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.
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