franc (0.009).
Read more at CNBC
Greenback, JPY, Franc, Yen, GBP, Pound, USD
ISM: US Service Sector Growing
May 5, 2008
In a new report released today, the service sector grew unexpectedly in April. The ISM non-manufacturing index came in at 52.0 in April, vs an expected 49.1. A reading of 50 or above indicates growth.
This comes on the heels of Friday's better than expected job report. Dan Meckstroth of the Manufacturers Alliance commented that "It fits with a scenario of a very mild recession"
Read more at USA Today
ISM, USD
US Jobs Report Better Than Expected
May 2, 2008
April job losses came in at -20,000 according to the US Labor Department. This was significantly below the expected -80,000.
The unemployment rate actually fell -0.1% from 5.1% to 5%.
Construction and manufacturing continued to cut jobs. However, technical and health services posted strong gains.
Read more at CNBC
jobs report, USD
As Volaitility Eases, Carry Trades Increase
Apr 28, 2008
The DailyFX.com Carry Trade Index rose $296 (0.01%) to end the week at $28,414. Forex traders are taking note of the calmer markets, as carry trades have been increasing while volatility decreases.
However, many traders are concerend that high yielding currencies such as those in Australia and New Zealand will soon have to follow suit with rate cuts. As a result, the narrower trades (such as USD/JPY and GBP/JPY) have been increasing while the upper end of the curve has been falling.
Read more at Yahoo
JPY, Carry Trade, USD
US Numbers Good 2 Days in a Row - Dollar Up
Apr 15, 2008
US economic data surprised analysts Tuesday, as the PPI and Manufacturing Index beat expectations.
The NY Fed Reserve's Empire State Manufacturing Index jumped an unexpected 23 points to 0.63 in April. Many traders were expecting a more modest improvement of 6 points.
Additionally, the PPI (Producer Price Index) was up 1.1% in March, 0.7% below analysts expectations of 1.8%.
The data sent the US Dollar to $1.9616 against the British Pound, and $1.5778 against the Euro.
Read more at CNBC
PPI, USD
German Confidence = High Euro, Weak Dollar
Apr 14, 2008
Investors expect a new German report will that faith in the economy remains strong. The Euro went as high as $1.5824, less than 1 cent below the all time high of $1.5913 reached April 10. Continued strength in the Eurozone has made ECB rate cuts less likely.
Read more at Bloomberg
ECB, Euro, European Central Bank, USD
British Pound Bull Run - Buh Bye?
Apr 4, 2008
The British Pound (GBP), has been the winning horse in the USD trade for several years now. In 2001, the Sterling was 1.40, 36% below the high of November 2007.
The US housing sector looks bleak (like the Cubs, *sigh*), commodities are shooting through the roof, the Dems + media are talking down the economy daily, and the USD just had the worst quarter in 4 years. So the Pound will soldier on, right?
Not so fast! In this video, Adam Hewison examines the future prospects of the GBPUSD trade Using MarketClub's triangle trading system and Fibonacci retracements, he shows technical analysis suggesting the GBP is about to give up some of its' strength. Specifically, the GBPUSD market has already crossed the 32% fibonacci retracement from the high of 2.1161. After a short rebound from the 32% line, the market appears headed to the 50% retracement of 1.9109.
If that all sounds confusing, dont worry! Adam keeps it simple. and the charts do a great job of telling the story. Watch GBP/USD Technical Analysis
fibonacci, GBP, Pound, USD
