Daily Economic Commentary: United States

[PipDiddy]

The dollar continued its winning ways yesterday, as it gained across the board. With this being the last day of the last full week of 2009, will traders take off some of their positions before heading out to finish their Christmas shopping?

Recently, we’ve been seeing the dollar been pushing around other majors, presumably on the fundamental strength. There is now speculation however, that it isn’t purely fundamentals driving the market, but perhaps another run of risk aversion. Equities took a dip yesterday, yet the dollar remained strong, while the yen made some nice moves as well. Not to mention that there have been more fears coming out from the euro zone, UK and Australia...

Stocks falling, strong USD and JPY, bad news from other countries... Hmmm... Sounds like the idea of risk aversion driving the market isn’t as far fetched as it sounds. Just putting it out there...

Mixed data from the US didn’t stop the dollar’s good run yesterday. The bad news was that initial jobless claims rose for the 2nd week in a row, as the report came out worse than expected. Claims for last week rose to 480,000, up from the 473,000 figure last week. Take note that the most recent non farm payrolls report was considered a main catalyst for the recent rise of the USD – if the labor market shows signs of weakness in coming months, the USD might lose some of its punch.

And now, onto the good news! The Philly Fed manufacturing index came out higher than projections, printing a score of 20.4. It was expected to have a reading of 16.2. Scores above 0 indicate expansion; scores below it suggests otherwise. This was extra good news as the New York manufacturing index printed a major drop. This indicates that the drop in manufacturing may be isolated to the New York area.

With no economic data coming out today, we could be in for some quiet trading. Let me warn you though, with the last week of 2009 coming to an end, we could see some profit taking at play. This may lead to some choppy trading, more specifically during the US session. With that said, be careful and hope you enjoy your weekend!

[PipDiddy]

It's Christmas week and, as most traders start the holidays early, lower liquidity could mean higher volatility. Yikes! Would the greenback be able to sustain its recent rallies even until the end of 2009?

This week's schedule contains loads of economic data that could have a huge impact on the greenback's direction. First, there's the final Q3 GDP release on Tuesday 1:30 pm GMT. Economic growth is expected to rise by 2.8% as previously reported. Later on, existing home sales report could show a rise from 6.10 million to 6.31 million in November.

On Wednesday, we'll see the new home sales report along with a bunch of consumer sector data. Just like existing home sales, new home sales are also expected to rise in November. Data on personal spending and personal income are due 1:30 pm GMT and could print a 0.6% and 0.4% increase respectively. University of Michigan is set to report its revised consumer sentiment reading at 2:55 pm GMT. They could announce that consumer sentiment improved from 73.4 to 74.3 in December.

Come Thursday, data on core durable goods orders will be released. A 0.9% rebound from the 1.3% decline in November core durable goods is expected. Watch out for that, along with the weekly jobless claims report, at 1:30 pm GMT.

Then, on Friday, well... It's Christmas! Traders and bankers step away from the markets to enjoy the holiday. Be mindful though that, as Christmas day draws closer and closer, reduced liquidity could cause volatility to spike.

[PipDiddy]

It’s Christmas for the dollar indeed as it continued to dominate most of the other major currencies yesterday despite not having any economic reports from the US! Dollar bulls must be crazy partying at this moment!

Today (1:30 pm GMT), US’s final GDP for the third quarter will be due. No change from the 2.8% growth is expected so any positive or negative revisions would definitely shake up the markets.

At 3:00 pm GMT, data on US existing home sales will be released. Sales on November are seen to reach 6,290,000, which is better than the 6,100,000 units sold in October. Nowadays it’s hard to gauge whether an increase in the account would be bullish or bearish for the dollar. Still, given the recent sentiment for the dollar, chances are it will remain in favor at least until the year ends.

[PipDiddy]

Supported by the strong reading on the existing home sales report, the USD turned up the heat against the majors currencies yesterday... Except versus the CAD, that one’s tough and refuses to melt! Is this more evidence that currency traders are returning to watching fundamentals than risk sentiment? It sure looks like it.

The existing home sales report for November leapt to 6.54 million (annualized number) from 6.09 million in October. The forecast was for existing home sales to increase to 6.24 million only. The surge in sales was apparently caused by the rumor that the tax credit given to first-time home buyers could end soon. As I keep saying in my previous posts, as long as strong US economic data keeps on printing, the USD will be the prime choice of currency traders.

The final GDP, however, wasn’t as rosy. The initial reading of 2.8% growth was revised down slightly to 2.2%, causing dollar buying to ease up a bit.

The US has a lot on its economic cupboard today.

First up will be the personal spending report for November at 1:30 pm GMT. The expectation is that consumer spending increased 0.6%, slightly lower than the 0.7% growth seen the month before. Shortly after, at 2:55 pm GMT, the revisions on the UoM consumer sentiment survey previously released will print. The initial reading of 73.4 is predicted to be revised up to 74.0. Lastly, at 3:00 pm GMT, the report on new home sales for November will be released. The consensus is an annualized number of 442,000, up from October’s 430,000. Given the surprisingly strong existing home sales reading, we could see the new home sales report come in higher-than-forecast too.

Okay, that’s it for today. Be sure to watch these data as better-than-expected readings could push the dollar higher again, especially since currency traders seem to have returned to watching fundamentals than risk sentiment.

[PipDiddy]

Last week, saw a retracement in the recent USD move, as the dollar lost out on Wednesday and Thursday. After hitting as low as 1.4220, the EURUSD pair jumped right back to test the 1.4400 handle before some good data from the US gave the dollar some support. The pair ultimately ended the week at 1.4357.

The dollar's rally was halted when a report showed that the annualized figure of new home sales fell to 355,000 – it's lowest level in 7 months! This marked an 11% drop from October's figure of 400,000. It seems that end of government tax incentives and the 10.0% unemplyoment rate are showing their effects on the housing market. If this continues in 2010, could we see a prolonging of low interest rates in order to give consumers more incentive to purchase new homes?

Fortunately for dollar bulls, they found some respite when durable goods orders rose by 0.2%. While this was lower than forecasts of a 0.6% increase, it was still much better than October's decline of 0.6%. In addition, core durable orders – which excludes expensive items like airplanes – rose by 2.0%, almost double the 1.1% expectation. This indicates that businesses are looking to spend, which would be good for the US economy.

In addition, unemployment claims fell to 452,000, down from the previous week's figure of 480,000. This brought the 4-week moving average down to its lowest level since September 2008. Coupling this with the nice surprise we got from the latest NFP report, could this be a sign that the labor market is stabilizing?

It will be a quiet week in the forex markets, as not much high impact news will be released. Still, better to be informed just in case you decide to trade! Tomorrow, at 3:00 pm GMT, the CB Consumer Confidence index will be released. It is expected to print a reading of 53.3, up from the previous month's score of 49.5. This would indicate growing confidence amongst consumers.

On Wednesday, the Chicago purchasing managers' index (PMI) will be available at 2:45 pm GMT. The index' score is projected to dip to 55.4, down from November's release of 56.1. Also, on Thursday, weekly unemployment claims are due at 1:30 pm GMT. Claims are expected to rise slightly from last week's figure to 461,000 this week.

If these report comes in worse than expected, it could be bearish for the USD. It seems that traders are now basing their positions on fundamental strength (or weakness) as opposed to simple risk sentiment. Also, be on the look out for exaggerated moves. With low liquidity in the markets, we could see some unwarranted moves.

With that said, enjoy the rest of the holidays and good luck if you decide to jump in the markets!

[PipDiddy]

The USD bid farewell to 2009 in a mixed fashion as it gained against the JPY and EUR but lost ground against the rest of the majors. The start of the new year looks exciting, with the US gearing up for a hefty amount of economic data this week. Among the top tier reports due this week are the FOMC minutes and the much-awaited NFP report. Let’s get started, shall we?

Today kicks off with the ISM manufacturing PMI due 3:00 pm GMT. The index is expected to climb from 53.6 to 54.1 in December, suggesting that the manufacturing industry continues to expand at a faster pace. Data on construction spending and ISM manufacturing prices are also due 3:00 pm GMT today. Construction spending is expected to fall by 0.4% in November after holding steady last October. Meanwhile, ISM manufacturing prices are projected to climb from 55.0 to 57.7 in December.

On Tuesday, the US will release its pending home sales report at 3:00 pm GMT. An estimated 2.5% decline could be posted for November, following a strong 3.7% increase in the month prior. Also due on Tuesday are factory orders data, which could print a 0.5% increase. Total vehicle sales and the AIG services index are also set for release then.

Wednesday’s agenda contains the ADP non-farm employment change and the ISM non-manufacturing PMI. The ADP employment report could show that only 74K jobs were lost in December, a much better figure than the 169K in net job losses for November. Does this hint at another stronger than expected NFP figure? We’ll just have to wait and see! The ISM non-manufacturing PMI could finally cross over the 50.0 mark and land at 50.5, indicating that the non-manufacturing industry is expanding. Minutes from the latest FOMC meeting, due 7:00 pm GMT, could cause some volatility in the currency markets. Recall that, for the latter part of 2009, the Fed has been relatively more hawkish with their monetary policy stance. More upbeat comments regarding the US economy could lead to more USD buying.

Moving on… Thursday has the usual weekly jobless claims on tap. Initial unemployment claims are expected to increase slightly, from 432K to 449K in the previous week. However, this report is slated to have a minimal impact on price action since traders are all eyes and ears on the NFP report due Friday. If employment continues to increase, the USD could continue amassing gains. Still, watch out for extra volatility around the release of the report at 1:30 pm GMT. The fireworks might not be over yet!

[PipDiddy]

The new year started positively for the dollar bears as the USD slumped against most of the other majors in yesterday’s trading. US equities markets were off on a good start with Dow, Nasdaq, and S&P 500 winning 1.50%, 1.73%, and 1.60%, respectively. Is the inverse relationship between USD and equities on track again? We’ll see in the coming days and months.

The better-than-expected ISM manufacturing PMI for the month of December supported buying interests in the US equities markets. Consequently, the dollar fell as the good old ‘risk appetite’ appeared to be yesterday’s theme. The account exceeded expectations with a score of 55.9. The consensus was only 54.1.

Today (3:00 pm GMT), data on US pending home sales and factory orders in November will be released. Pending home sales are seen to have contracted by 2.3% after posting a 3.7% gain during the month prior. Factory orders, on the other hand, are projected to have increased again by 0.5% on top of September’s 0.6% gain. Between the two accounts, the former has the heavier weight in swaying the markets so a drop in the former’s figure could be bullish for the dollar, assuming that the inverse relationship that I mentioned earlier will hold.

[PipDiddy]

After giving up some ground last Monday, the dollar bulls finally decided gussy up yesterday. The dollar bulls also found it helpful that equity markets failed to sustain their bullish momentum from the day before.

News from the economic front were mixed through.

November’s pending home sales report, which was predicted to print a 2.3% decrease in sales, came out much worse. It showed that sales dropped 16.0%, opposite the 3.9% gain (revised up from 3.7%) seen the month before. On a brighter note, factory orders for November grew 1.1%, more than twice the 0.5% increase initially predicted. Digging deeper into the report would reveal that the jump in orders was primarily caused by increased demand for business equipment by companies.

Today could prove to be an exciting one for news traders out there as the ADP non-farm employment report, which is considered as a good leading indicator of the NFP report coming out on Friday, will be released. The consensus is that net job losses amounted to 74,000 in December, down from the 169,000 losses seen in November. If a lower figure comes out, we could see the dollar gain further support. The actual figure will be shown at 1.15 pm GMT.

Following shortly after is the ISM non-manufacturing PMI at 3:00 pm GMT. The expectation is a reading of 50.5 for December, up from the 48.7 seen in November. The non-manufacturing PMI gauges whether the non-manufacturing industry is growing or shrinking using a boom/bust scale. A reading above 50.0 means the industry is growing.

[PipDiddy]

Yowza! After it looked like it was on pace for another day of wins, the dollar slipped and fell late in the US session. It appears that risk appetite remains strong, which explains why traders are looking for higher yielding currencies.

The dollar also took a hit once the minutes of the recent FOMC meeting were released. Apparently, the big shots over at the Fed are undecided about when to withdraw economic stimulus and raise interest rates. In fact, one member even suggested further expansion of quantitative easing methods! This came after last month's statement which was relatively positive and indicated that the Fed would raise interest rates sooner than expected. Talk about bursting a bubble!

The ADP non-farm employment change report showed a decrease in job losses, with a figure of 84,000. While this missed projections of 74,000 job cuts, it was still much better than last month's revised figure of 145,000. It also marked the fewest job cuts since the recession began. I keep hearing whispers that the NFP report due later this week may actually show that job losses have ended this past December. Let's hope so!

In other news, the ISM non-manufacturing PMI came in slightly worse than expected, printing a reading of 50.1 for the month of December. Expectations were for a rise from November's score of 48.7 to 50.5. This indicates that the service industry is still lagging behind the manufacturing sector.

Today, weekly unemployment claims will be released at 1:30 pm GMT. Jobless claims are expected to be at 449,000 for last week. While this is normally medium to high impact event, I suspect we may see some quiet trading if traders decide to sit on the sidelines ahead of the NFP report due tomorrow at 1:30 pm GMT. Also, be on the look out as a couple of FOMC members will be speaking over the next couple of days. Given the recent developments of the latest FOMC meeting, perhaps we will hear more clamors for the “need” of further economic stimulus.

[PipDiddy]

As traders held their breath in anticipation for the release of today's NFP report, most US dollar pairs shifted to consolidation mode. Only the Yen gave way to the greenback, bringing the USDJPY to a high of 93.41 during the US session.

This week's unemployment claims came in better than expected, printing 434K in first time jobless claims instead of the estimated 449K. This upbeat jobs indicator, along with the previously released ADP employment figure, builds up expectations for strong NFP numbers. Only 3K in net job losses are expected for December, implying that the US labor market is on the path to recovery. Given the recent bias towards fundamentals, the US dollar could react positively if the actual figure meets or beats the consensus. The US labor market could actually print a positive NFP reading this time... Who knows? My buddy Forex Gump has plenty of insights on the upcoming NFP report and you might want to check it out here.

Also due today is the unemployment rate, which is slated to climb a notch from 10.0% to 10.1% in December. This is due along with the December NFP reading at 1:30 pm GMT. Keep an eye out for any revisions on the previously reported figures since this could also cause a ruckus in the currency markets, particularly for the EURUSD and USDJPY pairs.