The dollar extended its loss versus the euro and sterling on expectations that the Fed may cut interest rates again next week. The dollar index slumped to a fresh all-time low at 77.035. The euro approached 1.44 versus the dollar, while the sterling rose to as high as 2.0571.
This week¡¯s economic data, including housing sales, durable goods orders, weekly jobless claims and today¡¯s consumer sentiment index, all showed signs of economic growth slow down. University of Michigan consumer sentiment index fell from 83.4 to 80.9 in October, below the estimate of 82.
It is widely expected that the Fed will lower rates by a quarter-percentage point to 4.00%. Under the pressure of housing slump and rising credit costs, the nation¡¯s economic growth may slow down in the future. The overall sentiment on the dollar is bearish.
Sunday, October 28, 2007
Dollar Down Further On Housing Concern
The dollar dropped further against the euro and yen as worse-than-expected reports today raised concern on the nation¡¯s economic growth outlook.
US weekly jobless claims fell slightly from 337k to 331k, worse than the estimate of 320k. Durable goods orders unexpectedly dropped 1.7% in September, far below the forecast of a 1.5% rise. New home sales slid from 795k to 770k in September, raising concern on the housing slump.
The euro approached a record high hit recently at 1.4344 versus the dollar, and the yen strengthened to as low as 113.79 against the dollar. The dollar is under pressure as the Fed is widely expected to lower rates again next week.
US weekly jobless claims fell slightly from 337k to 331k, worse than the estimate of 320k. Durable goods orders unexpectedly dropped 1.7% in September, far below the forecast of a 1.5% rise. New home sales slid from 795k to 770k in September, raising concern on the housing slump.
The euro approached a record high hit recently at 1.4344 versus the dollar, and the yen strengthened to as low as 113.79 against the dollar. The dollar is under pressure as the Fed is widely expected to lower rates again next week.
Wednesday, October 24, 2007
USD Awaits Housing Data
At 4:00 AM Eurozone October Manufacturing PMI (exp 53.0, prev 53.2)
Eurozone August Current Account Surplus (exp 2.0 bln euros, prev 1.7 bln euros)
Eurozone October services PMI (exp 54.5, prev 54.2)
At 10:00 AM US September Existing Home Sales (exp 5.25 mln units, prev 5.5 mln units)
The greenback continues to struggle against the majors, falling sharply against the Australian dollar on burgeoning rate hike expectations for the RBA. Meanwhile, economic data from the US suggests further deterioration in the housing market – thereby raising the question of whether there will be spillover effects onto other parts of the economy, namely consumer spending. In the session ahead, traders will digest September existing home sales, which is seen slumping further to 5.25 million units, down from 5.5 million units from August.
Eurozone August Current Account Surplus (exp 2.0 bln euros, prev 1.7 bln euros)
Eurozone October services PMI (exp 54.5, prev 54.2)
At 10:00 AM US September Existing Home Sales (exp 5.25 mln units, prev 5.5 mln units)
The greenback continues to struggle against the majors, falling sharply against the Australian dollar on burgeoning rate hike expectations for the RBA. Meanwhile, economic data from the US suggests further deterioration in the housing market – thereby raising the question of whether there will be spillover effects onto other parts of the economy, namely consumer spending. In the session ahead, traders will digest September existing home sales, which is seen slumping further to 5.25 million units, down from 5.5 million units from August.
Dollar Fell, Eyes On Housing Data
The dollar pared its gains against the euro and sterling as the bearish sentiment over the dollar does not change after Monday¡¯s unexpected dollar strength. The euro rebounded back to around 1.4250 versus the dollar, while the sterling passed through 2.05 against the dollar.
The market will focus on US housing data this week and the FOMC next week. US existing home sales due tomorrow is seen to fall from an annual rate of 5.5 million units to 5.25 million in September. Also new home sales will be released on Thursday. The housing slump will continue to weigh on the nation¡¯s economy and therefore put pressure on the Fed to cut rates.
Interest rate futures indicate that traders are pricing in a nearly 90 percent chance that the Fed will cut rates by a quarter percentage point to 4.50 percent at its Oct 31 policy meeting.
The market will focus on US housing data this week and the FOMC next week. US existing home sales due tomorrow is seen to fall from an annual rate of 5.5 million units to 5.25 million in September. Also new home sales will be released on Thursday. The housing slump will continue to weigh on the nation¡¯s economy and therefore put pressure on the Fed to cut rates.
Interest rate futures indicate that traders are pricing in a nearly 90 percent chance that the Fed will cut rates by a quarter percentage point to 4.50 percent at its Oct 31 policy meeting.
Tuesday, October 23, 2007
Yen Rallied, Dollar Rebounded From Lows
The dollar dropped initially against the yen and the euro after the G7 statement released late last Friday. The dollar tumbled to a fresh low at 1.4348 against the euro.
There was no change in the language regarding the currencies. The G7 just repeated that excess volatility in foreign exchange is undesirable. Apart from urging China to allow its currency appreciate more rapidly, G7 finance ministers and central bankers did not mention any other currencies including the weak yen and dollar and the strong euro.
Besides, the G7 indicated that record oil prices and US housing and credit sector slump will impede economic growth. This prompted investors to cut back risk appetite and reduce carry trades. The yen rallied sharply against high yielding currencies. The yen rallied to session low at 113.26 against the dollar, and strengthened to 230.35 versus the sterling and 160.48 versus the euro.
There was no change in the language regarding the currencies. The G7 just repeated that excess volatility in foreign exchange is undesirable. Apart from urging China to allow its currency appreciate more rapidly, G7 finance ministers and central bankers did not mention any other currencies including the weak yen and dollar and the strong euro.
Besides, the G7 indicated that record oil prices and US housing and credit sector slump will impede economic growth. This prompted investors to cut back risk appetite and reduce carry trades. The yen rallied sharply against high yielding currencies. The yen rallied to session low at 113.26 against the dollar, and strengthened to 230.35 versus the sterling and 160.48 versus the euro.
Sunday, October 21, 2007
JPY Buoyed Ahead of G7
The yen rallied across the board in the Friday session amid a slide in global equities, pushing the sterling beneath the 235-level and the euro under the 164-mark. The greenback, which initially tumbled against the euro and sterling, recovered amid profit taking heading into this weekend’s G7 Finance Ministers meeting. We’re not anticipating the G7 communiqué to single out dollar weakness, but do expect increased pressure on China to hasten currency flexibility. It will be important to focus closely on post-meeting commentary from Eurozone officials as there will be scope for criticism of recent euro strength impeding on trade competitiveness.
UK’s Finance Minister Alistair Darling said that while there was a mix of views among the G7 on exchange rates, he reiterated that forex levels should be determined by markets. Meanwhile, Canada’s Finance Minister Flaherty said he would not be surprised to see stronger language in the communiqué on China’s foreign exchange policy. Further, he expects vigorous discussion on the topic at the meeting. We look for the yen to remain buoyed heading into the meeting, given the currency’s characteristic to trade as a proxy to China’s yuan.
The dollar’s near-term direction will likely remain linked to sentiment over upcoming Fed policy decisions. Earlier in the session, Fed Funds futures were pricing in a 98% chance of a rate cut at the end of the month, up from over 70% yesterday and just over 30% a week earlier. Recent economic data continues to point towards further deterioration in the housing market, but have yet to reveal any spillover effects on the consumer. Next week’s US economic calendar is light but will provide additional gauges on the housing market, with the releases consisting of existing home sales, new home sales, durable goods orders and weekly jobless claims.
Fed Chairman Bernanke said central bank predictability was important in making long-term rates respond to Fed actions. He reiterated that central banks should strive for transparency, predictability and avoid overreactions. However, he provided little insight into the FOMC’s policy deliberations in the coming weeks.
UK’s Finance Minister Alistair Darling said that while there was a mix of views among the G7 on exchange rates, he reiterated that forex levels should be determined by markets. Meanwhile, Canada’s Finance Minister Flaherty said he would not be surprised to see stronger language in the communiqué on China’s foreign exchange policy. Further, he expects vigorous discussion on the topic at the meeting. We look for the yen to remain buoyed heading into the meeting, given the currency’s characteristic to trade as a proxy to China’s yuan.
The dollar’s near-term direction will likely remain linked to sentiment over upcoming Fed policy decisions. Earlier in the session, Fed Funds futures were pricing in a 98% chance of a rate cut at the end of the month, up from over 70% yesterday and just over 30% a week earlier. Recent economic data continues to point towards further deterioration in the housing market, but have yet to reveal any spillover effects on the consumer. Next week’s US economic calendar is light but will provide additional gauges on the housing market, with the releases consisting of existing home sales, new home sales, durable goods orders and weekly jobless claims.
Fed Chairman Bernanke said central bank predictability was important in making long-term rates respond to Fed actions. He reiterated that central banks should strive for transparency, predictability and avoid overreactions. However, he provided little insight into the FOMC’s policy deliberations in the coming weeks.
USD Hits Fresh Record Lows
The dollar stumbled to new all-time lows against the euro beneath the 1.43-level and crossed the 2.05-threshold versus the sterling for the first time since late July. The renewed weakness in the greenback comes amid heightened expectations that the FOMC will move again at the end of this month to lower its benchmark lending rate. Fed Funds futures reflected a 70% probability of a rate cut at the upcoming FOMC meeting on Oct 30-31. The trade-weighted dollar index dropped to a new low at 77.48 with few signs to suggest an imminent recovery. Further dragging sentiment for the dollar were lingering concerns of credit conditions with Bank of America reporting dismal Q3 profit, which plunged 32% from a year earlier.
Economic data from the US continued to reinforce deteriorating fundamentals. The reports included weekly jobless claims, September leading economic indicators and the October Philadelphia Fed survey. Weekly jobless claims edged up higher to 316.5k versus 310.25 a week prior. The leading economic indicators for September reversed the 0.6% decline from August, improving to 0.3%. Meanwhile, the Philadelphia Fed survey slipped by more than anticipated to 6.8, versus estimates for a smaller decline to 7.3 from 10.0 in September. The new orders component tumbled to 2.7 from 15.1, while the prices paid index almost doubled to 40.3 versus 23.1.
Economic data from the US continued to reinforce deteriorating fundamentals. The reports included weekly jobless claims, September leading economic indicators and the October Philadelphia Fed survey. Weekly jobless claims edged up higher to 316.5k versus 310.25 a week prior. The leading economic indicators for September reversed the 0.6% decline from August, improving to 0.3%. Meanwhile, the Philadelphia Fed survey slipped by more than anticipated to 6.8, versus estimates for a smaller decline to 7.3 from 10.0 in September. The new orders component tumbled to 2.7 from 15.1, while the prices paid index almost doubled to 40.3 versus 23.1.
Housing Data Drags USD Lower
Trading in the currency market was mixed in the Wednesday session, with the greenback holding steady near recent levels against the majors. The dollar recovered in the afternoon versus the euro to hover beneath the 1.42-level while bouncing away from the 2.04-mark. Another bout of disappointing US economic data prompted renewed selling in the currency, pushing the dollar to a two-week low versus the yen at 116.20.
The data releases this morning included key gauges on inflation and the housing market. The September consumer price index was largely inline with expectations. The core CPI figure was unchanged at 0.2% m/m and 2.1% y/y. The headline inflation figure edged up to 0.3% m/m, compared with a 0.1% decline and 2.8% y/y. More importantly, were the release of sharply worse than anticipated housing starts data, which plunged by 10.2%, versus a 2.6% decline from August to 1.191 million units. The report provides no reprieve for rapidly deteriorating conditions in the housing market.
The Fed’s Beige Book, however, provided little clues into the FOMC’s policy decision at the end of the month. The Beige Book noted improved economic activity in early October, albeit at a decelerated pace since August. It remained upbeat on consumer spending, but acknowledged continued weakening in the housing markets. On inflation, the Fed said prices increased, in part due to the dollar decline.
The data releases this morning included key gauges on inflation and the housing market. The September consumer price index was largely inline with expectations. The core CPI figure was unchanged at 0.2% m/m and 2.1% y/y. The headline inflation figure edged up to 0.3% m/m, compared with a 0.1% decline and 2.8% y/y. More importantly, were the release of sharply worse than anticipated housing starts data, which plunged by 10.2%, versus a 2.6% decline from August to 1.191 million units. The report provides no reprieve for rapidly deteriorating conditions in the housing market.
The Fed’s Beige Book, however, provided little clues into the FOMC’s policy decision at the end of the month. The Beige Book noted improved economic activity in early October, albeit at a decelerated pace since August. It remained upbeat on consumer spending, but acknowledged continued weakening in the housing markets. On inflation, the Fed said prices increased, in part due to the dollar decline.
Wednesday, October 17, 2007
USD, JPY Rebound
The major currencies pared their gains versus the dollar in the Tuesday session as the upcoming G7 Finance Minister’s meeting looms. Traders pushed the Aussie beneath the 0.90-level to 0.8825 and the sterling under the 2.03-mark. With growing unease over whether the G7 communiqué will address concerns about recent dollar and yen weakness, both currencies regained footing amid unwinding of heavy shorts.
The greenback kicked off the New York session initially weaker on the heels of soft US economic data. The reports included a record net overall capital outflows (TIC) in August at $163.0 billion, compared with a $94.3 billion inflow a month prior. The new private capital outflow component hit a record $141.9 billion versus an inflow of $56.0 billion from July. Industrial output for September was in line with consensus estimates at 0.1%, down slightly from August at 0.2%. Capacity utilization was down marginally at 82.1% versus 82.2% from July. Meanwhile, the NAHB housing market index continued to suggest deteriorating conditions, falling by more than estimates to 18 for October versus 20 in September. The decline marked the fifth consecutive month the index has fallen, hitting its lowest level since initiation in 1985.
Fed Chairman Bernanke provided few clues into the FOMC policy decision at the end of the month, sounding an upbeat tone on credit conditions and saying the improvement bolsters the scope for achieving moderate growth with price stability. He reiterated uncertainties looming over the housing market, saying conditions in the mortgage markets remain difficult. Bernanke was optimistic on growth, saying some of the solid momentum from Q2 seems to have carried over into Q3. Although we expect another 25-basis point rate cut from the FOMC this year, we look for the Fed to stand pat at the end of this month, instead opting to ease at the December 11th meeting.
The greenback kicked off the New York session initially weaker on the heels of soft US economic data. The reports included a record net overall capital outflows (TIC) in August at $163.0 billion, compared with a $94.3 billion inflow a month prior. The new private capital outflow component hit a record $141.9 billion versus an inflow of $56.0 billion from July. Industrial output for September was in line with consensus estimates at 0.1%, down slightly from August at 0.2%. Capacity utilization was down marginally at 82.1% versus 82.2% from July. Meanwhile, the NAHB housing market index continued to suggest deteriorating conditions, falling by more than estimates to 18 for October versus 20 in September. The decline marked the fifth consecutive month the index has fallen, hitting its lowest level since initiation in 1985.
Fed Chairman Bernanke provided few clues into the FOMC policy decision at the end of the month, sounding an upbeat tone on credit conditions and saying the improvement bolsters the scope for achieving moderate growth with price stability. He reiterated uncertainties looming over the housing market, saying conditions in the mortgage markets remain difficult. Bernanke was optimistic on growth, saying some of the solid momentum from Q2 seems to have carried over into Q3. Although we expect another 25-basis point rate cut from the FOMC this year, we look for the Fed to stand pat at the end of this month, instead opting to ease at the December 11th meeting.
Monday, October 15, 2007
Dollar Weakens against Euro but Supported by Strong NY State Survey
Dollar weakens against most currencies except the Japanese yen in European session today but much stronger than expected NY state manufacturing index is providing some support to the greenback in early US session. The NY Empire State general business conditions index rebounds strongly in Oct from 14.7 to 28.8, beating expectation of 14.7.This is the highest reading since Jun 06. Also, consider that the index stayed above 20 level since Jun with just one sub 20 reading in Sep right after the turmoil in financial markets. The rebound in Oct suggests that business conditions are now back to normal after Fed's 50bps rate cut in Sep.
Technically speaking both the dollar and Japanese yen remains weak. USD/CAD made another 31 year low of 0.9700 today while AUD/USD made another 23 year high of 0.9706. Further downside is still expected after finishing the current consolidation. On the other hand, the Japanese yen will continue to head lower on carry trades, considering the persistence strength in commodity currencies.
Technically speaking both the dollar and Japanese yen remains weak. USD/CAD made another 31 year low of 0.9700 today while AUD/USD made another 23 year high of 0.9706. Further downside is still expected after finishing the current consolidation. On the other hand, the Japanese yen will continue to head lower on carry trades, considering the persistence strength in commodity currencies.
Sunday, October 14, 2007
USD Supported by Data
The major currency pairs held steady within range in the Friday session, with the dollar initially stronger against the majors following better than expected US economic data. The greenback pushed higher to 1.4156 versus the euro and 117.68 against the yen, but retreated from technical resistance against the pound sterling.
The data quelled fears that deteriorating housing market conditions would spillover onto the US consumer, resulting in a pullback in consumption. September retails sales outpaced estimates, with the headline reading improving by 0.6%, exceeding calls for a decline to 0.2% from 0.3% in August. The excluding autos figure reversed the 0.4% decline from August, rising by 0.4% in September, edging out forecasts for 0.3% growth. The headline PPI reading revealed higher than expected inflation up 4.4% annually versus 2.2% from the previous reading, and up 1.1% versus a 1.4% decline a month earlier. The core PPI figure, which excludes food and energy, was slightly softer than expected up 0.1% m/m and 2.0% y/y. Meanwhile, the preliminary University of Michigan consumer sentiment survey for October was weaker than anticipated, at 82.0, versus calls for an increase to 84.0 from 83.4 from September.
Fed funds futures are pricing in approximately 32% probability of an October rate cut versus nearly 50% chance of an ease a week earlier. We expect the major currency pairs to continue to trade within range heading into next week. Several key economic reports are slated for release that will provide traders additional clues on the Fed’s monetary policy decision at the end of the month. The data consist of NY Fed manufacturing survey, industrial production, capacity utilization, NAHB housing index, CPI, housing starts, leading economic indicators, and the Philadelphia Fed index. Also expected to impact markets are the Fed’s Beige Book as well as Fed Chairman Bernanke’s speeches.
The data quelled fears that deteriorating housing market conditions would spillover onto the US consumer, resulting in a pullback in consumption. September retails sales outpaced estimates, with the headline reading improving by 0.6%, exceeding calls for a decline to 0.2% from 0.3% in August. The excluding autos figure reversed the 0.4% decline from August, rising by 0.4% in September, edging out forecasts for 0.3% growth. The headline PPI reading revealed higher than expected inflation up 4.4% annually versus 2.2% from the previous reading, and up 1.1% versus a 1.4% decline a month earlier. The core PPI figure, which excludes food and energy, was slightly softer than expected up 0.1% m/m and 2.0% y/y. Meanwhile, the preliminary University of Michigan consumer sentiment survey for October was weaker than anticipated, at 82.0, versus calls for an increase to 84.0 from 83.4 from September.
Fed funds futures are pricing in approximately 32% probability of an October rate cut versus nearly 50% chance of an ease a week earlier. We expect the major currency pairs to continue to trade within range heading into next week. Several key economic reports are slated for release that will provide traders additional clues on the Fed’s monetary policy decision at the end of the month. The data consist of NY Fed manufacturing survey, industrial production, capacity utilization, NAHB housing index, CPI, housing starts, leading economic indicators, and the Philadelphia Fed index. Also expected to impact markets are the Fed’s Beige Book as well as Fed Chairman Bernanke’s speeches.
FX Mixed, Carry Trades Favored
The greenback was mixed in the Thursday session, firming against the sterling and yen, but losing ground versus the euro and Aussie. Economic data released today was slightly better than expected but had little impact on the currency market.
The August trade deficit shrunk to $57.59 billion, better than both forecasts at $59.0 billion and the July reading of $59.25 billion. Import prices increased by 1.0% in September, while export prices edged up by 0.3% -- both largely in line with expectations. Meanwhile, weekly jobless claims improved to 308k, down from the previous week at 317k.
Market focus will shift to Friday’s US economic reports, consisting or retail sales, producer price index, business inventories and the University of Michigan consumer sentiment survey. Retail sales for September are forecasted to slip to 0.2% versus a 0.3% reading from the previous month, while the excluding automobiles figure is estimated to improve to 0.3% compared with a 0.4% decline in the prior month. September PPI is seen up 0.4%, versus a 1.4% decline from August, while core PPI is unchanged at 0.2%. The preliminary October University of Michigan consumer sentiment survey is forecasted to improve to 98.3, up from 97.9.
The August trade deficit shrunk to $57.59 billion, better than both forecasts at $59.0 billion and the July reading of $59.25 billion. Import prices increased by 1.0% in September, while export prices edged up by 0.3% -- both largely in line with expectations. Meanwhile, weekly jobless claims improved to 308k, down from the previous week at 317k.
Market focus will shift to Friday’s US economic reports, consisting or retail sales, producer price index, business inventories and the University of Michigan consumer sentiment survey. Retail sales for September are forecasted to slip to 0.2% versus a 0.3% reading from the previous month, while the excluding automobiles figure is estimated to improve to 0.3% compared with a 0.4% decline in the prior month. September PPI is seen up 0.4%, versus a 1.4% decline from August, while core PPI is unchanged at 0.2%. The preliminary October University of Michigan consumer sentiment survey is forecasted to improve to 98.3, up from 97.9.
FX Dictated by JPY Pairs
The dollar was mixed, edging higher versus the yen but falling against the euro and sterling. Economic data from the US saw wholesale inventories grow in August by 0.1%, but lower from the prior month at 0.3%. The greenback will likely remain confined to recent ranges ahead of key reports due out later in the week, including August trade balance, PPI, retail sales, business inventories, and University of Michigan consumer sentiment survey.
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Euro Rebounds
ECB Board member Liikanen delivered a hawkish tone in his speech on Wednesday, reiterating the upside risks in price stability. While he sees potential for market turbulence to create downside uncertainty for growth, but policy decisions are separate from measures to address volatility – adding that the Bank would not bail out failed investors. Liikanen commented on exchange rates, saying euro levels were not a target, but rather a source of information. Meanwhile, the ECB’s Gonzalez-Paramo said that foreign exchange rates should be reflective of fundamentals, with volatile rates detrimental to growth. He added that the market turmoil has increased growth uncertainties in the Eurozone, but the crisis is too short term. The ECB is largely expected to lift interest rates by another 25-basis points to 4.25% by year-end given the current outlook for inflation and growth.
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Euro Rebounds
ECB Board member Liikanen delivered a hawkish tone in his speech on Wednesday, reiterating the upside risks in price stability. While he sees potential for market turbulence to create downside uncertainty for growth, but policy decisions are separate from measures to address volatility – adding that the Bank would not bail out failed investors. Liikanen commented on exchange rates, saying euro levels were not a target, but rather a source of information. Meanwhile, the ECB’s Gonzalez-Paramo said that foreign exchange rates should be reflective of fundamentals, with volatile rates detrimental to growth. He added that the market turmoil has increased growth uncertainties in the Eurozone, but the crisis is too short term. The ECB is largely expected to lift interest rates by another 25-basis points to 4.25% by year-end given the current outlook for inflation and growth.
Tuesday, September 4, 2007
FX Quiet on Labor Day
Markets remain rangebound as US markets were closed on Monday for the Labor Day.
The sterling gained against the dollar after a report showed UK manufacturing PMI index rose from 55.9 to reach a three-year peak at 56.3 in August, reinforcing the fact that the UK economy grows steadily.
Besides, the euro zone manufacturing PMI index dropped slightly from 54.9 in July to 54.3 in August, beating the estimate of 54.2 though.
The sterling gained against the dollar after a report showed UK manufacturing PMI index rose from 55.9 to reach a three-year peak at 56.3 in August, reinforcing the fact that the UK economy grows steadily.
Besides, the euro zone manufacturing PMI index dropped slightly from 54.9 in July to 54.3 in August, beating the estimate of 54.2 though.
Sunday, September 2, 2007
Yen Rallied after Bernanke, Bush Speeches
The yen rallied broadly after Fed Chairman Ben Bernanke and US President George W. bush gave separate speeches with regard to recent credit crunch.
On the central bank’s annual symposium in Wyoming, Bernanke said market turmoil can hit many outside the markets and the Fed policy must take into account. He reiterated that the central bank will act as needed to protect the economy, leaving the door open for an interest rate cut in September. The market is divided on whether the Fed may cut interest rates from 5.25% on its monetary policy meeting on September 18. The dollar gained versus the euro and yen after Bernanke said it’s not the Fed’s job to protect investors from their own financial decision.
Later, Bush gave a speech on how to help homeowners struggling to pay their mortgages. He said there have admittedly been excesses in mortgage supplies. He said new foreclosure avoidance initiative will help avoid repeat of current situation. Also,he is asking Congress for a temporary change in tax code to prevent people from being penalized when they refinance subprime mortgages. However, like Bernanke, he said government’s job is not to bail out speculators. He said the economy is strong enough to withstand any turbulence and recent subprime issues are modest in relationship to the size of the economy.
On the central bank’s annual symposium in Wyoming, Bernanke said market turmoil can hit many outside the markets and the Fed policy must take into account. He reiterated that the central bank will act as needed to protect the economy, leaving the door open for an interest rate cut in September. The market is divided on whether the Fed may cut interest rates from 5.25% on its monetary policy meeting on September 18. The dollar gained versus the euro and yen after Bernanke said it’s not the Fed’s job to protect investors from their own financial decision.
Later, Bush gave a speech on how to help homeowners struggling to pay their mortgages. He said there have admittedly been excesses in mortgage supplies. He said new foreclosure avoidance initiative will help avoid repeat of current situation. Also,he is asking Congress for a temporary change in tax code to prevent people from being penalized when they refinance subprime mortgages. However, like Bernanke, he said government’s job is not to bail out speculators. He said the economy is strong enough to withstand any turbulence and recent subprime issues are modest in relationship to the size of the economy.
Traders Await Data Barrage, Bernanke
At 2:00 AM Germany July Retail Sales m/m (exp 0.5%, prev 1.3%)
Germany July Retail Sales y/y (exp 0.5%, prev 1.3%)
At 5:00 AM Eurozone July Unemployment Rate (exp 6.9%, prev 6.9%)
Eurozone August HICP flash y/y (exp 1.8%, prev 1.8%)
Eurozone August Business Climate (exp 1.3, prev 1.35)
Eurozone August Consumer Sentiment (exp –2.0, prev –2.0)
At 8:30 AM US July Personal Income (exp 0.3%, prev 0.4%)
US July Consumption (exp 0.3%, prev 0.1%)
US July core PCE m/m (exp 0.2%, prev 0.1%)
Canada June GDP m/m (exp 0.0%, prev 0.3%)
Canada June GDP q/q
At 9:45 AM US August Chicago PMI (exp 52.8, prev 53.4)
At 10:00 AM US University of Michigan July Survey (exp 82.7, prev 90.4)
US July Durable Goods Orders
The major currencies are little changed in the early Friday session as traders prepare for a barrage of economic releases as well as a key speech from Fed Chairman Bernanke on housing and monetary policy. Many market participants are looking for Bernanke to signal an imminent rate cut in the Fed funds rate at the next policy meeting on September 18th in light of recent tightening credit conditions and its potential fallout on the US economy. However, the recent cut in the discount rate may buy the Fed some time and enable it to closely monitor the inflationary outlook before shifting policy.
The bevy of US economic reports includes July personal income, consumption, personal consumption expenditures, durable goods orders, University of Michigan sentiment survey and the August Chicago PMI. Personal income for July is forecasted to slip to 0.3%, down slightly from a month prior at 0.4% while consumption is expected to improve to 0.3% versus 0.1% from June. The closely eyed core PCE reading, the Fed’s preferred gauge on inflation, is seen creeping up to 0.2% in July, up from 0.1% from June. Chicago PMI is seen slipping to 52.8 versus 53.4 from July, while the University of Michigan July sentiment survey is estimated to be down considerably to 82.7 from 90.4. Consumer sentiment will be closely monitored as a proxy to how well US consumption holds up in light of recent market turmoil and volatility stemming from the subprime crisis.
Germany July Retail Sales y/y (exp 0.5%, prev 1.3%)
At 5:00 AM Eurozone July Unemployment Rate (exp 6.9%, prev 6.9%)
Eurozone August HICP flash y/y (exp 1.8%, prev 1.8%)
Eurozone August Business Climate (exp 1.3, prev 1.35)
Eurozone August Consumer Sentiment (exp –2.0, prev –2.0)
At 8:30 AM US July Personal Income (exp 0.3%, prev 0.4%)
US July Consumption (exp 0.3%, prev 0.1%)
US July core PCE m/m (exp 0.2%, prev 0.1%)
Canada June GDP m/m (exp 0.0%, prev 0.3%)
Canada June GDP q/q
At 9:45 AM US August Chicago PMI (exp 52.8, prev 53.4)
At 10:00 AM US University of Michigan July Survey (exp 82.7, prev 90.4)
US July Durable Goods Orders
The major currencies are little changed in the early Friday session as traders prepare for a barrage of economic releases as well as a key speech from Fed Chairman Bernanke on housing and monetary policy. Many market participants are looking for Bernanke to signal an imminent rate cut in the Fed funds rate at the next policy meeting on September 18th in light of recent tightening credit conditions and its potential fallout on the US economy. However, the recent cut in the discount rate may buy the Fed some time and enable it to closely monitor the inflationary outlook before shifting policy.
The bevy of US economic reports includes July personal income, consumption, personal consumption expenditures, durable goods orders, University of Michigan sentiment survey and the August Chicago PMI. Personal income for July is forecasted to slip to 0.3%, down slightly from a month prior at 0.4% while consumption is expected to improve to 0.3% versus 0.1% from June. The closely eyed core PCE reading, the Fed’s preferred gauge on inflation, is seen creeping up to 0.2% in July, up from 0.1% from June. Chicago PMI is seen slipping to 52.8 versus 53.4 from July, while the University of Michigan July sentiment survey is estimated to be down considerably to 82.7 from 90.4. Consumer sentiment will be closely monitored as a proxy to how well US consumption holds up in light of recent market turmoil and volatility stemming from the subprime crisis.
Thursday, August 30, 2007
Yen Rebounded on Credit Crunch
The yen advanced against high-yielding currencies, recovering after yesterday¡¯s sharp slide, as several bad news related to credit market raised risk aversion.
An Australia hedge fund, Basis Yield Alpha Fund, collapsed today because of US home loan defaults. New Zealand-based Five Star Consumer Finance Ltd. also filed bankruptcy today. Those negative news added to worries over the subprime and credit market. Large amounts of hedge funds suffered huge losses from securities backed by US home loans.
The Australian dollar fell from 95.70 to as low as 93.67 versus the yen. The dollar was trading in high 115 versus the yen during the US trading session today.
An Australia hedge fund, Basis Yield Alpha Fund, collapsed today because of US home loan defaults. New Zealand-based Five Star Consumer Finance Ltd. also filed bankruptcy today. Those negative news added to worries over the subprime and credit market. Large amounts of hedge funds suffered huge losses from securities backed by US home loans.
The Australian dollar fell from 95.70 to as low as 93.67 versus the yen. The dollar was trading in high 115 versus the yen during the US trading session today.
FX Steadies Ahead of Data
At 2:00 AM UK August Nationwide House Prices (exp 0.5%, prev 0.1%)
At 4:00 AM Germany August Unemployment Rate (exp 8.9%, prev 9.0%)
Germany August Unemployment Change (-30.0k, prev –45.0k)
At 4:30 AM UK July Consumer Credit (exp 875 mln stg, prev 874 mln stg)
At 8:30 AM Canada July PPI m/m (exp –0.5%, prev –1.3%)
Canada Q2 Current Account Balance (exp C$8.5 bln, prev C$6.49 bln)
US Weekly Jobless Claims (exp 322.0k, prev 322.0k)
US Q2 GDP preliminary (exp 4.0%, prev 3.4%)
US Q2 PCE (exp 4.3%, prev 4.3%)
US Q2 core PCE (exp 1.4%, prev 1.4%)
Sharp swings in the currency market corresponded with the rebound in US equity bourses, with the yen bearing the brunt of the losses against the majors. The Japanese unit relinquished all of its previous session’s gains to stand unchanged from two trading days prior, hovering around 234 against the sterling and just beneath 159 versus the euro. Although the liquidity injections by global central banks have tempered the panic rampant in markets in recent weeks, the credit markets are still not out of the woods yet and we can expect periods of heightened volatility and risk aversion in the coming weeks.
The session ahead will see several key G7 data releases including UK August nationwide house prices, Germany August jobs report, UK July consumer credit, Canada Q2 current account balance, Canada July PPI, US weekly jobless claims and US Q2 GDP. The preliminary reading for second quarter growth in the US is expected to rise to 4.0%, versus 3.4% from the previous quarter, pointing towards robust economic activity that could sway the Fed to stand pat at its September meeting. Also to be closely watched will be the Q2 PCE, with the headline seen remaining unchanged at 4.3% and the core PCE reading steady at 1.4%.
At 4:00 AM Germany August Unemployment Rate (exp 8.9%, prev 9.0%)
Germany August Unemployment Change (-30.0k, prev –45.0k)
At 4:30 AM UK July Consumer Credit (exp 875 mln stg, prev 874 mln stg)
At 8:30 AM Canada July PPI m/m (exp –0.5%, prev –1.3%)
Canada Q2 Current Account Balance (exp C$8.5 bln, prev C$6.49 bln)
US Weekly Jobless Claims (exp 322.0k, prev 322.0k)
US Q2 GDP preliminary (exp 4.0%, prev 3.4%)
US Q2 PCE (exp 4.3%, prev 4.3%)
US Q2 core PCE (exp 1.4%, prev 1.4%)
Sharp swings in the currency market corresponded with the rebound in US equity bourses, with the yen bearing the brunt of the losses against the majors. The Japanese unit relinquished all of its previous session’s gains to stand unchanged from two trading days prior, hovering around 234 against the sterling and just beneath 159 versus the euro. Although the liquidity injections by global central banks have tempered the panic rampant in markets in recent weeks, the credit markets are still not out of the woods yet and we can expect periods of heightened volatility and risk aversion in the coming weeks.
The session ahead will see several key G7 data releases including UK August nationwide house prices, Germany August jobs report, UK July consumer credit, Canada Q2 current account balance, Canada July PPI, US weekly jobless claims and US Q2 GDP. The preliminary reading for second quarter growth in the US is expected to rise to 4.0%, versus 3.4% from the previous quarter, pointing towards robust economic activity that could sway the Fed to stand pat at its September meeting. Also to be closely watched will be the Q2 PCE, with the headline seen remaining unchanged at 4.3% and the core PCE reading steady at 1.4%.
Yen Pared Gains on US Equities Surge
The yen pared its earlier gains against high-yielding currencies as risks aversions calmed down when US stock market rallied today.
US stocks rebounded sharply on Wednesday with the S&P 500 and Nasdaq up more than 2%. As a result, the yen slid broadly as investors resume carry trades. Also, the dollar lost its lust as a safe-haven when risk aversion declined. The dollar rose from below 114 to test the 116 handle versus the yen, while the sterling rallied sharply from low 227 to as high as 234.10.
Besides, carry trades in which the yen is borrowed as a funding currency are not likely to disappear as the Bank of Japan is widely expected to keep its interest rates unchanged at current low level in the medium term.
US stocks rebounded sharply on Wednesday with the S&P 500 and Nasdaq up more than 2%. As a result, the yen slid broadly as investors resume carry trades. Also, the dollar lost its lust as a safe-haven when risk aversion declined. The dollar rose from below 114 to test the 116 handle versus the yen, while the sterling rallied sharply from low 227 to as high as 234.10.
Besides, carry trades in which the yen is borrowed as a funding currency are not likely to disappear as the Bank of Japan is widely expected to keep its interest rates unchanged at current low level in the medium term.
Yen Rose on Subprime Concern
The yen today rallied against high-yielding currencies as several bad news raised concern over the US economy, prompting investors to trim carry trades.
Weakening US housing market keeps investors nervous about investment in risky assets. A US report today showed inventory of unsold pre-owned US homes reached a 16-year peak in July. Also US home prices in the second quarter experienced the biggest decline in more than 20 years.
Barclays PLC denied a report in the Financial Times that it had hundreds of millions of dollars of exposure to failed debt funds.
Weakening US housing market keeps investors nervous about investment in risky assets. A US report today showed inventory of unsold pre-owned US homes reached a 16-year peak in July. Also US home prices in the second quarter experienced the biggest decline in more than 20 years.
Barclays PLC denied a report in the Financial Times that it had hundreds of millions of dollars of exposure to failed debt funds.
Tuesday, August 28, 2007
JPY Firms
At 4:00 AM Eurozone July M3 Money Supply (exp 11.0%, prev 10.9%)
Germany August Ifo Expectations (exp 100.3, prev 101.8)
Germany August Ifo Current Conditions (exp 110.7, prev 111.3)
Germany August Ifo Index (exp 105.4, prev 106.4)
At 10:00 AM US August Consumer Confidence (exp 104.0, prev 112.6)
The week kicked off to a slow start with the major currency pairs largely confined to ranges in the New York session as traders await several key G7 economic reports. The main focus however, will be Fed Chairman Bernanke’s speech at the annual economic symposium in Jackson Hole, Wyoming.
Bernanke’s speech, which is expected to discuss housing and monetary policy, will be closely scrutinized for the Chairman’s assessment of the current housing market slump, tightening liquidity conditions, and the prospect for a cut in the Federal funds rate at the September 18th meeting. With recent data revealing an accelerated decline in the housing market, particularly with the inventory of unsold homes climbing to its highest level in 15-years, it will be interesting to see if Bernanke acknowledges the slowdown in the economy as a result of housing to be a greater risk than inflationary pressure.
Germany August Ifo Expectations (exp 100.3, prev 101.8)
Germany August Ifo Current Conditions (exp 110.7, prev 111.3)
Germany August Ifo Index (exp 105.4, prev 106.4)
At 10:00 AM US August Consumer Confidence (exp 104.0, prev 112.6)
The week kicked off to a slow start with the major currency pairs largely confined to ranges in the New York session as traders await several key G7 economic reports. The main focus however, will be Fed Chairman Bernanke’s speech at the annual economic symposium in Jackson Hole, Wyoming.
Bernanke’s speech, which is expected to discuss housing and monetary policy, will be closely scrutinized for the Chairman’s assessment of the current housing market slump, tightening liquidity conditions, and the prospect for a cut in the Federal funds rate at the September 18th meeting. With recent data revealing an accelerated decline in the housing market, particularly with the inventory of unsold homes climbing to its highest level in 15-years, it will be interesting to see if Bernanke acknowledges the slowdown in the economy as a result of housing to be a greater risk than inflationary pressure.
FX Quiet, Carry Trades Pick Up Slowly
Major currency pairs were trading quietly on Monday as UK financial market was closed for summer bank holiday.
The dollar remained weak against the euro and sterling after a weaker-than-expected US housing report, adding to the worries over the nation’s housing sector. The existing home sales declined 0.2% to an annual rate of 5.75 million units in July, the slowest pace in two years.
The euro drifted in a narrow range between 1.3640 and 1.3680 versus the dollar, while the sterling approached 2.02 against the dollar.
The dollar remained weak against the euro and sterling after a weaker-than-expected US housing report, adding to the worries over the nation’s housing sector. The existing home sales declined 0.2% to an annual rate of 5.75 million units in July, the slowest pace in two years.
The euro drifted in a narrow range between 1.3640 and 1.3680 versus the dollar, while the sterling approached 2.02 against the dollar.
Sunday, August 26, 2007
Dollar and Yen Sold off as Financial Markets Stabilized
Both the greenback and yen retreated sharply lower last week as global financial markets stabilized from the fear of credit crunch and rebounded strongly. One of the most interesting development was indeed Friday's much better than expected new home sales data from the US which suggested some stabilization in the housing markets and that the subprime problem might not be as bad as what people thought. Stock markets surged higher, prompting investors to switch their positions from low yield currencies and back to riskier assets, i.e. back to carry trades. And the net result was, higher yield currencies surged further on due to strong rebound in respective yen crosses and such strength sent them higher against the greenback too. In other words, this time, the dollar weakened because of strength in US data! The coming week will start with another piece of housing data, the Existing Home Sales from US and it will be interested to see if the pattern repeats.
On the technical side, EUR/USD's break of 1.3642 resistance indicates that the fall from 1.3851 was indeed corrective in nature. That is, price actions from there is merely a correction, or part of a consolidation to the larger up trend. More importantly, this serves as an early alert that dollar's rebound in the past few weeks could indeed be corrective in nature too and further short term weakness could be seen in the greenback against European majors as well as commodity currencies.
Economic calendar in the US was light last week. Main feature was Durable Goods Orders and New Home Sales on Friday and both blew away expectations completely. US durable goods orders rose a much larger than expected 5.9% in July. Orders for June were revised up to 1.9%. Ex-transport orders rose 3.7%, also much higher than expectation of 0.6%. However, the data was for the month just before the turmoil in the financial markets. Whether such strong trend will continue to the rest of Q3 remains to be seen. New home sales rose 2.8% in Jul, reaching 870k annualized units. Meanwhile, Jun's data was also revised upward to 846k. Even though it shows some sign of stabilizing in the housing market, given tightness in the credit markets, further improvement is still uncertain.
Fed continued to inject funds into US money markets after prior Friday's surprise discount rate cuts. There were increased speculation that Fed will cut the Fund Rate in the upcoming Sep 18 meeting. Following a closed door meeting with Fed Bernanke and Treasury Paulson, Senate banking committee chairman Dodd, said that Fed would use all tools that were available to calm markets. However, there was no obvious hints of a rate cut in the near future.
ECB decided to "conduct a supplementary liquidity- providing longer-term refinancing operation" and said it would lend 40b Euros to banks for three months to support normalization of money markets. Regarding monetary policy, however, the statement said that the "the position of the governing council of the ECB on its monetary policy stance was expressed by its president". In other words, that's an indication that ECB will hike in Sep as Trichet has indicated in last meeting using the magical word "vigilance".
Germany's ZEW indicator for economic sentiment plummeted into negative region of -6.9 in Aug, even much worse than expectation of -1.0. Both Manufacturing and Services PMI in Eurozone eased a bit in Aug but remained firmly above 50. Jul Current account, on the other hand, posted an upside surprise by turning into 5.9b surplus instead of expected -2.0B deficit.
The BoJ left rates unchanged at 0.50% as widely expected. The decision was made by a 8-1 vote with Mizuno as the sole dissenter voting for a hike. In the monthly report, economic assessment was left unchanged. BoJ noted that Japan is showing moderate growth and expect core CPI to continue to rise and move back into positive region. However, BoJ also noted that public investment is sluggish and private demand was flat. Also, BoJ noted recent market turbulence and the effect on stock markets, interest rates as well as the yen. BoJ Governor Fukui also warned that "Distortions and the misallocation of resources could occur if interest rates are kept at levels inconsistent with the economy."
Canadian CPI inflation was basically inline with expectation with headline CPI staying at 2.2% yoy and core CPI moderated to 2.3%. Meanwhile, retail sales disappointed by dropping more than expected by -0.9% in Jun with ex-auto sales dropped by 0.3%. The data suggest that BoC is in no urgency to raise rates again in Sep and will likely to be on hold first, depending on the development in global financial markets.
On the technical side, EUR/USD's break of 1.3642 resistance indicates that the fall from 1.3851 was indeed corrective in nature. That is, price actions from there is merely a correction, or part of a consolidation to the larger up trend. More importantly, this serves as an early alert that dollar's rebound in the past few weeks could indeed be corrective in nature too and further short term weakness could be seen in the greenback against European majors as well as commodity currencies.
Economic calendar in the US was light last week. Main feature was Durable Goods Orders and New Home Sales on Friday and both blew away expectations completely. US durable goods orders rose a much larger than expected 5.9% in July. Orders for June were revised up to 1.9%. Ex-transport orders rose 3.7%, also much higher than expectation of 0.6%. However, the data was for the month just before the turmoil in the financial markets. Whether such strong trend will continue to the rest of Q3 remains to be seen. New home sales rose 2.8% in Jul, reaching 870k annualized units. Meanwhile, Jun's data was also revised upward to 846k. Even though it shows some sign of stabilizing in the housing market, given tightness in the credit markets, further improvement is still uncertain.
Fed continued to inject funds into US money markets after prior Friday's surprise discount rate cuts. There were increased speculation that Fed will cut the Fund Rate in the upcoming Sep 18 meeting. Following a closed door meeting with Fed Bernanke and Treasury Paulson, Senate banking committee chairman Dodd, said that Fed would use all tools that were available to calm markets. However, there was no obvious hints of a rate cut in the near future.
ECB decided to "conduct a supplementary liquidity- providing longer-term refinancing operation" and said it would lend 40b Euros to banks for three months to support normalization of money markets. Regarding monetary policy, however, the statement said that the "the position of the governing council of the ECB on its monetary policy stance was expressed by its president". In other words, that's an indication that ECB will hike in Sep as Trichet has indicated in last meeting using the magical word "vigilance".
Germany's ZEW indicator for economic sentiment plummeted into negative region of -6.9 in Aug, even much worse than expectation of -1.0. Both Manufacturing and Services PMI in Eurozone eased a bit in Aug but remained firmly above 50. Jul Current account, on the other hand, posted an upside surprise by turning into 5.9b surplus instead of expected -2.0B deficit.
The BoJ left rates unchanged at 0.50% as widely expected. The decision was made by a 8-1 vote with Mizuno as the sole dissenter voting for a hike. In the monthly report, economic assessment was left unchanged. BoJ noted that Japan is showing moderate growth and expect core CPI to continue to rise and move back into positive region. However, BoJ also noted that public investment is sluggish and private demand was flat. Also, BoJ noted recent market turbulence and the effect on stock markets, interest rates as well as the yen. BoJ Governor Fukui also warned that "Distortions and the misallocation of resources could occur if interest rates are kept at levels inconsistent with the economy."
Canadian CPI inflation was basically inline with expectation with headline CPI staying at 2.2% yoy and core CPI moderated to 2.3%. Meanwhile, retail sales disappointed by dropping more than expected by -0.9% in Jun with ex-auto sales dropped by 0.3%. The data suggest that BoC is in no urgency to raise rates again in Sep and will likely to be on hold first, depending on the development in global financial markets.
Saturday, August 25, 2007
Dollar Drops As Carry Trades Resume
The dollar continued to weaken against the euro and sterling on expectations that the Fed may cut its benchmark rates by at least 25 basis points on September meeting. The euro hovers above the 1.36 level and approached 1.3680 versus the dollar, while the sterling climbed to as high as 2.0140 against the dollar.
Two stronger-than-expected US economic reports had little impact on the market. Durable goods orders rose 5.9% in July, well above the estimate of 1.0% and a previous reading of 1.3%. US new home sales unexpectedly rose from 834k to 870k, beating the forecast of 820k.
However, a single report did little to the market perception of the nation’s housing market. The CEO of Countrywide, America’s biggest home loan lender, said yesterday that weak housing sector may lead to economic recession.
Two stronger-than-expected US economic reports had little impact on the market. Durable goods orders rose 5.9% in July, well above the estimate of 1.0% and a previous reading of 1.3%. US new home sales unexpectedly rose from 834k to 870k, beating the forecast of 820k.
However, a single report did little to the market perception of the nation’s housing market. The CEO of Countrywide, America’s biggest home loan lender, said yesterday that weak housing sector may lead to economic recession.
Yen Slumped after BOJ Left Rates Unchanged
The yen slumped after the Bank of Japan held its interest rates unchanged as expected at current low level of 0.5%. The dollar rallied to break resistance at 117 versus the yen, while the sterling approached 235 against the yen from below 230.
The post-meeting statement from the Bank of Japan showed an unchanged assessment of the economy, saying that the economic growth would expand moderately. The hawkish comments helped to alleviate the nervousness of recent global financial market turmoil.
Besides, the European Central Bank injected 40 billion euros to the banking system via a three-month money market operation to ease worries over credit market.
The post-meeting statement from the Bank of Japan showed an unchanged assessment of the economy, saying that the economic growth would expand moderately. The hawkish comments helped to alleviate the nervousness of recent global financial market turmoil.
Besides, the European Central Bank injected 40 billion euros to the banking system via a three-month money market operation to ease worries over credit market.
Thursday, August 23, 2007
Yen Falls Sharply, Awaits BoJ
At 2:00 AM Germany Q2 GDP q/q (exp 0.3%, prev 0.3%)
Germany Q2 GDP y/y (exp 2.5%, prev 2.5%)
BoJ August Report
At 8:30 AM US Weekly Jobless Claims (exp 320k, prev 322k)
The yen came under pressure across the board as global equities rebounded, with Tokyo’s Nikkei average opening 2% higher at the start of trading. The recent liquidity injections from global central banks have, for the time being, quelled market fears and stabilized financial volatility. While it may be premature to determine whether traders are jumping back into the carry trades, it is apparent that some of the heightened risk aversion may be starting to subside. The yen traded near 116 against the dollar and 231.56 versus the sterling.
The dollar slipped against the euro and pound, falling to 1.3557 and 1.9964, respectively. We anticipate range trading from the greenback as traders discern the impact of the subprime crisis on the economy as a whole and determine when the FOMC will ease its federal funds rate. We do not expect a rate cut from the Fed in September; instead we look for a 25-bp cut by October.
Germany Q2 GDP y/y (exp 2.5%, prev 2.5%)
BoJ August Report
At 8:30 AM US Weekly Jobless Claims (exp 320k, prev 322k)
The yen came under pressure across the board as global equities rebounded, with Tokyo’s Nikkei average opening 2% higher at the start of trading. The recent liquidity injections from global central banks have, for the time being, quelled market fears and stabilized financial volatility. While it may be premature to determine whether traders are jumping back into the carry trades, it is apparent that some of the heightened risk aversion may be starting to subside. The yen traded near 116 against the dollar and 231.56 versus the sterling.
The dollar slipped against the euro and pound, falling to 1.3557 and 1.9964, respectively. We anticipate range trading from the greenback as traders discern the impact of the subprime crisis on the economy as a whole and determine when the FOMC will ease its federal funds rate. We do not expect a rate cut from the Fed in September; instead we look for a 25-bp cut by October.
Yen Fell as Risk Appetite Returns
The yen fell broadly as global financial market calmed down and investors resumed risk appetite. As carry trade positions are rebuild, the yen weakened against high-yielding currencies. The dollar climbed from 114 to test 115.50 versus the yen. The sterling rallied sharply to near 230 against the yen, while the euro approached the 156 level.
The Bank of Japan is widely expected to hold its interest rates unchanged at current low level of 0.5% on its policy meeting this week. This will raise investors’ interests in carry trades.
The European Central Bank planned to inject 40 billion euros to the banking system to facilitate liquidity needs, easing worries over credit market.
The Bank of Japan is widely expected to hold its interest rates unchanged at current low level of 0.5% on its policy meeting this week. This will raise investors’ interests in carry trades.
The European Central Bank planned to inject 40 billion euros to the banking system to facilitate liquidity needs, easing worries over credit market.
Choppy Trading Lingers in FX
At 4:00 AM Eurozone June Current Account Balance (exp –2.0 bln euros, prev –8.6 bln euros)
At 5:00A M Eurozone June Industrial Orders m/m (exp 2.0%, prev 1.7%)
Eurozone June Industrial Orders y/y (exp 12.4%, prev 9.1%)
Markets remain on edge amid continued uncertainty stemming from burgeoning fears of a global credit crunch -- leaving traders to ponder the outlook for the US economy. Early in the Tokyo session, the sterling came under pressure against the dollar and yen as rumors of a UK insurer holding substantial subprime positions began circulating the trading desks, pushing the pound to 153.40 versus the yen and toward the 1.98-level against the greenback. We expect further volatility in the coming months as a result of possibly more revelations of subprime holdings deteriorating balance sheets, requiring either substantial write-offs or even bailouts.
Senate Banking Committee Chairman Dodd met with Fed Chairman Bernanke and Treasury Secretary Paulson, saying that Bernanke vowed to use “all tools available” to stabilize volatility in the financial markets. Paulson expressed that he has the utmost confidence in how Bernanke is handling the current credit crunch. Nevertheless, Dodd stressed that the Fed was an independent agency and should not be pressured into cutting rates.
At 5:00A M Eurozone June Industrial Orders m/m (exp 2.0%, prev 1.7%)
Eurozone June Industrial Orders y/y (exp 12.4%, prev 9.1%)
Markets remain on edge amid continued uncertainty stemming from burgeoning fears of a global credit crunch -- leaving traders to ponder the outlook for the US economy. Early in the Tokyo session, the sterling came under pressure against the dollar and yen as rumors of a UK insurer holding substantial subprime positions began circulating the trading desks, pushing the pound to 153.40 versus the yen and toward the 1.98-level against the greenback. We expect further volatility in the coming months as a result of possibly more revelations of subprime holdings deteriorating balance sheets, requiring either substantial write-offs or even bailouts.
Senate Banking Committee Chairman Dodd met with Fed Chairman Bernanke and Treasury Secretary Paulson, saying that Bernanke vowed to use “all tools available” to stabilize volatility in the financial markets. Paulson expressed that he has the utmost confidence in how Bernanke is handling the current credit crunch. Nevertheless, Dodd stressed that the Fed was an independent agency and should not be pressured into cutting rates.
Tuesday, August 21, 2007
Yen Pared Gains as US Equities Rebounded
The yen pared its gains from last week as US equities rebounded, encouraging investors to resume carry trades.
The Federal Reserve surprisingly lowered its window rates to 5.75% last Friday, raising speculations that the Fed may cut interest rates this year. US interest rate futures pricing indicated traders see a 60 percent chance that the Fed will cut interest rates by 50 basis points to 4.75% on September 18 meeting. The Fed¡¯s action calmed nervous investors down and boosted US stock market.
The yen weakened against high-yielding currencies today as carry trade positions were rebuilt. The euro climbed from above 153 to test the 156 level against the yen, while the sterling strengthened from 225 to as high as 229.58 versus the yen. The dollar also gained nearly 200 pips to 115.50.
The Federal Reserve surprisingly lowered its window rates to 5.75% last Friday, raising speculations that the Fed may cut interest rates this year. US interest rate futures pricing indicated traders see a 60 percent chance that the Fed will cut interest rates by 50 basis points to 4.75% on September 18 meeting. The Fed¡¯s action calmed nervous investors down and boosted US stock market.
The yen weakened against high-yielding currencies today as carry trade positions were rebuilt. The euro climbed from above 153 to test the 156 level against the yen, while the sterling strengthened from 225 to as high as 229.58 versus the yen. The dollar also gained nearly 200 pips to 115.50.
Yen Choppiness Resumes
At 4:30 AM UK July PS net borrowing (exp –6.1 bln sterling, prev 7.443 bln sterling)
UK July PSNCR m/m (exp –11.0 bln sterling, prev 10.339 bln sterling)
At 10:00 AM US July Leading Indicators (exp 0.4%, prev –0.3%)
The foreign exchange market remained volatile in early Tokyo trading, with the yen pairs leading the movement amid lingering risk aversion. Although last week’s 50-basis point cut in the Fed’s discount rate tempered growing fears of a credit crunch and its impact on the economy, traders will remain cautious as it remains uncertain whether the FOMC will cut the Fed fund rate next month. The major currencies rebounded against the yen on Friday and continue to hover around those ranges, with dollar/yen near 114.20 and euro/dollar steady just beneath the 1.35-level.
The week ahead is light on key economic data, but some highlights include the Bank of Japan’s monetary policy decision, Japan’s trade balance, Germany’s ZEW survey, Germany’s GDP, UK GDP and US durable goods orders. However, the currency market will likely take its cues from the credit and equity markets.
UK July PSNCR m/m (exp –11.0 bln sterling, prev 10.339 bln sterling)
At 10:00 AM US July Leading Indicators (exp 0.4%, prev –0.3%)
The foreign exchange market remained volatile in early Tokyo trading, with the yen pairs leading the movement amid lingering risk aversion. Although last week’s 50-basis point cut in the Fed’s discount rate tempered growing fears of a credit crunch and its impact on the economy, traders will remain cautious as it remains uncertain whether the FOMC will cut the Fed fund rate next month. The major currencies rebounded against the yen on Friday and continue to hover around those ranges, with dollar/yen near 114.20 and euro/dollar steady just beneath the 1.35-level.
The week ahead is light on key economic data, but some highlights include the Bank of Japan’s monetary policy decision, Japan’s trade balance, Germany’s ZEW survey, Germany’s GDP, UK GDP and US durable goods orders. However, the currency market will likely take its cues from the credit and equity markets.
Sunday, August 19, 2007
Markets to Consolidate This Week after Fed's Discount Rate Cut
Fed's 50 bps discount rate cut on Friday stabilized the markets which was in massive carry trade unwinding as the subprime mortgage crisis spread through global credit markets. But still, the ultimate carry trade pair, NZDJPY tumbled near to 10% while AUD/JPY also dropped close to 9%. High yielding currencies and European majors except the Swissy, were hammered much lower too before late Friday's recovery. Important technical levels were taken out in most pairs that signaled at least a medium term reversal. However, as a short term top/bottom should be in place after Fed stepped in, and with a rather light calendar, more consolidation could be seen this week before extending the reversed trend.
The greenback did ride on carry trade unwinding and surged against most currencies except the yen on flight-to-safety flows. Fed's unexpected discount rate cut from 6.25% to 5.75% has stabilized the financial markets and triggered some retreat in the greenback too. To be clear, the discount rate is the rate that the Fed charges to lend money directly to banks and other lending institutions. Meanwhile, the commonly talked about Fed Funds Rate is that the rate that banks ay to borrow from the marketplace. In addition to lower the rates, the Fed also allow terms of financing to extend to 30 days. Most importantly, in the statement, the Fed acknowledged that "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward". Downside risks to growth have "increased appreciably". Altogether, even though the act did stabilized the markets and suggest that Fed is openings door to turning bias to neutral and even pathing the way to a Fed Fund rate cut, it is taken as a confirmation of the acknowledgement of the seriousness of the subprime problem. In other words, more bad news could still come in the near future and markets will continue to be vulnerable to them. The discount rate cut, and even a Fed Fund rate cut could halt the current liquidation of riskier assets but the trend will likely continue.
One thing to note is that the Swiss Franc is relatively less affected by the massive carry trade unwinding due to its low yield status. Even though it ended lower against the dollar, the Swissy did rose against both Euro and Sterling. The late buying in Swissy is perhaps an indication that more carry trade unwinding with Swissy is around the corner.
Economic data played a secondary role last week. Though, housing data from the US did showed further deterioration in the housing markets. Housing starts in US dropped much fore than expected to an annual rate of 1.381m in Jul, from 1.47m. Building permits also dropped to a 10 year low of 1.373m. From the data, in addition to NAHB Housing Market Index which fell to a 20+ record low, there is no signal of bottoming of the housing market yet. Consumer inflation data from US were inline with expectation with headline CPI moderated to 2.4% yoy, core CPI staying at 2.2%. PPI was mixed with headline number accelerated to 4.0% while core PPI moderated to 2.3%.
However, Trade deficit surprised the market by dropping to -$58.1b. Capital flow remained near to record at and dropped slightly to 120.9b only, partly reflecting flight-to-safety flows. Retail sales rebounded by rising 0.3% mom with ex-autos rising 0.4%. Regional Fed survey were mixed with NY state index at 25.1 while Philly Fed index dropped to 0.
Data from Eurozone saw Q2 GDP rose 0.3% qoq, 2.5% yoy, down from prior 0.7%, 3.1%. Jul HICP confirmed to be -0.2% mom, 1.8% yoy. There were speculations that with below target inflation and risk of subprime problems' spread over to Europe, ECB could call off it's expected Sept rate hike.
In addition to carry trade unwinding, Sterling was also hammered after UK CPI eased to 1.9% in July, down from 2.4% June, and being lowest in 15 months. Most importantly, the inflation rate was below BoE's target rate of 2.0%. The quarterly inflation report released earlier this month forecasted another hike to 6% is needed to bring inflation back to 2%. However, this week's CPI report is putting much doubt to this forecasts. Also, BoE Minutes revealed MPC elected to hold its benchmark interest rate at 5.75% in August unanimously by 9-0 vote, inline with consensus. One of the main focus in the minutes was indeed that that most members had 'no firm view' on the need for further rate hike. From the employment report, unemployment held steady at 5.4% for the second month in a row in June. However, earnings growth continues to report a slowdown and moderated from 3.5% to 3.3%. Markets were paring bets on another hike in near term.
Japan's Q2 GDP rose 0.1% Q/Q only with annualized rate at 0.5%. GDP deflator remains weak and dropped -0.3% yoy. There is also speculation that BoJ will further delay another rate hike due to current turmoil in the financial markets.
Commodity currencies remains under tremendous pressure last week. In addition, Kiwi will further sold off after June retail sales dropped unexpectedly dropped -0.4%.
The greenback did ride on carry trade unwinding and surged against most currencies except the yen on flight-to-safety flows. Fed's unexpected discount rate cut from 6.25% to 5.75% has stabilized the financial markets and triggered some retreat in the greenback too. To be clear, the discount rate is the rate that the Fed charges to lend money directly to banks and other lending institutions. Meanwhile, the commonly talked about Fed Funds Rate is that the rate that banks ay to borrow from the marketplace. In addition to lower the rates, the Fed also allow terms of financing to extend to 30 days. Most importantly, in the statement, the Fed acknowledged that "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward". Downside risks to growth have "increased appreciably". Altogether, even though the act did stabilized the markets and suggest that Fed is openings door to turning bias to neutral and even pathing the way to a Fed Fund rate cut, it is taken as a confirmation of the acknowledgement of the seriousness of the subprime problem. In other words, more bad news could still come in the near future and markets will continue to be vulnerable to them. The discount rate cut, and even a Fed Fund rate cut could halt the current liquidation of riskier assets but the trend will likely continue.
One thing to note is that the Swiss Franc is relatively less affected by the massive carry trade unwinding due to its low yield status. Even though it ended lower against the dollar, the Swissy did rose against both Euro and Sterling. The late buying in Swissy is perhaps an indication that more carry trade unwinding with Swissy is around the corner.
Economic data played a secondary role last week. Though, housing data from the US did showed further deterioration in the housing markets. Housing starts in US dropped much fore than expected to an annual rate of 1.381m in Jul, from 1.47m. Building permits also dropped to a 10 year low of 1.373m. From the data, in addition to NAHB Housing Market Index which fell to a 20+ record low, there is no signal of bottoming of the housing market yet. Consumer inflation data from US were inline with expectation with headline CPI moderated to 2.4% yoy, core CPI staying at 2.2%. PPI was mixed with headline number accelerated to 4.0% while core PPI moderated to 2.3%.
However, Trade deficit surprised the market by dropping to -$58.1b. Capital flow remained near to record at and dropped slightly to 120.9b only, partly reflecting flight-to-safety flows. Retail sales rebounded by rising 0.3% mom with ex-autos rising 0.4%. Regional Fed survey were mixed with NY state index at 25.1 while Philly Fed index dropped to 0.
Data from Eurozone saw Q2 GDP rose 0.3% qoq, 2.5% yoy, down from prior 0.7%, 3.1%. Jul HICP confirmed to be -0.2% mom, 1.8% yoy. There were speculations that with below target inflation and risk of subprime problems' spread over to Europe, ECB could call off it's expected Sept rate hike.
In addition to carry trade unwinding, Sterling was also hammered after UK CPI eased to 1.9% in July, down from 2.4% June, and being lowest in 15 months. Most importantly, the inflation rate was below BoE's target rate of 2.0%. The quarterly inflation report released earlier this month forecasted another hike to 6% is needed to bring inflation back to 2%. However, this week's CPI report is putting much doubt to this forecasts. Also, BoE Minutes revealed MPC elected to hold its benchmark interest rate at 5.75% in August unanimously by 9-0 vote, inline with consensus. One of the main focus in the minutes was indeed that that most members had 'no firm view' on the need for further rate hike. From the employment report, unemployment held steady at 5.4% for the second month in a row in June. However, earnings growth continues to report a slowdown and moderated from 3.5% to 3.3%. Markets were paring bets on another hike in near term.
Japan's Q2 GDP rose 0.1% Q/Q only with annualized rate at 0.5%. GDP deflator remains weak and dropped -0.3% yoy. There is also speculation that BoJ will further delay another rate hike due to current turmoil in the financial markets.
Commodity currencies remains under tremendous pressure last week. In addition, Kiwi will further sold off after June retail sales dropped unexpectedly dropped -0.4%.
Saturday, August 18, 2007
Dollar Fell after Fed Cut Discount Rate
The dollar fell after the Federal Reserve cut the discount rate by 50 percent to 5.75 percent and said that downside risks are on the rise. The euro rose as high as 1.3550 versus the dollar, while the sterling pared its earlier loss and climbed back to above 1.98 level against the dollar.
The Fed said in the statement that it is ¡°prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.¡± The dollar rallied after the Fed cut window rates to increase liquidity in the market. The Dow Jones Industrial Average opened 300 points higher under the stimulus of the Fed¡¯s action.
Stocks pared half of its earlier gains as investors took a cautious stance and took profits before a US consumer sentiment report. The University of Michigan consumer sentiment fell from 90.4 in 83.3 in August, below the estimate of 88. The dollar edged down slightly after the below-the-expectation data.
The Fed said in the statement that it is ¡°prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.¡± The dollar rallied after the Fed cut window rates to increase liquidity in the market. The Dow Jones Industrial Average opened 300 points higher under the stimulus of the Fed¡¯s action.
Stocks pared half of its earlier gains as investors took a cautious stance and took profits before a US consumer sentiment report. The University of Michigan consumer sentiment fell from 90.4 in 83.3 in August, below the estimate of 88. The dollar edged down slightly after the below-the-expectation data.
Friday, August 17, 2007
Yen Soars Most in 9 Years
The yen had its biggest one-day gain against the dollar since 1998 as investors rushed out of carry trades amid credit market panic.
Global stocks tumbled today on fears of a funding crisis. The Dow Jones Industrial Averages were down more than 340 points in intraday trading, but rebounded at closing with a loss of just 13. The Fed injected 517 billion to banking system to ease liquidity needs. Short yen carry trades positions were unwounded as investors avoid risky investment in today¡¯s financial market turmoil.
As a result, high-yielding currencies, such as the Australian dollar, New Zealand dollar, and sterling, suffered steep losses. The Australian dollar fell from 0.82 to near 0.78 in intraday trading, the biggest drop in 21 years.
Global stocks tumbled today on fears of a funding crisis. The Dow Jones Industrial Averages were down more than 340 points in intraday trading, but rebounded at closing with a loss of just 13. The Fed injected 517 billion to banking system to ease liquidity needs. Short yen carry trades positions were unwounded as investors avoid risky investment in today¡¯s financial market turmoil.
As a result, high-yielding currencies, such as the Australian dollar, New Zealand dollar, and sterling, suffered steep losses. The Australian dollar fell from 0.82 to near 0.78 in intraday trading, the biggest drop in 21 years.
Volatility Props USD, JPY
At 2:00 AM Germany July HICP m/m (exp 0.5%, prev 0.1%)
Germany July HICP y/y (exp 2.0%, prev 2.0%)
Germany July CPI m/m (exp 0.4%, prev 0.1%)
Germany July CPI y/y (exp 1.9%, prev 1.8%)
At 4:30 AM UK July Retail Sales m/m (exp 0.2%, prev 0.2%)
UK July Retail Sales y/y (exp 3.4%, prev 3.4%)
At 5:00 AM Eurozone July HICP m/m (exp –0.2%, prev 0.1%)
Eurozone July HICP y/y (exp 1.8%, prev 1.9%)
At 8:30 AM US Weekly Jobless Claims (exp 313.0k, prev 316.0k)
US July Housing Starts (exp 1.405 mln units, prev 1.467 mln units)
US July Building Permits (exp 1.40 mln units, prev 1.413 mln units)
At 12:00 PMAugust Philadelphia Fed Survey (exp 9.0, prev 9.2)
With heightened risk aversion driving markets, the dollar and yen continue to benefit, while the British pound and euro remain laggards. US equities took another hit with the Dow losing over 167-pts on Wednesday as burgeoning fears of spillover from the subprime debacle linger. The increased cautiousness will likely prop the yen higher across the board as heavy unwinding of the carry trades persist.
US data due out today include weekly jobless claims, July housing starts, July building permits and the August Philadelphia Fed survey. Weekly jobless claims are seen slipping slightly to 313k, down from the previous week at 316k. Housing starts and building permits are both forecasted to reflect continued deterioration in the housing market, falling to 1.405 mln units and 1.40 mln units, respectively. Lastly, the August Philadelphia Fed survey is expected to slip to 9.0, down from 9.2 in July.
Germany July HICP y/y (exp 2.0%, prev 2.0%)
Germany July CPI m/m (exp 0.4%, prev 0.1%)
Germany July CPI y/y (exp 1.9%, prev 1.8%)
At 4:30 AM UK July Retail Sales m/m (exp 0.2%, prev 0.2%)
UK July Retail Sales y/y (exp 3.4%, prev 3.4%)
At 5:00 AM Eurozone July HICP m/m (exp –0.2%, prev 0.1%)
Eurozone July HICP y/y (exp 1.8%, prev 1.9%)
At 8:30 AM US Weekly Jobless Claims (exp 313.0k, prev 316.0k)
US July Housing Starts (exp 1.405 mln units, prev 1.467 mln units)
US July Building Permits (exp 1.40 mln units, prev 1.413 mln units)
At 12:00 PMAugust Philadelphia Fed Survey (exp 9.0, prev 9.2)
With heightened risk aversion driving markets, the dollar and yen continue to benefit, while the British pound and euro remain laggards. US equities took another hit with the Dow losing over 167-pts on Wednesday as burgeoning fears of spillover from the subprime debacle linger. The increased cautiousness will likely prop the yen higher across the board as heavy unwinding of the carry trades persist.
US data due out today include weekly jobless claims, July housing starts, July building permits and the August Philadelphia Fed survey. Weekly jobless claims are seen slipping slightly to 313k, down from the previous week at 316k. Housing starts and building permits are both forecasted to reflect continued deterioration in the housing market, falling to 1.405 mln units and 1.40 mln units, respectively. Lastly, the August Philadelphia Fed survey is expected to slip to 9.0, down from 9.2 in July.
Greenback Rose on Heightened Risk Aversion
The unwinding of carry trades continues to dominate the foreign exchange market. The greenback strengthened as investment capitals flow back to safe haven amid the heightened risk aversion. The euro fell another 100 pips today to as low as 1.3450 versus the dollar.
The market shrugged off economic data as all the eyes were on risk aversion. US CPI rose 0.1% in July, leading to a year-on-year rate down from 2.7% to 2.4% as expected. Excluding food and energy, core CPI rose 0.2% as expected. New York Fed manufacturing survey fell slightly from 26.46 to 25.06 in August, above the estimate of 18.5. US Treasury reported net foreign purchases of long-term securities for June were 120.9 billion, double the forecast of 65 billion. US industrial production increased 0.6% in July, beating the estimate of 0.3% and a reading of 0.5% in the earlier month. US capacity utilization was barely changed at 81.9% in July. The National Association of Home Builders/Wells Fargo sentiment index declined from 24 to 22 in August, the lowest since September 2001.
EURUSD will face interim resistance at 1.3480, followed by 1.35 and 1.3530. Additional ceilings will emerge at 1.3550, backed by 1.3570. Support starts at 1.3450, backed by 1.34, 1.3380 and 1.3350. Subsequent floors are eyed at 1.33.
The market shrugged off economic data as all the eyes were on risk aversion. US CPI rose 0.1% in July, leading to a year-on-year rate down from 2.7% to 2.4% as expected. Excluding food and energy, core CPI rose 0.2% as expected. New York Fed manufacturing survey fell slightly from 26.46 to 25.06 in August, above the estimate of 18.5. US Treasury reported net foreign purchases of long-term securities for June were 120.9 billion, double the forecast of 65 billion. US industrial production increased 0.6% in July, beating the estimate of 0.3% and a reading of 0.5% in the earlier month. US capacity utilization was barely changed at 81.9% in July. The National Association of Home Builders/Wells Fargo sentiment index declined from 24 to 22 in August, the lowest since September 2001.
EURUSD will face interim resistance at 1.3480, followed by 1.35 and 1.3530. Additional ceilings will emerge at 1.3550, backed by 1.3570. Support starts at 1.3450, backed by 1.34, 1.3380 and 1.3350. Subsequent floors are eyed at 1.33.
Risk Aversion Lingers in FX
At 4:30 AM UK August MPC Meeting Minutes (exp 9-0, prev 3-6)
UK June Claimant Count (exp –10.0k, prev –13.8k)
UK June Unemployment Rate (exp 5.4%, prev 5.4%)
At 8:30 AM Canada June Manufacturing Shipments (exp –0.2%, prev –0.1%)
August NY Fed Manufacturing Survey (exp 18.5, prev 26.46)
US July core CPI m/m (exp 0.2%, prev 0.2%)
US July core CPI y/y (exp 2.2%, prev 2.2%)
US July CPI y/y (exp 2.4%, prev 2.7%)
At 9:00 AM US June TICS (exp $65.0 bln, prev $126.1 bln)
At 9:15 AM US July Industrial Production (exp 0.3%, prev 0.5%)
US July Capacity Utilization (exp 81.8%, prev 81.7%)
At 1:00 PM US August NAHB (exp 23.0, prev 24.0)
The dollar continues to firm against the euro and sterling, but drifts further versus the yen. A barrage of US economic data is slated for release in the coming session, including key gauges of inflation and manufacturing. The July core CPI figures are seen unchanged from their prior readings at 0.2% m/m and 2.2% y/y. The annualized headline figure however, is estimated to fall to 2.4% for July, down from 2.7% in the previous year.
The August New York Fed manufacturing survey is forecasted to fall to 18.5, down from 26.46 from July, while industrial production in July is seen slowing to 0.3% versus 0.5% a month earlier. Capacity utilization is expected to edge up slightly to 81.8% from 81.7%. Meanwhile, consensus estimates for the June TICS data is seen sharply lower at $65.0 billion, versus $126.1 billion from May.
UK June Claimant Count (exp –10.0k, prev –13.8k)
UK June Unemployment Rate (exp 5.4%, prev 5.4%)
At 8:30 AM Canada June Manufacturing Shipments (exp –0.2%, prev –0.1%)
August NY Fed Manufacturing Survey (exp 18.5, prev 26.46)
US July core CPI m/m (exp 0.2%, prev 0.2%)
US July core CPI y/y (exp 2.2%, prev 2.2%)
US July CPI y/y (exp 2.4%, prev 2.7%)
At 9:00 AM US June TICS (exp $65.0 bln, prev $126.1 bln)
At 9:15 AM US July Industrial Production (exp 0.3%, prev 0.5%)
US July Capacity Utilization (exp 81.8%, prev 81.7%)
At 1:00 PM US August NAHB (exp 23.0, prev 24.0)
The dollar continues to firm against the euro and sterling, but drifts further versus the yen. A barrage of US economic data is slated for release in the coming session, including key gauges of inflation and manufacturing. The July core CPI figures are seen unchanged from their prior readings at 0.2% m/m and 2.2% y/y. The annualized headline figure however, is estimated to fall to 2.4% for July, down from 2.7% in the previous year.
The August New York Fed manufacturing survey is forecasted to fall to 18.5, down from 26.46 from July, while industrial production in July is seen slowing to 0.3% versus 0.5% a month earlier. Capacity utilization is expected to edge up slightly to 81.8% from 81.7%. Meanwhile, consensus estimates for the June TICS data is seen sharply lower at $65.0 billion, versus $126.1 billion from May.
Wednesday, August 15, 2007
Dollar Extended Rally
The dollar extended its rally versus the euro and sterling on concern over European banks¡¯ exposure to US subprime problems. The euro fell off the 1.36 handle versus the dollar and reached as low as 1.3537. The sterling slumped against the dollar and broke through 2 for the first time in six weeks.
The sterling weakened sharply as two UK government reports showed an expected decline in inflation, dampening expectations for another rate hike by the year-end. UK consumer prices index fell from 2.4% to an annual rate of 1.9% in July, below the Bank of England¡¯s target rate of 2% for the first time since March 2006 and worse than the estimate of 2.3%. Another inflation gauge, retail price index, fell to 3.8% in July, also below the forecast of 4.3% and a reading of 4.4% in the previous month.
The euro was hit by soft GDP reports from euro zone and Germany. Euro zone economic growth slowed from an annual rate of 3.1% to 2.5% in the second quarter, below the forecast of 2.7%. Germany GDP also fell to 2.5% in the second quarter, down from a 3.3% growth rate in the prior quarter.
The sterling weakened sharply as two UK government reports showed an expected decline in inflation, dampening expectations for another rate hike by the year-end. UK consumer prices index fell from 2.4% to an annual rate of 1.9% in July, below the Bank of England¡¯s target rate of 2% for the first time since March 2006 and worse than the estimate of 2.3%. Another inflation gauge, retail price index, fell to 3.8% in July, also below the forecast of 4.3% and a reading of 4.4% in the previous month.
The euro was hit by soft GDP reports from euro zone and Germany. Euro zone economic growth slowed from an annual rate of 3.1% to 2.5% in the second quarter, below the forecast of 2.7%. Germany GDP also fell to 2.5% in the second quarter, down from a 3.3% growth rate in the prior quarter.
Tuesday, August 14, 2007
Data Barrage to Drive FX
At 2:00 AM Germany Q2 GDP q/q (exp 0.4%, prev 0.5%)
Germany Q2 GDP y/y (exp 2.7%, prev 3.3%)
At 4:30 AM UK July CPI m/m (exp –0.2%, prev 0.2%)
UK July CPI y/y (exp 2.3%, prev 2.4%)
UK July RPI m/m (exp –0.1%, prev 0.5%)
UK July RPI y/y (exp 4.3%, prev 4.4%)
UK July RPI-x m/m (exp –0.1%, prev 0.4%)
UK July RPI-x y/y (exp 3.2%, prev 3.3%)
At 5:00 AM Eurozone June Industrial Production m/m (exp –0.1%, 0.9%)
Eurozone June Industrial Production y/y (exp 2.3%, prev 2.5%)
Eurozone Q2 GDP q/q (exp 0.6%, prev 0.7%)
Eurozone Q2 GDP y/y (exp 2.7%, prev 3.1%)
At 8:30 AM Canada June Trade Surplus (C$5.6bln, prev C$5.76bln)
US Trade Deficit (exp $61.0 bln, prev $60.04 bln)
US July PPI m/m (exp 0.2%, prev –0.2%)
US July PPI-x m/m (exp 0.2%, prev 0.3%)
The dollar is mixed heading into the Tuesday session, trading higher against the euro and sterling, but losing ground to the yen amid heightened risk aversion. Central banks’ injection of liquidity has for the time being calmed market fears of a global credit crunch, helping to stabilize equity and money markets.
US economic data for release today will see July PPI and June trade deficit. The headline PPI figure is estimated to reverse the 0.2% decline from June, rising by 0.2%. The core PPI reading is forecasted to drift slightly to 0.2%, down from 0.3% in the prior month. Meanwhile, the June trade deficit is estimated to edge higher to $61.0 billion, compared with a deficit of $60.04 billion a month prior.
Germany Q2 GDP y/y (exp 2.7%, prev 3.3%)
At 4:30 AM UK July CPI m/m (exp –0.2%, prev 0.2%)
UK July CPI y/y (exp 2.3%, prev 2.4%)
UK July RPI m/m (exp –0.1%, prev 0.5%)
UK July RPI y/y (exp 4.3%, prev 4.4%)
UK July RPI-x m/m (exp –0.1%, prev 0.4%)
UK July RPI-x y/y (exp 3.2%, prev 3.3%)
At 5:00 AM Eurozone June Industrial Production m/m (exp –0.1%, 0.9%)
Eurozone June Industrial Production y/y (exp 2.3%, prev 2.5%)
Eurozone Q2 GDP q/q (exp 0.6%, prev 0.7%)
Eurozone Q2 GDP y/y (exp 2.7%, prev 3.1%)
At 8:30 AM Canada June Trade Surplus (C$5.6bln, prev C$5.76bln)
US Trade Deficit (exp $61.0 bln, prev $60.04 bln)
US July PPI m/m (exp 0.2%, prev –0.2%)
US July PPI-x m/m (exp 0.2%, prev 0.3%)
The dollar is mixed heading into the Tuesday session, trading higher against the euro and sterling, but losing ground to the yen amid heightened risk aversion. Central banks’ injection of liquidity has for the time being calmed market fears of a global credit crunch, helping to stabilize equity and money markets.
US economic data for release today will see July PPI and June trade deficit. The headline PPI figure is estimated to reverse the 0.2% decline from June, rising by 0.2%. The core PPI reading is forecasted to drift slightly to 0.2%, down from 0.3% in the prior month. Meanwhile, the June trade deficit is estimated to edge higher to $61.0 billion, compared with a deficit of $60.04 billion a month prior.
Dollar Firm on Retail Sales
The main theme of the foreign exchange market on Monday is still the unwinding of carry trades amid subprime woes.
The euro weakened further against the dollar and yen after the European Central Bank lent money to banks for a third day. The ECB injected 47.67 billion euros into the region’s banking system today to ease credit concern. The euro failed to break through the 1.37 handle and slid back to test 1.36 versus the dollar. The single currency remained in the low range just above the key psychological level at 160 against the yen.
It is still not clear how deep the subprime crisis is going to spread. As a safe-haven currency, the greenback is favored in rising risk aversion. Also, the yen gained versus high-yielding currencies, such as the euro, sterling, and aussie, as those short yen positions are squeezed.
The euro weakened further against the dollar and yen after the European Central Bank lent money to banks for a third day. The ECB injected 47.67 billion euros into the region’s banking system today to ease credit concern. The euro failed to break through the 1.37 handle and slid back to test 1.36 versus the dollar. The single currency remained in the low range just above the key psychological level at 160 against the yen.
It is still not clear how deep the subprime crisis is going to spread. As a safe-haven currency, the greenback is favored in rising risk aversion. Also, the yen gained versus high-yielding currencies, such as the euro, sterling, and aussie, as those short yen positions are squeezed.
Monday, August 13, 2007
FX Treads Cautiously
At 4:30 AM UK July core PPI m/m (exp 0.2%, prev 0.2%)
UK July core PPI y/y (exp 2.2%, prev 2.1%)
At 8:30 AM US July Retail Sales (exp 0.2%, prev –0.9%)
US July Retail Sales x-autos (exp 0.4%, prev –0.4%)
At 10:00 AM US June Business Inventories (exp 0.4%, prev 0.5%)
The currency market kicks off the week on a quiet tone, with the major pairs confined to a narrow range in early Tokyo trading. Global central banks stepped in last week to calm fears of an imminent credit crunch, thereby alleviating some of the volatility experienced by the markets. The heightened risk aversion has continued to benefit the yen as trader wariness has prompted heavy unwinding in the carry trades. The inverse relationship between equities and the yen is expected to remain and will likely keep the Japanese currency locked in choppy, volatile trading against the majors as traders closely monitor developments in the money markets.
The coming week will also see several key reports from the US including July retail sales, business inventories, PPI, trade balance, CPI, NY Fed manufacturing survey, TICS, capacity utilization, industrial production, housing starts, Philadelphia Fed survey, and the University of Michigan sentiment survey. Traders will closely scrutinize the US inflation reports for any hints of easing pressure that would enable the Fed to cut rates over the coming months. Further, it is possible that the Fed will again inject money into the economy as well as engage in a currency swap with the ECB to alleviate European banks’ demands to meet short-term loan obligations. Markets will likely become less volatile this week in the event that either action will materialize.
UK July core PPI y/y (exp 2.2%, prev 2.1%)
At 8:30 AM US July Retail Sales (exp 0.2%, prev –0.9%)
US July Retail Sales x-autos (exp 0.4%, prev –0.4%)
At 10:00 AM US June Business Inventories (exp 0.4%, prev 0.5%)
The currency market kicks off the week on a quiet tone, with the major pairs confined to a narrow range in early Tokyo trading. Global central banks stepped in last week to calm fears of an imminent credit crunch, thereby alleviating some of the volatility experienced by the markets. The heightened risk aversion has continued to benefit the yen as trader wariness has prompted heavy unwinding in the carry trades. The inverse relationship between equities and the yen is expected to remain and will likely keep the Japanese currency locked in choppy, volatile trading against the majors as traders closely monitor developments in the money markets.
The coming week will also see several key reports from the US including July retail sales, business inventories, PPI, trade balance, CPI, NY Fed manufacturing survey, TICS, capacity utilization, industrial production, housing starts, Philadelphia Fed survey, and the University of Michigan sentiment survey. Traders will closely scrutinize the US inflation reports for any hints of easing pressure that would enable the Fed to cut rates over the coming months. Further, it is possible that the Fed will again inject money into the economy as well as engage in a currency swap with the ECB to alleviate European banks’ demands to meet short-term loan obligations. Markets will likely become less volatile this week in the event that either action will materialize.
Sunday, August 12, 2007
More Volatility with a Busy Calendar and Subprime Credit Fears
Much volatility was experienced in the forex markets last week as all attention were turned to the turbulence in credit markets. News that BNP Paribas suspended redemption from three funds that are exposed to US subprime markets triggered concern that investors would seek redemptions from other funds, which could in term dry up the markets. LIBOR rates spiked higher in the middle of the week and that in turn, triggered injection of cash from central banks around the world, including Fed, ECB, BoJ, BoC and RBA. But the fear in the makets continued, with stocks stumbling and carry trade unwinding massively. The markets only stabilized on Friday after the Fed added another $38b and pledged more fund will be injected "as necessary" to calm the markets. Looking ahead, news about the credit markets and subprime problem will continue to take the center stage. Economic calendar is jam-packed this week, which could trigger further volatility in the markets. But impact from data could be temporary as they continue to play a secondary role in moving the markets.
Higher yield currencies were most hit by massive carry trade unwinding last week, in particular Aussie and Kiwi, which also weakened sharply against dollar. The greenback benefited such carry trade unwinding and indeed rose against other majors and even closed higher against the yen on late Friday recovery.
FOMC rate decision was the main event from US last week. Fed kept rates unchanged at 5.25% as widely expected. Tightening bias was, to some's surprise, maintained in the accompanying statement as "the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected," even though downside risks to growth have increased. Regarding inflation, Fed members still think that the sustainable moderation in inflation pressure is not "convincingly demonstrated" yet. Regarding growth, Fed still expects "the economy seems likely to continue to expand at a moderate pace over the coming quarters", but added that it will be "supported by solid growth in employment and incomes and a robust global economy."After all, the statement ruled out the possibility of a Sep cut and didn't hint on any rate cut this year yet. However, the Fed seems left the door for moving to a more neutral stance. The upcoming employment and incomes data will become evenly more closely watched and market moving and that could be trigger for bias shift.
Another major events of last week was the BoE quarterly inflation report which confirmed market's expectation that one more rate hike is needed to bring CPI inflation back to 2% target in 09. Sterling was also boosted temporarily by hawkish comments from BoE Governor King who said that the starting point of UK economic growth is stronger than the latest ONS numbers and that inflation expectations have not fallen back yet. Housing market also remains strong.
RBA raised Australian interest rates to a decade-high of 6.5% to curb persistent core inflationary pressures as widely expected. However, reaction to the news was muted as this was already widely expected. Also, markets are speculating that RBA will be on hold at 6.5% for the remainder of the year. Kiwi and CAD was boosted temporarily by lower than expected unemployment rate but just like others, both were pressured again as carry trade unwinding returned to be the focus.
Higher yield currencies were most hit by massive carry trade unwinding last week, in particular Aussie and Kiwi, which also weakened sharply against dollar. The greenback benefited such carry trade unwinding and indeed rose against other majors and even closed higher against the yen on late Friday recovery.
FOMC rate decision was the main event from US last week. Fed kept rates unchanged at 5.25% as widely expected. Tightening bias was, to some's surprise, maintained in the accompanying statement as "the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected," even though downside risks to growth have increased. Regarding inflation, Fed members still think that the sustainable moderation in inflation pressure is not "convincingly demonstrated" yet. Regarding growth, Fed still expects "the economy seems likely to continue to expand at a moderate pace over the coming quarters", but added that it will be "supported by solid growth in employment and incomes and a robust global economy."After all, the statement ruled out the possibility of a Sep cut and didn't hint on any rate cut this year yet. However, the Fed seems left the door for moving to a more neutral stance. The upcoming employment and incomes data will become evenly more closely watched and market moving and that could be trigger for bias shift.
Another major events of last week was the BoE quarterly inflation report which confirmed market's expectation that one more rate hike is needed to bring CPI inflation back to 2% target in 09. Sterling was also boosted temporarily by hawkish comments from BoE Governor King who said that the starting point of UK economic growth is stronger than the latest ONS numbers and that inflation expectations have not fallen back yet. Housing market also remains strong.
RBA raised Australian interest rates to a decade-high of 6.5% to curb persistent core inflationary pressures as widely expected. However, reaction to the news was muted as this was already widely expected. Also, markets are speculating that RBA will be on hold at 6.5% for the remainder of the year. Kiwi and CAD was boosted temporarily by lower than expected unemployment rate but just like others, both were pressured again as carry trade unwinding returned to be the focus.
Saturday, August 11, 2007
Volatility Forces Central Banks` Hands
The currency market experienced large swings in the morning amid sharp volatility prompted by heightened risk aversion to fears of a widespread credit crunch. The yen continued to benefit from such wariness, rallying across the board to 117.24 against the dollar and 160 versus the euro. Those gains were short-lived as the Fed announced that it would intervene by injecting funds “to facilitate the orderly function of financial markets”. The Fed’s decision follows similar liquidity injections from the ECB, initiated yesterday and several Asian central banks including the Bank of Japan.
The Fed intervened three times today, amounting to nearly $38 billion in fund injections -- its largest since September 14, 2001, and said it would provide reserves as necessary. The Fed’s move momentarily quelled fears of a credit crunch as markets stemmed earlier losses and the yen reversed its gains against the majors. Currency traders will continue to focus on developments with the subprime debacle and exhibit greater wariness to carry trade volatility.
The dollar rallied against the euro, sterling and Aussie in the Friday session, with carry trade unwinding benefiting the greenback. Although the outlook for the dollar remains bearish in light of US fundamentals, the market continues to be dictated by credit concerns and will likely trade under choppy volatile conditions over the coming weeks.
The Fed intervened three times today, amounting to nearly $38 billion in fund injections -- its largest since September 14, 2001, and said it would provide reserves as necessary. The Fed’s move momentarily quelled fears of a credit crunch as markets stemmed earlier losses and the yen reversed its gains against the majors. Currency traders will continue to focus on developments with the subprime debacle and exhibit greater wariness to carry trade volatility.
The dollar rallied against the euro, sterling and Aussie in the Friday session, with carry trade unwinding benefiting the greenback. Although the outlook for the dollar remains bearish in light of US fundamentals, the market continues to be dictated by credit concerns and will likely trade under choppy volatile conditions over the coming weeks.
Friday, August 10, 2007
USD/JPY
USD/JPY's fall from 119.80 extends further to as low as 117.20 today, inches above prior low of 117.15. At this point, further decline is expected to follow as long as 118.87 resistance holds. Break of 117.15 low will confirm recent sharp decline from 124.13 has resumed for 114.41/115.13 support zone. Above 118.22 will turn intraday outlook neutral and indicates that price actions from 117.15 is developing into further consolidation with another test of 119.81/89 cluster resistance (100% projection of 117.15 to 119.07 from 117.97 at 119.89 and 38.2% retracement of 124.13 to 117.15 at 119.81) before completion.
In the bigger picture, break of 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) has also had medium term rising trend line (108.99 to 155.13, now at 118.39) taken out. Sustained trading below these levels argues that whole rise from 108.99 has completed. In such case, much deeper decline should then be seen to long term rising trend line support (now at 115.70) and then further to next important support zone of 114.41 and 115.13 (61.8% retracement of 108.99 to 124.13 at 114.77).
Sustained break of 114.41/115.13 support zone will strongly suggest that the whole multi year up trend from 101.65 is already completed and much stronger and sustainable rally in the Japanese yen should then be seen in medium term. However, note that strong rebound above 114.41/115.13 support zone or a break above 122.40 will save the case that long term up trend from 101.65 is still in force for another test of 124.13 high at least before completion.
In the bigger picture, break of 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) has also had medium term rising trend line (108.99 to 155.13, now at 118.39) taken out. Sustained trading below these levels argues that whole rise from 108.99 has completed. In such case, much deeper decline should then be seen to long term rising trend line support (now at 115.70) and then further to next important support zone of 114.41 and 115.13 (61.8% retracement of 108.99 to 124.13 at 114.77).
Sustained break of 114.41/115.13 support zone will strongly suggest that the whole multi year up trend from 101.65 is already completed and much stronger and sustainable rally in the Japanese yen should then be seen in medium term. However, note that strong rebound above 114.41/115.13 support zone or a break above 122.40 will save the case that long term up trend from 101.65 is still in force for another test of 124.13 high at least before completion.
GBP/USD
Cable edges further lower to 2.2154, breaking marginally below 2.0156 low but lacks follow through selling so far. As this point, further downside is still in favor as long as 2.0242 resistance holds. As discussed before, cable's correction from 2.0652 is still in progress and is expected to further test 2.0086/2.0206 support zone before completion. However as we'd expect such consolidation to be contained by this support zone, focus will be on reversal signal as the current fall proceeds.
Above 2.0242 will turn intraday outlook neutral first and probably bring strong recovery. But still, break of 2.0462 cluster resistance (61.8% retracement of 2.0652 to 2.0156 at 2.0463) is needed to confirm correction from 2.0652 has completed and bring retest of key medium term resistance of 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677. Otherwise, further downside is still in favor.
In the bigger picture, regardless of the internal structure, the whole rally from 1.7047 represents resumption of the long term up trend from 1.3680 and has almost met it's initial target of 2.0677 already. Even though a short term top is in place at 2.0652 the whole set of rally from 1.7047 should still be in good shape as long as 1.9621 support remains intact. Consolidation from 2.0652 should be relatively brief in medium term and further upside is still expected. Sustained trading above 2.0677 will target 2.1 psychological resistance first.
However, break of medium term rising trend line (now at 1.9916) will warn that the medium term rally has already topped out at 2.0652 after failing the 2.0677 target. Further break of 1.9621 support will encourage much deeper correction could be seen to 1.9183 support first and with prospect of further decline to long term rising trend line support (now at 1.8327).
Above 2.0242 will turn intraday outlook neutral first and probably bring strong recovery. But still, break of 2.0462 cluster resistance (61.8% retracement of 2.0652 to 2.0156 at 2.0463) is needed to confirm correction from 2.0652 has completed and bring retest of key medium term resistance of 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677. Otherwise, further downside is still in favor.
In the bigger picture, regardless of the internal structure, the whole rally from 1.7047 represents resumption of the long term up trend from 1.3680 and has almost met it's initial target of 2.0677 already. Even though a short term top is in place at 2.0652 the whole set of rally from 1.7047 should still be in good shape as long as 1.9621 support remains intact. Consolidation from 2.0652 should be relatively brief in medium term and further upside is still expected. Sustained trading above 2.0677 will target 2.1 psychological resistance first.
However, break of medium term rising trend line (now at 1.9916) will warn that the medium term rally has already topped out at 2.0652 after failing the 2.0677 target. Further break of 1.9621 support will encourage much deeper correction could be seen to 1.9183 support first and with prospect of further decline to long term rising trend line support (now at 1.8327).
EUR/USD
EUR/USD edges further lower to 1.3643 today but stabilizes as no follow through selling is seen yet. Though, intraday bias will remain on the downside as long as 1.3713 minor resistance holds. Further decline is still in favor. As discussed before, EUR/USD should still be bounded in consolidation that started at 1.3851 and hence, another test of 1.3567/3658 support zone is expected to be seen before completing such consolidation. However, downside is also expected to be contained there.
Above 1.3713 minor resistance resistance will turn intraday outlook neutral and probably bring stronger recovery. But firm break of 1.3839 resistance is needed to confirm rise from 1.3262 has resumed. Otherwise, choppy sideway trading is still in progress.
In the bigger picture, firstly, the momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought and the rise from 1.3262 could be part of another set of medium term rally instead of the last advance of a 5 wave rally from 1.2483 that we originally thought.
Focus remains on 1.3822/3851 resistance (100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822). Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.
On the downside, break of 1.3481 will warn that 1.3851 could indeed be an important medium term top. 1.3262 low will be back into focus and break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.
Above 1.3713 minor resistance resistance will turn intraday outlook neutral and probably bring stronger recovery. But firm break of 1.3839 resistance is needed to confirm rise from 1.3262 has resumed. Otherwise, choppy sideway trading is still in progress.
In the bigger picture, firstly, the momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought and the rise from 1.3262 could be part of another set of medium term rally instead of the last advance of a 5 wave rally from 1.2483 that we originally thought.
Focus remains on 1.3822/3851 resistance (100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822). Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.
On the downside, break of 1.3481 will warn that 1.3851 could indeed be an important medium term top. 1.3262 low will be back into focus and break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.
Yen Crosses Could Stabilize But Short Term Risk Remains on Downside
Euro and Sterling stabilize a bit against dollar today as the greenback is dragged further down by selling in USD/JPY. Though, the high yielding commodities are still the biggest victims of the current carry trade unwinding. Fed fund rate surged to as high as 6%, well above Fed's target rate of 5.25% earlier today and triggered the Fed to add another $19 b in temporary funds to the banking system through the purchase of mortgage-backed securities to help meet demand for cash. On the other hand, ECB also loaned another 61.05b euros into the banking system. Sentiments in the markets remains fragile as US stocks are set to open lower, following yesterday's sharp sell off and today's fall in Asian and European markets.
However, note the deeply oversold yen crosses are showing signs of stabilizing in intraday terms as US session approaches. We could see some sideway trading and recovery in yen crosses in the US sessions, provided that the stock markets also stabilize after initial fall. But still, the short term outlook in yen remains bullish, and any recovery in the yen crosses will be treated as 'recovery' only, and more downside is still expected to come next week.
On the data front, canadian unemployment rate dropped to new 33 year low of 6.0% in Jul. The U.S. Import Price Index increased 1.5% in July, following a revised 0.9% rise in June and was led by an increase in petroleum prices. Export prices rose 0.2% in July, after increasing by 0.3% in the previous month. To be released later today, Fed budget report is expected to show that the budget deficit narrowed slightly to -32.5b in Jul.
However, note the deeply oversold yen crosses are showing signs of stabilizing in intraday terms as US session approaches. We could see some sideway trading and recovery in yen crosses in the US sessions, provided that the stock markets also stabilize after initial fall. But still, the short term outlook in yen remains bullish, and any recovery in the yen crosses will be treated as 'recovery' only, and more downside is still expected to come next week.
On the data front, canadian unemployment rate dropped to new 33 year low of 6.0% in Jul. The U.S. Import Price Index increased 1.5% in July, following a revised 0.9% rise in June and was led by an increase in petroleum prices. Export prices rose 0.2% in July, after increasing by 0.3% in the previous month. To be released later today, Fed budget report is expected to show that the budget deficit narrowed slightly to -32.5b in Jul.
Yen Rallied after BNP Froze Funds
The yen rose sharply BNP Paribas, France’s biggest bank, froze three investment funds worth 1.6 billion euros, raising concern the US subprime mortgage sector woes is spreading worldwide. The ECB today injected 94.8 billion euros into the region’s banking market to meet the sudden liquidity demand. The US subprime worries prompted investors to unwind carry trades, driving the yen higher against high-yielding currencies.
The euro slumped from 165 to 161.55 versus the yen, while the sterling slid from 244 to test the 239 level. The yen strengthened from 119.75 to as low as 118.20 versus the dollar.
As a safe haven currency, the dollar also benefited from anti-risk trades. The euro fell off the 1.38 handle and was supported by the 1.3650 level versus the dollar. The sterling dipped from 2.04 to as low as 2.0212.
The euro slumped from 165 to 161.55 versus the yen, while the sterling slid from 244 to test the 239 level. The yen strengthened from 119.75 to as low as 118.20 versus the dollar.
As a safe haven currency, the dollar also benefited from anti-risk trades. The euro fell off the 1.38 handle and was supported by the 1.3650 level versus the dollar. The sterling dipped from 2.04 to as low as 2.0212.
Thursday, August 9, 2007
Rate Sentiment Drives FX
The dollar was mixed in the Wednesday session amid a dearth of fresh US economic news, climbing higher against the yen but falling sharply versus the sterling. The data release was limited to June wholesale inventories, which was slightly higher than expected at 0.5%, unchanged from the previous month. Interest rate expectations continue to play a key role in the FX market, with the Aussie and sterling regaining its footing on hawkish sentiment from both respective central banks.
Sterling Shines
The sterling rallied sharply against the dollar and yen overnight, climbing just shy of the 2.04-level and slightly above 244, respectively. The strength was predominantly triggered the Bank of England’s Quarterly Inflation Report, which revealed expectations for CPI inflation to be slightly above the 2% target in two years with market rates, and clearly above target based on constant rates. The BoE said that risks to inflation remained skewed to the upside but with growth now forecasted to be softer over the next two years.
Sterling Shines
The sterling rallied sharply against the dollar and yen overnight, climbing just shy of the 2.04-level and slightly above 244, respectively. The strength was predominantly triggered the Bank of England’s Quarterly Inflation Report, which revealed expectations for CPI inflation to be slightly above the 2% target in two years with market rates, and clearly above target based on constant rates. The BoE said that risks to inflation remained skewed to the upside but with growth now forecasted to be softer over the next two years.
Wednesday, August 8, 2007
Dollar Slipped after FOMC
The Fed kept interest rates at 5.25% unchanged as widely expected. The Fed acknowledged tightening credit conditions and slowing economy, but maintained its bias against inflationary pressure for fear that inflation may not moderate as expected. The dollar fell slightly against the euro and sterling after the post-meeting statement.
The euro will face resistance at 1.3750, followed by 1.3780 and 1.38. Additional gains will target 1.3830 and 1.3850. Meanwhile, on the downside the pair will encounter support at 1.3720 followed by 1.37 and 1.3680. Subsequent floors will emerge at 1.3650, backed by 1.3620 and 1.36.
The euro will face resistance at 1.3750, followed by 1.3780 and 1.38. Additional gains will target 1.3830 and 1.3850. Meanwhile, on the downside the pair will encounter support at 1.3720 followed by 1.37 and 1.3680. Subsequent floors will emerge at 1.3650, backed by 1.3620 and 1.36.
Markets Await FOMC
The dollar recovered its earlier losses against the sterling and euro by the US afternoon to hover around 2.03 and 1.38, respectively. In overnight trading, the greenback slipped toward record lows versus the euro at 1.3838 but pared its losses heading into Tuesday’s FOMC policy announcement. With the exception of the Fed rate decision tomorrow, the US economic calendar this week is light thus shifting the focus to the accompanying FOMC statement.
The Fed is largely anticipated to leave policy unchanged at 5.25% when it announces its decision tomorrow at 2:15 PM. The key point of focus will be the accompanying statement from the FOMC, in which we expect minor changes to acknowledge further slowdown in the housing market stemming from the continued unfolding of the subprime debacle. However, we believe any reference to the subprime market will assure markets that the issue will likely remain contained and have limited impact on global financial markets. We expect the Fed will maintain its bias against inflationary pressure, adding that it sees inflation moderating over time.
The trade-weighted dollar index remains under pressure, hovering around the psychologically key 80-level. It briefly fell below it last Friday following the weaker than expected non-farm payrolls number. We expect the greenback to trade on weak footing against the euro and sterling as fears of a credit crunch linger on traders’ psyches. It will be important to closely monitor performance of US equities, treasuries and oil this week given the dearth of US reports.
The Fed is largely anticipated to leave policy unchanged at 5.25% when it announces its decision tomorrow at 2:15 PM. The key point of focus will be the accompanying statement from the FOMC, in which we expect minor changes to acknowledge further slowdown in the housing market stemming from the continued unfolding of the subprime debacle. However, we believe any reference to the subprime market will assure markets that the issue will likely remain contained and have limited impact on global financial markets. We expect the Fed will maintain its bias against inflationary pressure, adding that it sees inflation moderating over time.
The trade-weighted dollar index remains under pressure, hovering around the psychologically key 80-level. It briefly fell below it last Friday following the weaker than expected non-farm payrolls number. We expect the greenback to trade on weak footing against the euro and sterling as fears of a credit crunch linger on traders’ psyches. It will be important to closely monitor performance of US equities, treasuries and oil this week given the dearth of US reports.
Friday, August 3, 2007
Dollar Slid after Payrolls
The dollar slid broadly after US Labor Department July employment report showed new added jobs were less than expected, squeezing out the possibility of a rate hike by the Fed this year and raising speculation of a rate cut.
US non-farm payrolls came out at 92k, far below the estimate of 130k and a reading of 132k in the previous month. Unemployment rate increased from 4.5% to 4.6% in July. The labor market, one of the few fundamentals that always support the dollar in the past, turned from robust to modest, adding to the bearish sentiment on the dollar.
Besides, US non-manufacturing ISM fell from 60.7 to 55.8 in July, below the estimate of 59. The dollar extended its loss against the euro, sterling and yen.
US non-farm payrolls came out at 92k, far below the estimate of 130k and a reading of 132k in the previous month. Unemployment rate increased from 4.5% to 4.6% in July. The labor market, one of the few fundamentals that always support the dollar in the past, turned from robust to modest, adding to the bearish sentiment on the dollar.
Besides, US non-manufacturing ISM fell from 60.7 to 55.8 in July, below the estimate of 59. The dollar extended its loss against the euro, sterling and yen.
Dollar Down Slightly, Awaits US Payrolls
The dollar fell slightly against the euro and sterling as traders adjusted positions to wait for tomorrow’s US non-farm payrolls report, which will be a major market mover. The euro climbed 50 pips to test 1.37 level against the dollar, and the sterling rose from 2.0300 to as high as 2.0377 versus the dollar.
The euro and sterling was little changed after the European Central Bank and the Bank of England left interest rates on hold as expected at 4.00% and 5.75% respectively. ECB President Trichet said at the post-meeting press conference that “strong vigilance” is needed to contain inflation, signaling a possible rate hike in September.
The dollar was flat after Today’s data as traders keep cautious before Friday morning’s key job report. US jobless claims for the week ended on July 28 came out at 307k, in line with the expectation of 310k. Factory orders rose 0.6% in June, reversing a 0.5% decline in the earlier month but below the estimate of 1.0%. Durable goods orders came out at 1.3%, slightly below the forecast and the previous reading of 1.4%.
The euro and sterling was little changed after the European Central Bank and the Bank of England left interest rates on hold as expected at 4.00% and 5.75% respectively. ECB President Trichet said at the post-meeting press conference that “strong vigilance” is needed to contain inflation, signaling a possible rate hike in September.
The dollar was flat after Today’s data as traders keep cautious before Friday morning’s key job report. US jobless claims for the week ended on July 28 came out at 307k, in line with the expectation of 310k. Factory orders rose 0.6% in June, reversing a 0.5% decline in the earlier month but below the estimate of 1.0%. Durable goods orders came out at 1.3%, slightly below the forecast and the previous reading of 1.4%.
Thursday, August 2, 2007
Central Bank Decisions Eyed
At 5:00 AM Eurozone June PPI m/m (exp 0.3%, prev 0.3%)
Eurozone June PPI y/y (exp 2.3%, prev 2.3%)
At 7:00 AM BoE Monetary Policy Decision (exp 5.75%, prev 5.75%)
At 7:45 AM ECB Monetary Policy Decision (exp 4.0%, prev 4.0%)
At 8:30 AM ECB President Trichet Press Conference
US Weekly Jobless Claims (exp 310k, prev 301k)
At 10:00 AM US June Durable Goods Orders (exp 1.4%, prev 1.4%)
US June Factory Orders (exp 1.0%, prev –0.5%)
The major currencies are little changed heading into Thursday, with the dollar and yen maintaining their buoyant tone. US equities rebounded late in the session, briefly sending the yen lower toward the 119-level against the dollar and 163 versus the euro. Currencies will continue to be dictated by moves in the global equity bourses as fears of the subprime debacle fester in the background – prompting heightened risk aversion among traders.
In addition to closely monitoring equity performance, markets will look ahead to US weekly jobless claims, June durable goods orders and factory orders. Weekly jobless claims are seen creeping higher to 310k, up from 301k in the prior week. Durable goods orders, typically a volatile number, is seen unchanged in June at 1.4%, while factory orders are expected to reverse last month’s 0.5% decline, rising by 1.0% in June.
Eurozone June PPI y/y (exp 2.3%, prev 2.3%)
At 7:00 AM BoE Monetary Policy Decision (exp 5.75%, prev 5.75%)
At 7:45 AM ECB Monetary Policy Decision (exp 4.0%, prev 4.0%)
At 8:30 AM ECB President Trichet Press Conference
US Weekly Jobless Claims (exp 310k, prev 301k)
At 10:00 AM US June Durable Goods Orders (exp 1.4%, prev 1.4%)
US June Factory Orders (exp 1.0%, prev –0.5%)
The major currencies are little changed heading into Thursday, with the dollar and yen maintaining their buoyant tone. US equities rebounded late in the session, briefly sending the yen lower toward the 119-level against the dollar and 163 versus the euro. Currencies will continue to be dictated by moves in the global equity bourses as fears of the subprime debacle fester in the background – prompting heightened risk aversion among traders.
In addition to closely monitoring equity performance, markets will look ahead to US weekly jobless claims, June durable goods orders and factory orders. Weekly jobless claims are seen creeping higher to 310k, up from 301k in the prior week. Durable goods orders, typically a volatile number, is seen unchanged in June at 1.4%, while factory orders are expected to reverse last month’s 0.5% decline, rising by 1.0% in June.
USD Drifted Higher, Moving with Equities
The dollar still moves with the volatile stock market today as risk aversion drives the direction of carry trades, which dominates the currency market since last week. The dollar drifted slightly higher against the euro and yen.
In early US session, the dollar fell modestly after US ADP report showed only 48,000 jobs were added in private sector in July, far below the forecast of 100,000 and a 150,000 reading in the previous month. The euro tested the 1.37 handle against the dollar and dipped back to around 1.3670 later. There is no direct relationship between this private sector employment report and the non-farm payrolls. The market will focus on the key job report from US Labor Department this Friday for more clues on the broad labor market.
Besides, the other two US data did little to the market. US pending home sales rose 0.5% in June, beating the estimate of a 0.6% decline and a –3.5% reading in the previous month. However, it is the fact that the nation’s housing market is facing serious credit problems and a major downturn. A single second-tier housing report is not sufficient to change the evaluation of US housing market. US manufacturing ISM came out at 53.8, below the expectation of 55.5 and 56 in the earlier month.
In early US session, the dollar fell modestly after US ADP report showed only 48,000 jobs were added in private sector in July, far below the forecast of 100,000 and a 150,000 reading in the previous month. The euro tested the 1.37 handle against the dollar and dipped back to around 1.3670 later. There is no direct relationship between this private sector employment report and the non-farm payrolls. The market will focus on the key job report from US Labor Department this Friday for more clues on the broad labor market.
Besides, the other two US data did little to the market. US pending home sales rose 0.5% in June, beating the estimate of a 0.6% decline and a –3.5% reading in the previous month. However, it is the fact that the nation’s housing market is facing serious credit problems and a major downturn. A single second-tier housing report is not sufficient to change the evaluation of US housing market. US manufacturing ISM came out at 53.8, below the expectation of 55.5 and 56 in the earlier month.
Yen Buoyed, Traders Await Data
At 3:55 AM Germany July Manufacturing PMI (exp 56.8, prev 57.3)
At 4:00 AM Eurozone July Manufacturing PMI (exp 54.8, prev 55.6)
At 4:30 AM UK July Manufacturing CIPS/PMI (exp 54.0, prev 54.3)
At 8:15 AM US July ADP Employment (exp 100.0k, prev 150.0k)
At 10:00 AM US June Pending Home Sales (exp –0.6%, prev –3.5%)
US July Manufacturing ISM (exp 55.5, prev 56.0)
Heightened risk aversion continues to dictate the direction in the major currency pairs, with the yen reaping the benefits from safe haven flows as speculators scale back their carry trades. Meanwhile, the dollar also remains buoyed against the majors heading into the Wednesday session, hovering around 1.3660 versus the euro and 2.0282 against the sterling.
Economic data from the US continues to be patchy at best, with housing leading the declines, while the labor market and consumer confidence remain firm. The key highlight will be Friday’s July jobs report. Traders will look at the July ADP employment report as a proxy to this week’s non-farm payrolls data. The ADP private sector payrolls reading is seen dropping to 100k, down considerably from June at 150k jobs created. June pending home sales are forecasted to decline by 0.6%, which marks an improvement from the 3.5% drop in May. Lastly, the July manufacturing ISM reading is expected to fall to 55.5, versus 56.0 from June.
At 4:00 AM Eurozone July Manufacturing PMI (exp 54.8, prev 55.6)
At 4:30 AM UK July Manufacturing CIPS/PMI (exp 54.0, prev 54.3)
At 8:15 AM US July ADP Employment (exp 100.0k, prev 150.0k)
At 10:00 AM US June Pending Home Sales (exp –0.6%, prev –3.5%)
US July Manufacturing ISM (exp 55.5, prev 56.0)
Heightened risk aversion continues to dictate the direction in the major currency pairs, with the yen reaping the benefits from safe haven flows as speculators scale back their carry trades. Meanwhile, the dollar also remains buoyed against the majors heading into the Wednesday session, hovering around 1.3660 versus the euro and 2.0282 against the sterling.
Economic data from the US continues to be patchy at best, with housing leading the declines, while the labor market and consumer confidence remain firm. The key highlight will be Friday’s July jobs report. Traders will look at the July ADP employment report as a proxy to this week’s non-farm payrolls data. The ADP private sector payrolls reading is seen dropping to 100k, down considerably from June at 150k jobs created. June pending home sales are forecasted to decline by 0.6%, which marks an improvement from the 3.5% drop in May. Lastly, the July manufacturing ISM reading is expected to fall to 55.5, versus 56.0 from June.
Tuesday, July 31, 2007
FX Follows Stock Market
The dollar moves in the opposite direction with global stock market since last week as the extent of investors risk aversion directs the flow of money.
The dollar weakened against the euro and sterling in early Tuesday when rising Asia and European equities eased concern over credit market. However, US stocks dipped near the closing bell today, raising the attractiveness of safe heaven, the US dollar. The euro is trading in narrow range between 1.3680 and 1.3726 against the dollar on Tuesday. The sterling climbed more than 100 pips to as high as 2.0377 versus the dollar, catching up yesterday¡¯s lag with the euro strength.
The dollar was little changed after a run of mixed US data this morning as there is some caution after last week¡¯s huge correction in the dollar. US PCE index rose 0.1% in June, compared with a 0.5% reading in the prior month. Core PCE index came out at 0.1%, below the estimate of 0.2%. US personal income maintained a growth rate of 0.4% in June, falling short of a call for 0.5%. US personal spending only rose by 0.1% in June, far below the forecast of 0.2% and a previous reading of 0.5%. Besides, Chicago PMI fell from 60.2 to 53.4 in July, worse than the expectation of 58. US consumer confidence index increased from 103.9 to 112.6, beating the consensus of 105.
The dollar weakened against the euro and sterling in early Tuesday when rising Asia and European equities eased concern over credit market. However, US stocks dipped near the closing bell today, raising the attractiveness of safe heaven, the US dollar. The euro is trading in narrow range between 1.3680 and 1.3726 against the dollar on Tuesday. The sterling climbed more than 100 pips to as high as 2.0377 versus the dollar, catching up yesterday¡¯s lag with the euro strength.
The dollar was little changed after a run of mixed US data this morning as there is some caution after last week¡¯s huge correction in the dollar. US PCE index rose 0.1% in June, compared with a 0.5% reading in the prior month. Core PCE index came out at 0.1%, below the estimate of 0.2%. US personal income maintained a growth rate of 0.4% in June, falling short of a call for 0.5%. US personal spending only rose by 0.1% in June, far below the forecast of 0.2% and a previous reading of 0.5%. Besides, Chicago PMI fell from 60.2 to 53.4 in July, worse than the expectation of 58. US consumer confidence index increased from 103.9 to 112.6, beating the consensus of 105.
FX Awaits Barrage of Data
At 1:00 AM Japan June Housing Starts y/y (exp –3.2%, prev –10.7%)
At 2:00 AM Germany June Retail Sales m/m (exp 1.0%, prev –1.8%)
Germany June Retail Sales y/y (exp –1.7%, prev –3.7%)
At 4:00 AM Germany July Unemployment Rate (exp 9.0%, prev 9.1%)
At 5:00 AM Eurozone July Business Climate (exp 1.46, prev 1.54)
Eurozone July HICP flash y/y (exp 1.9%, prev 1.9%)
Eurozone June Unemployment Rate (exp 7.0%, prev 7.0%)
At 5:30 AM UK July GfK Survey (exp –4.0, prev –3.0)
At 8:30 AM US June core PCE m/m (exp 0.2%, prev 0.1%)
US June core PCE y/y (exp n/f, prev 1.9%)
US June PCE index m/m (exp n/f, prev 0.5%)
US June PCE index y/y (exp n/f, prev 2.3%)
US June Consumption (exp 0.2%, prev 0.5%)
US June Personal Income (exp 0.5%, prev 0.4%)
US Q2 Employment Cost Index (exp 0.9%, prev 0.8%)
Canada May GDP m/m (exp 0.4%, prev 0.3%)
At 9:45 AM US July Chicago PMI (exp 58.0, prev 60.2)
At 10:00 AM US July Consumer Confidence (exp 105.0, prev 103.9)
The dollar continued to give back gains in early Tuesday trading, slipping through 1.37 against the euro and falling beneath 2.03 versus the sterling. The coming session will see a barrage of economic reports for traders to assess the strength of the economies in the Eurozone, US and Canada. The greenback’s rebound from last week may be coming to an end, as traders are poised to resume the currency’s downtrend against the majors.
US economic reports due out include the Fed’s preferred gauge of inflation, the PCE index, June consumption, personal income, Q2 employment cost index, July Chicago PMI and July consumer confidence. The monthly core PCE figure is seen edging up slightly to 0.2% from 0.1%. Consumption for June is forecasted to slip to 0.2%, down from 0.5%, while personal income is expected to edge up slightly to 0.5% versus 0.4%. The Chicago PMI report is seen falling to 58.0, down from June at 60.2. Meanwhile, the Conference Board’s index of consumer confidence is expected to improve to 105.0, down from 103.9.
At 2:00 AM Germany June Retail Sales m/m (exp 1.0%, prev –1.8%)
Germany June Retail Sales y/y (exp –1.7%, prev –3.7%)
At 4:00 AM Germany July Unemployment Rate (exp 9.0%, prev 9.1%)
At 5:00 AM Eurozone July Business Climate (exp 1.46, prev 1.54)
Eurozone July HICP flash y/y (exp 1.9%, prev 1.9%)
Eurozone June Unemployment Rate (exp 7.0%, prev 7.0%)
At 5:30 AM UK July GfK Survey (exp –4.0, prev –3.0)
At 8:30 AM US June core PCE m/m (exp 0.2%, prev 0.1%)
US June core PCE y/y (exp n/f, prev 1.9%)
US June PCE index m/m (exp n/f, prev 0.5%)
US June PCE index y/y (exp n/f, prev 2.3%)
US June Consumption (exp 0.2%, prev 0.5%)
US June Personal Income (exp 0.5%, prev 0.4%)
US Q2 Employment Cost Index (exp 0.9%, prev 0.8%)
Canada May GDP m/m (exp 0.4%, prev 0.3%)
At 9:45 AM US July Chicago PMI (exp 58.0, prev 60.2)
At 10:00 AM US July Consumer Confidence (exp 105.0, prev 103.9)
The dollar continued to give back gains in early Tuesday trading, slipping through 1.37 against the euro and falling beneath 2.03 versus the sterling. The coming session will see a barrage of economic reports for traders to assess the strength of the economies in the Eurozone, US and Canada. The greenback’s rebound from last week may be coming to an end, as traders are poised to resume the currency’s downtrend against the majors.
US economic reports due out include the Fed’s preferred gauge of inflation, the PCE index, June consumption, personal income, Q2 employment cost index, July Chicago PMI and July consumer confidence. The monthly core PCE figure is seen edging up slightly to 0.2% from 0.1%. Consumption for June is forecasted to slip to 0.2%, down from 0.5%, while personal income is expected to edge up slightly to 0.5% versus 0.4%. The Chicago PMI report is seen falling to 58.0, down from June at 60.2. Meanwhile, the Conference Board’s index of consumer confidence is expected to improve to 105.0, down from 103.9.
Dollar Eased as Stocks Rebounded
The dollar gave back some of last week’s gains as investors risk aversion eased after global stock market rebounded today. The euro tested the 1.37 handle against the dollar, while the sterling remained above the 2.02 support level.
After the huge decline in last week, the Standard & Poor’s 500 index today surged 1.15% to 1475.70. The Dow Jones industrial average roses more than 100 points. The rebound in equities reduced risk aversion towards risky investments. As a result, the safe haven currency, the US dollar, lost its lust and fell slightly.
This week’s calendar is heavy with two central bank policy decision announcements on Thursday and US payroll report due Friday. The European Central Bank and Bank of England are widely expected to maintain interest rates unchanged at 4.00% and 5.75% respectively. We will focus on the central bank post-meeting statements for clues on future interest rate hike schedule. Both of the two banks are anticipated to raise rates at least one more time in the second half of the year.
After the huge decline in last week, the Standard & Poor’s 500 index today surged 1.15% to 1475.70. The Dow Jones industrial average roses more than 100 points. The rebound in equities reduced risk aversion towards risky investments. As a result, the safe haven currency, the US dollar, lost its lust and fell slightly.
This week’s calendar is heavy with two central bank policy decision announcements on Thursday and US payroll report due Friday. The European Central Bank and Bank of England are widely expected to maintain interest rates unchanged at 4.00% and 5.75% respectively. We will focus on the central bank post-meeting statements for clues on future interest rate hike schedule. Both of the two banks are anticipated to raise rates at least one more time in the second half of the year.
Sunday, July 29, 2007
Dollar Steadies after Robust GDP
The dollar rallied broadly as investors cut risk exposures in global equity market and convert assets to safe haven, the US dollar.
The Dow Jones Industrial Average yesterday posted the biggest decline in five months. The S&P 500 market share shrank 30 billion yesterday. Japan and European stock markets also suffered losses in the global equity sell-off. Besides, credit spread between junk bonds and risk-free US treasury bonds widened.
The euro fell to test the long-term support at 1.3630 versus the dollar, while sterling slumped rapidly from 2.05 to as low as 2.0250.
The Dow Jones Industrial Average yesterday posted the biggest decline in five months. The S&P 500 market share shrank 30 billion yesterday. Japan and European stock markets also suffered losses in the global equity sell-off. Besides, credit spread between junk bonds and risk-free US treasury bonds widened.
The euro fell to test the long-term support at 1.3630 versus the dollar, while sterling slumped rapidly from 2.05 to as low as 2.0250.
Friday, July 27, 2007
USD Edges Higher Ahead of GDP
At 8:30 AM US Q2 GDP y/y (exp 3.2%, prev 0.7%)
US Q2 PCE y/y (exp 3.6%, prev 3.5%)
US Q2 core PCE (exp 2.0%, prev 2.4%)
At 10:00 AM US July University of Michigan Sentiment Survey (exp 91.2, prev 85.3)
The greenback remains buoyed in early Friday trading, holding onto its previous session’s gains against the euro and sterling. The yen also continues to trade near its highs against the majors following the steep sell-off in the global equity bourses from the previous session, as heightened risk aversion remains a prime catalyst in carry trade unwinding. Lingering fears of a credit crunch and its detrimental impact on global financial markets have prompted investors to dump equities in favor of US Treasuries.
The economic calendar is poised to provide further support for the greenback, with markets looking ahead to second quarter GDP and the July University of Michigan sentiment survey. US growth in Q2 is forecasted to post a robust 3.2% gain, up sharply from a paltry first quarter reading of 0.7%. An upbeat GDP figure bodes well for the dollar and reinforces the case for the FOMC to remain unchanged over the remainder of this year, instead focusing on inflationary pressure. Accordingly, the Fed’s preferred inflation-measure, the PCE, is seen edging up in Q2 to 3.6% from a year earlier at 3.5%. The core PCE reading, however, is estimated to slip to 2.0%, down from 2.4%. Meanwhile, consumer sentiment is seen firming in July as the University of Michigan sentiment survey is forecasted to creep higher to 91.2 versus 85.3 from a month earlier. Overall, we expect the greenback to maintain its upbeat tone throughout the session, supported by data revealing improving US fundamentals.
US Q2 PCE y/y (exp 3.6%, prev 3.5%)
US Q2 core PCE (exp 2.0%, prev 2.4%)
At 10:00 AM US July University of Michigan Sentiment Survey (exp 91.2, prev 85.3)
The greenback remains buoyed in early Friday trading, holding onto its previous session’s gains against the euro and sterling. The yen also continues to trade near its highs against the majors following the steep sell-off in the global equity bourses from the previous session, as heightened risk aversion remains a prime catalyst in carry trade unwinding. Lingering fears of a credit crunch and its detrimental impact on global financial markets have prompted investors to dump equities in favor of US Treasuries.
The economic calendar is poised to provide further support for the greenback, with markets looking ahead to second quarter GDP and the July University of Michigan sentiment survey. US growth in Q2 is forecasted to post a robust 3.2% gain, up sharply from a paltry first quarter reading of 0.7%. An upbeat GDP figure bodes well for the dollar and reinforces the case for the FOMC to remain unchanged over the remainder of this year, instead focusing on inflationary pressure. Accordingly, the Fed’s preferred inflation-measure, the PCE, is seen edging up in Q2 to 3.6% from a year earlier at 3.5%. The core PCE reading, however, is estimated to slip to 2.0%, down from 2.4%. Meanwhile, consumer sentiment is seen firming in July as the University of Michigan sentiment survey is forecasted to creep higher to 91.2 versus 85.3 from a month earlier. Overall, we expect the greenback to maintain its upbeat tone throughout the session, supported by data revealing improving US fundamentals.
Yen Surges on Risk Aversion
The Japanese yen surges across the board on Thursday as investors exit carry trades on rising risk aversion. The subprime housing woes spread into stock and bond market today. Credit spread between emerging market bonds and US Treasury notes widened to a 13-month peak. The Dow Jones industrial average posted its biggest daily loss in five months.
After the dollar fell below the 200-day moving average at 119.70 versus the yen, the decline accelerated to reach 118.52. The sterling fell five big figures to as low as 242.85 against the yen. The euro dropped from 165.50 to around 163 versus the yen.
Comments from Japan officials earlier today also gave the yen a boost. The Bank of Japan board member Tadao Noda said the central bank is aware of the risks of a weak currency. The Finance Ministry’s top official, Hiroki Tsuda, said currencies should reflect economic fundamentals and that he is watching the currency market carefully.
After the dollar fell below the 200-day moving average at 119.70 versus the yen, the decline accelerated to reach 118.52. The sterling fell five big figures to as low as 242.85 against the yen. The euro dropped from 165.50 to around 163 versus the yen.
Comments from Japan officials earlier today also gave the yen a boost. The Bank of Japan board member Tadao Noda said the central bank is aware of the risks of a weak currency. The Finance Ministry’s top official, Hiroki Tsuda, said currencies should reflect economic fundamentals and that he is watching the currency market carefully.
Thursday, July 26, 2007
USD Buoyed Ahead of Data
At 2:00 AM UK July Nationwide House Prices (exp 10.6%, prev 11.1%)
At 4:00 AM Eurozone June M3 Money Supply (exp 10.7%, prev 10.7%)
Germany July Ifo Expectations (exp 102.0, prev 102.8)
Germany July Ifo Current Conditions (exp 111.0, prev 111.4)
At 8:30 AM US June New Home Sales (exp 895k units, prev 915k units)
US Weekly Jobless Claims (exp 310.0k, prev 301.0k)
US June Durable Goods Orders (exp 1.8%, prev –2.4%)
The dollar remains firm against the majors, holding onto yesterday’s gains as traders posture for strong US economic data over the next few sessions. The trade-weighted dollar index managed to bounce off the key 80-level, finding reprieve from aggressive selling over recent weeks. The greenback’s recovery was in large part due to unwinding in the carry trades, dragging the euro and sterling lower across the board.
In the coming session, markets will digest US weekly jobless claims, June new home sales, and durable goods orders. Weekly jobless claims are seen edging up slightly to 310k, from 301k a week earlier. Although the dollar was resilient to yesterday’s disappointing existing home sales, which tumbled to its lowest level since 2002 – it reminds traders of the precarious state of the US economy. Attention will shift to today’s new home sales that are expected to decline to 895k units in June versus 915k units a month earlier. Meanwhile, boding well for the greenback are forecasts for a sharp reversal in June durable goods orders from May’s 2.4% decline, jumping by 1.8%.
At 4:00 AM Eurozone June M3 Money Supply (exp 10.7%, prev 10.7%)
Germany July Ifo Expectations (exp 102.0, prev 102.8)
Germany July Ifo Current Conditions (exp 111.0, prev 111.4)
At 8:30 AM US June New Home Sales (exp 895k units, prev 915k units)
US Weekly Jobless Claims (exp 310.0k, prev 301.0k)
US June Durable Goods Orders (exp 1.8%, prev –2.4%)
The dollar remains firm against the majors, holding onto yesterday’s gains as traders posture for strong US economic data over the next few sessions. The trade-weighted dollar index managed to bounce off the key 80-level, finding reprieve from aggressive selling over recent weeks. The greenback’s recovery was in large part due to unwinding in the carry trades, dragging the euro and sterling lower across the board.
In the coming session, markets will digest US weekly jobless claims, June new home sales, and durable goods orders. Weekly jobless claims are seen edging up slightly to 310k, from 301k a week earlier. Although the dollar was resilient to yesterday’s disappointing existing home sales, which tumbled to its lowest level since 2002 – it reminds traders of the precarious state of the US economy. Attention will shift to today’s new home sales that are expected to decline to 895k units in June versus 915k units a month earlier. Meanwhile, boding well for the greenback are forecasts for a sharp reversal in June durable goods orders from May’s 2.4% decline, jumping by 1.8%.
Dollar Rose Across the Board
The dollar rallied sharply across the board, recovering after recent rapid decline. After breaking the 1.38 handle, the euro accelerated its decline versus the dollar, heading towards next key level at 1.37. The sterling fell off the 26-year high set yesterday to as low as 2.0488 against the dollar.
The dollar correction is due partly to technical factors and partly to temporary passing of subprime fears. However, it should be noted that US housing issues are still existing and will nudge the market once a while in future.
US existing home sales dropped 3.8% in June to an annual rate of 5.75 million units, below the estimate of 5.87 million. The market will look into the new home sales report due tomorrow for more clues on housing market. New home sales are expected to fall from 915k units to 895k in June. Other economic data to be released on Thursday include Germany IFO survey for July, US weekly jobless claims, US durable goods orders, and Japan CPI and retail sales reports.
The dollar correction is due partly to technical factors and partly to temporary passing of subprime fears. However, it should be noted that US housing issues are still existing and will nudge the market once a while in future.
US existing home sales dropped 3.8% in June to an annual rate of 5.75 million units, below the estimate of 5.87 million. The market will look into the new home sales report due tomorrow for more clues on housing market. New home sales are expected to fall from 915k units to 895k in June. Other economic data to be released on Thursday include Germany IFO survey for July, US weekly jobless claims, US durable goods orders, and Japan CPI and retail sales reports.
Wednesday, July 25, 2007
JPY Strength Dictates FX
At 10:00 AM US June Existing Home Sales (exp –1.8%, prev –0.3%)
US June Existing Home Sales (exp 5.87 mln units, prev 5.99 mln units)
The yen strengthened across the board in early Tokyo trading, pushing through the 120-level against the dollar and climbing to 246.34 versus the sterling. Meanwhile, the greenback rode the coattails of yen strength and recovered toward the 1.38-mark versus the euro. Traders will analyze US existing home sales to further assess housing market activity, with home sales forecasted to fall by 1.8% to 5.87 million units in June.
US June Existing Home Sales (exp 5.87 mln units, prev 5.99 mln units)
The yen strengthened across the board in early Tokyo trading, pushing through the 120-level against the dollar and climbing to 246.34 versus the sterling. Meanwhile, the greenback rode the coattails of yen strength and recovered toward the 1.38-mark versus the euro. Traders will analyze US existing home sales to further assess housing market activity, with home sales forecasted to fall by 1.8% to 5.87 million units in June.
Greenback Fell on Housing Fears
The greenback fell across the board as US housing concerns remains a big problem and it may spread into the broader economy. The euro touched the 1.3850 resistance level versus the dollar before easing back to around 1.3820. The sterling climbed to a fresh 26-year high at 2.0652 against the dollar and then retraced back to 2.0610.
The dollar index fell to a 15-year low of 80.016, near the psychological support at 80. A break of this level may trigger another round of sharp dollar sell-off.
Several manufacturing reports from the Eurozone were mixed and did little to the market. The market will focus on US June existing home sales due 10AM EST tomorrow for more clues on the nation’s housing market conditions. The report is expected to show a –1.8% decline to an annual rate of 5.87 million units, which may weigh on the dollar.
The dollar index fell to a 15-year low of 80.016, near the psychological support at 80. A break of this level may trigger another round of sharp dollar sell-off.
Several manufacturing reports from the Eurozone were mixed and did little to the market. The market will focus on US June existing home sales due 10AM EST tomorrow for more clues on the nation’s housing market conditions. The report is expected to show a –1.8% decline to an annual rate of 5.87 million units, which may weigh on the dollar.
Dollar Struggles, Mired Near Lows
At 4:00 AM May Eurozone Current Account Balance (exp –1.2 bln euros, prev –4.0 bln euros)
July Eurozone Service PMI (exp 58.0, prev 58.3)
July Eurozone Manufacturing PMI (exp 55.5, prev 55.6)
At 5:00 AM May Eurozone Industrial Orders m/m (exp 1.1%, prev –0.4%)
May Eurozone Industrial Orders y/y (exp 7.8%, prev 12.2%)
At 8:30 AM Canada May Retail Sales m/m (exp 0.5%, prev 0.4%)
Canada May Retail Sales ex-autos m/m (exp 0.6%, prev 0.0%)
At 10:00 AM US July Richmond Fed Survey (exp 5, prev 4)
The beleaguered dollar found no reprieve in the early Tokyo session, dropping to fresh 18-year lows versus the Aussie at 0.8847 and falling to a new 26-year low against the sterling at 2.0640. We continue to monitor the trade-weighted dollar index, which trades just above the key 80-level. Traders will closely assess this week’s US economic reports to discern the trend for the greenback over the coming months – with overwhelming sentiment biased toward further declines as a result of expectations for global interest rate differentials.
The economic calendar from the US for Tuesday is light, consisting of only the July Richmond Fed manufacturing survey – seen improving to 5, up from 4 in the previous month. Traders will also continue to analyze earnings releases and monitor US equity performance. There are also Fed officials scheduled to speak, including Mishkin and Poole.
July Eurozone Service PMI (exp 58.0, prev 58.3)
July Eurozone Manufacturing PMI (exp 55.5, prev 55.6)
At 5:00 AM May Eurozone Industrial Orders m/m (exp 1.1%, prev –0.4%)
May Eurozone Industrial Orders y/y (exp 7.8%, prev 12.2%)
At 8:30 AM Canada May Retail Sales m/m (exp 0.5%, prev 0.4%)
Canada May Retail Sales ex-autos m/m (exp 0.6%, prev 0.0%)
At 10:00 AM US July Richmond Fed Survey (exp 5, prev 4)
The beleaguered dollar found no reprieve in the early Tokyo session, dropping to fresh 18-year lows versus the Aussie at 0.8847 and falling to a new 26-year low against the sterling at 2.0640. We continue to monitor the trade-weighted dollar index, which trades just above the key 80-level. Traders will closely assess this week’s US economic reports to discern the trend for the greenback over the coming months – with overwhelming sentiment biased toward further declines as a result of expectations for global interest rate differentials.
The economic calendar from the US for Tuesday is light, consisting of only the July Richmond Fed manufacturing survey – seen improving to 5, up from 4 in the previous month. Traders will also continue to analyze earnings releases and monitor US equity performance. There are also Fed officials scheduled to speak, including Mishkin and Poole.
Tuesday, July 24, 2007
Dollar Rebounded vs Euro
The dollar rebounded against the euro slightly as a corrective move following recent sharp decline. The euro fell from 1.3850 to test 1.38 handle versus the dollar. With no economic data release, most major currencies trade in narrow ranges. Should the euro break 1.38, the dollar correction may extend to 1.37 before further euro rally to 1.39.
The sterling climbed to a fresh 26-year high at 2.0602 versus the dollar on expectations that the Bank of England will raise interest rates at least one more time in the second half of this year.
Commodity currencies gained as copper surged and oil prices hovered at high level. The Australian dollar rose to as high as 0.8842 versus the dollar, while the Canadian dollar stood firm below the 1.05 level against the dollar.
The sterling climbed to a fresh 26-year high at 2.0602 versus the dollar on expectations that the Bank of England will raise interest rates at least one more time in the second half of this year.
Commodity currencies gained as copper surged and oil prices hovered at high level. The Australian dollar rose to as high as 0.8842 versus the dollar, while the Canadian dollar stood firm below the 1.05 level against the dollar.
JPY Climbs Higher
The greenback kicks off trading mired near its lows as traders posture for several key US economic reports due out this week. Given the increased scrutiny over recent data for spillover effects from the subprime meltdown, traders will carefully analyze housing reports, Q2 GDP, PCE, and the University of Michigan consumer sentiment survey. US growth in the second quarter is seen rebounding sharply from a lackluster Q1, with the preliminary figure set to reveal robust 3.2% GDP versus a measly 0.7% from the previous quarter.
Sentiment over global interest rate differentials will continue to be a key driver in FX movements. In light of last week’s Congressional testimony from Fed Chairman Bernanke, the FOMC remains poised to leave policy unchanged with a bias against inflation. Nevertheless, with the BoE and ECB both set to maintain its tightening stance – we anticipate further losses in the dollar in the coming months as a result of yield disparities.
Sentiment over global interest rate differentials will continue to be a key driver in FX movements. In light of last week’s Congressional testimony from Fed Chairman Bernanke, the FOMC remains poised to leave policy unchanged with a bias against inflation. Nevertheless, with the BoE and ECB both set to maintain its tightening stance – we anticipate further losses in the dollar in the coming months as a result of yield disparities.
Saturday, July 21, 2007
Dollar Slid Across the Board
The dollar slid across the board during the US morning session in a technical move. After the sterling broke 2.0550 against the dollar, the rally accelerated to reach as high as 2.0585. The euro rose to a fresh all-time high at 1.3842 versus the dollar.
The sterling rebounded following a stronger-than-expected UK second quarter GDP report, bolstering odds that the Bank of England may raise rates once more this year. UK economy grew by 0.8% on a quarter on quarter basis, beating the estimate of 0.7% and faster than a 0.7% growth rate in the previous quarter.
As housing issues remain the major concern especially after Fed Chairman Bernanke’s testimony, the overall sentiment over the greenback is still bearish.
GBPUSD encounters interim resistance at 2.0580, backed by 2.0600 and 2.0630. Subsequent ceilings will emerge at 2.0650, followed by 2.0680 and 2.0700. On the downside, support begins at 2.0520, followed by 2.0500 and 2.0480. Additional floors are eyed at 2.0450, backed by 2.0420 and 2.0400.
The sterling rebounded following a stronger-than-expected UK second quarter GDP report, bolstering odds that the Bank of England may raise rates once more this year. UK economy grew by 0.8% on a quarter on quarter basis, beating the estimate of 0.7% and faster than a 0.7% growth rate in the previous quarter.
As housing issues remain the major concern especially after Fed Chairman Bernanke’s testimony, the overall sentiment over the greenback is still bearish.
GBPUSD encounters interim resistance at 2.0580, backed by 2.0600 and 2.0630. Subsequent ceilings will emerge at 2.0650, followed by 2.0680 and 2.0700. On the downside, support begins at 2.0520, followed by 2.0500 and 2.0480. Additional floors are eyed at 2.0450, backed by 2.0420 and 2.0400.
Friday, July 20, 2007
Sterling Fell on Tame Retail Sales
The sterling following a weaker-than-expected UK retail sales report, dampening expectations for one more rate hike by the Bank of England within this year. The currency fell off a fresh 26-year high at 2.0546 against the dollar set yesterday to below 2.05 level. UK retail sales fell from 0.4% to 0.2% in June, falling short of a call for a 0.3% growth. The year on year retail sales growth rate was down from 3.9% to 3.4%.
The dollar remained under pressure after Fed Chairman Ben Bernanke stated the negative impact of housing issues may get worse and last longer than expected in the testimony yesterday. He today said yen weakness largely reflects Japan low interest rates. He added that he does not advocate any policy change by the Bank of Japan. Carry trades will continue to be favored as the BOJ keep its interest rates at the lowest level among all industrial countries.
Like yesterday, the dollar was little impacted by any single economic data. US weekly jobless claims fell 7k to 301k, slightly better than the estimate of 311k. US leading indicators unexpectedly rose 0.3%, versus a forecast of 0.0%. Philadelphia Fed business activity index came out at 9.2, below the estimate of 13.3.
The dollar remained under pressure after Fed Chairman Ben Bernanke stated the negative impact of housing issues may get worse and last longer than expected in the testimony yesterday. He today said yen weakness largely reflects Japan low interest rates. He added that he does not advocate any policy change by the Bank of Japan. Carry trades will continue to be favored as the BOJ keep its interest rates at the lowest level among all industrial countries.
Like yesterday, the dollar was little impacted by any single economic data. US weekly jobless claims fell 7k to 301k, slightly better than the estimate of 311k. US leading indicators unexpectedly rose 0.3%, versus a forecast of 0.0%. Philadelphia Fed business activity index came out at 9.2, below the estimate of 13.3.
Thursday, July 19, 2007
Greenback Consolidates Near Lows
At 2:00 AM June Germany PPI m/m (exp 0.2%, prev 0.3%)
June Germany PPI y/y (exp 1.8%, prev 1.9%)
At 4:30 AM UK June Retail Sales m/m (exp 0.3%, prev 0.4%)
UK June Retail Sales y/y (exp 3.5%, prev 3.9%)
At 8:30 AM Canada May Wholesale Trade m/m (exp 0.5%, prev –3.1%)
US Weekly Jobless Claims (exp 311k, prev 308k)
At 9:00 AM US June Leading Indicators (exp 0.0%, prev 0.3%)
At 12:00 PMUS July Philadelphia Fed Survey (exp 13.3, prev 18.0)
The dollar is little changed in early Thursday trading as it continues to struggle near its lows against the euro and sterling. Yesterday’s US CPI report and Congressional testimony from Fed Chairman Bernanke garnered a muted response in the currency market – as it seems clear the FOMC is at a stalemate with lingering inflationary pressure and moderating growth. As mentioned in yesterday’s preview, the trade-weighted dollar index now rests on a key multi-year support level – which could prompt some consolidation but likely prove insufficient in holding back the dollar bears.
US economic data set for release include June leading indicators and the July Philadelphia Fed survey, which are both expected to reaffirm slowing conditions in the economy. The June leading indicators are seen flat, down from 0.3% in May. Meanwhile, the July Philadelphia Fed Survey is expected to fall to 13.3 down from 18.0 from June. Also on the schedule will be Chairman Bernanke’s testimony before the Senate Banking Committee, in which he will likely reiterate yesterday’s comments.
June Germany PPI y/y (exp 1.8%, prev 1.9%)
At 4:30 AM UK June Retail Sales m/m (exp 0.3%, prev 0.4%)
UK June Retail Sales y/y (exp 3.5%, prev 3.9%)
At 8:30 AM Canada May Wholesale Trade m/m (exp 0.5%, prev –3.1%)
US Weekly Jobless Claims (exp 311k, prev 308k)
At 9:00 AM US June Leading Indicators (exp 0.0%, prev 0.3%)
At 12:00 PMUS July Philadelphia Fed Survey (exp 13.3, prev 18.0)
The dollar is little changed in early Thursday trading as it continues to struggle near its lows against the euro and sterling. Yesterday’s US CPI report and Congressional testimony from Fed Chairman Bernanke garnered a muted response in the currency market – as it seems clear the FOMC is at a stalemate with lingering inflationary pressure and moderating growth. As mentioned in yesterday’s preview, the trade-weighted dollar index now rests on a key multi-year support level – which could prompt some consolidation but likely prove insufficient in holding back the dollar bears.
US economic data set for release include June leading indicators and the July Philadelphia Fed survey, which are both expected to reaffirm slowing conditions in the economy. The June leading indicators are seen flat, down from 0.3% in May. Meanwhile, the July Philadelphia Fed Survey is expected to fall to 13.3 down from 18.0 from June. Also on the schedule will be Chairman Bernanke’s testimony before the Senate Banking Committee, in which he will likely reiterate yesterday’s comments.
Dollar Dipped on Bernanke Testimony
The dollar fell modestly across the board as the Fed Chairman Ben Bernanke addressed ongoing housing problem in congressional testimony. The euro rose from around 1.3775 against the dollar to above 1.38 handle, while the sterling bounced back to near 2.0550.
Bernanke said housing will remain a drag on economic growth over coming quarters. The Fed expected housing foreclosures may get worse before improving. His comments increased market worries over the collapse of subprime mortgage sector and pushed the dollar lower.
With regard to inflation, Bernanke said the Fed is still very much concerned. He said recent inflation is clearly too high but core inflation should ease as commodity prices flatten. He added it is more difficult to maintain price stability if inflation expectations rise. The Fed is more likely to keep interest rates unchanged instead of cutting rates this year.
Bernanke said housing will remain a drag on economic growth over coming quarters. The Fed expected housing foreclosures may get worse before improving. His comments increased market worries over the collapse of subprime mortgage sector and pushed the dollar lower.
With regard to inflation, Bernanke said the Fed is still very much concerned. He said recent inflation is clearly too high but core inflation should ease as commodity prices flatten. He added it is more difficult to maintain price stability if inflation expectations rise. The Fed is more likely to keep interest rates unchanged instead of cutting rates this year.
USD Slumps Ahead of CPI, Bernanke
At 1:00 AM Japan May Leading Index (exp n/f, prev 30.0)
At 4:30 AM UK May ILO Unemployment Rate (exp 5.5%, prev 5.5%)
UK May Claimant Count (exp –8.0k, prev –9.3k)
UK May Avg Earnings 3-mth (exp 3.6%, prev 4.0%)
UK July MPC Meeting Minutes (exp 6-3, prev 4-5)
At 5:00 AM Eurozone May Foreign Trade (exp 2.1 bln euros, prev 1.8 bln euros)
At 7:00 AM Canada June CPI m/m (exp 0.1%, prev 0.4%)
Canada June CPI y/y (exp 2.4%, prev 2.2%)
Canada June core CPI m/m (exp 0.1%, prev 0.3%)
Canada June core CPI y/y (exp 2.6%, prev 2.2%)
At 8:30 AM Canada June Leading Indicator (exp 0.4%, prev 0.5%)
US June CPI m/m (exp 0.1%, prev 0.7%)
US June CPI y/y (exp 2.6%, prev 2.7%)
US June core CPI m/m (exp 0.2%, prev 0.1%)
US June core CPI y/y (exp 2.2%, prev 2.2%)
US June Housing Starts (exp 1.45-mln units, prev 1.474-mln units)
US June Building Permits (exp 1.48-mln units, prev 1.52-mln units)
At 10:00 AM Fed Chairman Bernanke’s Congressional Testimony
The greenback continued to slide in early Asian trading, falling to a fresh all-time low against the euro at 1.3822 and a new 26-year low versus the sterling just shy of the 2.05-level. It’s worth noting that the trade-weighted dollar index is resting on a key support region not seen since 1992 around the 80.40-mark. A breach of this level could open up the floodgates for further losses in the currency, potentially paving the way for a move in the euro toward the 1.40-level.
Market attention will shift to Wednesday’s all-important US inflation data and Fed Chairman Ben Bernanke’s testimony before Congress. The FOMC has maintained its unchanged stance citing that the balance of risks remains skewed toward inflation despite deteriorating fundamentals in the US economy. While there is little doubt the woes in the housing market have remained on the backburner for the Fed, the extent of the downturn has been inconsistent with the jobs market remaining firm and inflationary pressure lingering – thereby keeping its hand in check. We expect the FOMC will ease rates by 25-basis points by December, on a combination of further declines in economic activity and easing of inflation.
At 4:30 AM UK May ILO Unemployment Rate (exp 5.5%, prev 5.5%)
UK May Claimant Count (exp –8.0k, prev –9.3k)
UK May Avg Earnings 3-mth (exp 3.6%, prev 4.0%)
UK July MPC Meeting Minutes (exp 6-3, prev 4-5)
At 5:00 AM Eurozone May Foreign Trade (exp 2.1 bln euros, prev 1.8 bln euros)
At 7:00 AM Canada June CPI m/m (exp 0.1%, prev 0.4%)
Canada June CPI y/y (exp 2.4%, prev 2.2%)
Canada June core CPI m/m (exp 0.1%, prev 0.3%)
Canada June core CPI y/y (exp 2.6%, prev 2.2%)
At 8:30 AM Canada June Leading Indicator (exp 0.4%, prev 0.5%)
US June CPI m/m (exp 0.1%, prev 0.7%)
US June CPI y/y (exp 2.6%, prev 2.7%)
US June core CPI m/m (exp 0.2%, prev 0.1%)
US June core CPI y/y (exp 2.2%, prev 2.2%)
US June Housing Starts (exp 1.45-mln units, prev 1.474-mln units)
US June Building Permits (exp 1.48-mln units, prev 1.52-mln units)
At 10:00 AM Fed Chairman Bernanke’s Congressional Testimony
The greenback continued to slide in early Asian trading, falling to a fresh all-time low against the euro at 1.3822 and a new 26-year low versus the sterling just shy of the 2.05-level. It’s worth noting that the trade-weighted dollar index is resting on a key support region not seen since 1992 around the 80.40-mark. A breach of this level could open up the floodgates for further losses in the currency, potentially paving the way for a move in the euro toward the 1.40-level.
Market attention will shift to Wednesday’s all-important US inflation data and Fed Chairman Ben Bernanke’s testimony before Congress. The FOMC has maintained its unchanged stance citing that the balance of risks remains skewed toward inflation despite deteriorating fundamentals in the US economy. While there is little doubt the woes in the housing market have remained on the backburner for the Fed, the extent of the downturn has been inconsistent with the jobs market remaining firm and inflationary pressure lingering – thereby keeping its hand in check. We expect the FOMC will ease rates by 25-basis points by December, on a combination of further declines in economic activity and easing of inflation.
Wednesday, July 18, 2007
Sterling Gained on CPI
The sterling jumped above 2.04 versus the dollar after a report showed inflation deceleration was not as fast as expected.
UK CPI headline for June fell from 2.5% to 2.4% as expected. Excluding volatile components, food and energy, the core index rose at a rate of 2% in the year to June, the fastest pace since March 1997. Another inflation gauge, RPI came out at 4.4%, up from a reading of 4.3% in the previous month. The Bank of England may need to lift rates once more in September to curb inflation.
The sterling rallied across the board following the inflation reports. It broke through the 2.04 handle against the dollar and rose to a fresh 26-year high at 2.0474.
UK CPI headline for June fell from 2.5% to 2.4% as expected. Excluding volatile components, food and energy, the core index rose at a rate of 2% in the year to June, the fastest pace since March 1997. Another inflation gauge, RPI came out at 4.4%, up from a reading of 4.3% in the previous month. The Bank of England may need to lift rates once more in September to curb inflation.
The sterling rallied across the board following the inflation reports. It broke through the 2.04 handle against the dollar and rose to a fresh 26-year high at 2.0474.
Dollar Extended Loss, Awaits PPI
The dollar extended loss against its major rivals as the market has not got rid of the scare that the subprime sector meltdown may spill over into the broader economy especially after last Friday’s surprisingly weak retail sales data. The euro hovers under 1.38 versus the dollar, while the sterling strengthened to test the 2.04 level for the first time in 26 years.
Though a report showed manufacturing activity quickened in New York State, the dollar remained under pressure as inflation and housing data to be released this week are expected to be weak. The Empire Fed manufacturing index for July rose from 25.75 to 26.46, beating the estimate of 18.
A bunch of economic reports from US are due tomorrow. PPI, a key inflation gauge, is expected to fall from 0.9% to 0.2% in June. Excluding food and energy, core index is estimated to remain at 0.2% unchanged. US net TICS is seen to decrease from 84.1 billion to 70.0 billion. Capacity utilization is forecasted to barely changed from prior month’s reading of 81.3%. Besides, industrial production may increase 0.4% in June.
Though a report showed manufacturing activity quickened in New York State, the dollar remained under pressure as inflation and housing data to be released this week are expected to be weak. The Empire Fed manufacturing index for July rose from 25.75 to 26.46, beating the estimate of 18.
A bunch of economic reports from US are due tomorrow. PPI, a key inflation gauge, is expected to fall from 0.9% to 0.2% in June. Excluding food and energy, core index is estimated to remain at 0.2% unchanged. US net TICS is seen to decrease from 84.1 billion to 70.0 billion. Capacity utilization is forecasted to barely changed from prior month’s reading of 81.3%. Besides, industrial production may increase 0.4% in June.
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