Daily Economic Commentary: United States

[PipDiddy]

The greenback seemed to have lost its mojo yesterday as it ended weaker against the other major currencies. Was this spurred by improved risk appetite or are traders wary about the effects of the newly-approved health care bill on the US dollar?

The US Congress' approval of the health care has thrown the spotlight back on the government's bulging deficit. With an estimated $940 billion in costs, would the US have enough funds to support the health care plan? If it doesn't, would the government impose higher taxes so that they'd have more to spend? How could this affect consumer spending then? My oh my, plenty of questions keep coming to mind and these may have caused many to doubt the credit standing of the US.

On top of that, US and China continue to bicker about the revaluation of the yuan. US has warned China that, if it doesn't take steps to remove the yuan's peg on the US dollar, they would be labeled as currency manipulators in the US Treasury's semi-annual report. Yesterday, China's central bank governor retorted that this "noise" coming from the US lawmakers isn't helping at all. Talk about tension!

On the economic front, the US is set to release their existing home sales report at 2:00 pm GMT today. This report could show that existing home sales for February stood at 5.01 million. A better than expected figure could provide some support for the greenback.

Treasury Secretary Timothy Geithner and FOMC member Thomas Hoenig are scheduled to deliver speeches today. Geithner could talk about the government's involvement with mortgage finance companies like he did in his testimony yesterday. Hoenig, on the other hand, could drop hints about the future monetary policy decisions of the Fed. Stay tuned!

[PipDiddy]

The USD ended yesterday’s session in a mixed fashion, winning against the GBP, EUR, and JPY, but losing versus the com-dolls. Will the expected increase in the US’s durable goods orders and new home sales spark some risk taking and benefit the anti-dollars?

Yesterday, the spotlight was on US President Barack Obama as he signed the Health Care Reform Bill into law. The bill costs about $940 billion which is spread in 10 years. With an already large budget deficit, the passing of this law would weigh more on the USD.

Treasury Secretary Geithner also testified yesterday before the House Financial Services Committee. In his speech, he said that a lot of changes will be done with the government-sponsored enterprises Fannie Mae and Freddie Mac. These changes, once done, should promote the good mortgage underwriting standards to lessen the unfavorable effects of shocks in the country’s financial system.

On a separate note, the US’s existing home sales dipped to 5.02 million for a third month in a row from 5.05 million. This drop in the existing home sales raised some worries regarding the sustainability of the recovery of the US’s housing market.

At 12:30 pm GMT today, data regarding the US’s durable goods orders will be published. The headline durable goods orders are seen to have expanded by 0.8% in February on top of the 2.6% rise during the month prior. The core version of the account, which excludes transportation items, is also projected to gain by 0.6% following a 1.0% drop in January.

At 2:00 pm GMT, the US’s new home sales will also be on deck. New home sales in February are seen to be at annualized 318,000 units which is better than the 309,000 registered during the previous month. Given the drop in existing home sales, though, it’s possible for this account to log in a weaker-than-expected figure as well.

[PipDiddy]

The dollar was spotted flexing its muscles against other currencies in the foreign exchange markets yesterday. The US dollar index, which tracks the performance of the dollar relative to a basket of foreign currencies, went up to its highest level in 10 months.

The dollar's strength mostly came from the news that Portugal's credit rating was downgraded to AA- from AA by Fitch, a credit rating agency. There was also rumor going around that France and Germany could turn to the IMF to help bailout Greece.

Yesterday's economic data were mixed.

The durable goods orders report for February showed only a 0.5% rise, lower than the 0.8% increase initially predicted. However, the core version of the report which excludes automobile and airplane orders climbed by 0.9%, higher than expected. Economists and analysts are saying that the monthly improvements in the manufacturing industry will continue to help drive the US economy to recovery.

In other news, the new home sales report revealed that the annualized number new single-family homes sold in February were only 308,000, marking the fourth straight month of decline.

On the docket today is the US weekly initial jobless claims (12:30 pm GMT) and a speech by Federal Reserve Chairman Ben Bernanke (2:00 pm GMT).

The report on initial jobless claims is predicted to show that 452,000 people claimed for unemployment insurance for the first time last week, which is slightly lower from the week before. Falling claims is typically associated with an improving labor market, because it indicates that less and less people are getting laid off.

Ben Bernanke's speech would probably be the focus for today though, as he is set to speak about the Fed's exit strategy with regards to all the stimulus measures they've implemented to support the economic recovery.

[PipDiddy]

Once again, the dollar cleaned up in yesterdays poker game… err trading sessions! The dollar rose against almost other majors. Will the winning streak continue as we end the week? Or will we some profit taking take place?

In a speech yesterday, US Fed President Ben Bernanke once again expressed concerned about the state of the US recovery. True to form, Bernanke showed a lot of caution, pointing to the weak labor and housing markets. Doesn’t this sound familiar? It should – we’ve been hearing it for the past 6 months now!

Also released yesterday were weekly unemployment claims figures. Claims fell from 456,000 to just 442,000 this week. This brought claims to its lowest level in 6 weeks. Still, this is pretty high and may take awhile before we can truly say that the labor market is improving.

Despite Bernanke’s cautiousness, we saw equities rise, as well as the commodity currencies hold their ground. It seems that more and more, the correlations between the currencies that held for the better part of the past year are breaking. Meanwhile, the yen, euro and pound are all now suffering from the fundamental problems of their economies. As long as those problems persist, the dollar could stand to benefit in the short run.

Today, at 8:30 pm GMT, we’ve got final GDP data on deck. No changes are expected, as GDP growth for last quarter is still expected to be at 5.9%. Meanwhile, the revised University of Michigan consumer index will also be available at 1:55 pm GMT. The index measures consumer confidence over the current and future economic outlook. Consensus is for a slight upward revision in the index, from 72.5 to 73.1

One thing to keep an ear out for is the EU summit that’s still taking place. Remember, a lot of the recent dollar strength has to do with weakness in the euro zone. If the euro zone shows more signs that they aren’t quite getting along, we could see a sell off in the EURUSD, which may actually lead to a rise in the dollar across the board.

[PipDiddy]

Screech! The greenback hit the brakes on its rally last week, allowing most majors to keep up. Still, the greenback outpaced the com-doll pack even though it lagged behind the euro, pound, and yen last Friday.

The US fourth quarter GDP was revised to 5.6%, down from the previously reported 5.9%. Investment, inventories, and financial services received downward revisions but still chalked up their best gains in almost six years. Meanwhile, the consumer sentiment index released by the University of Michigan was revised higher from 72.5 to 73.6, indicating that consumers' economic outlook was better than initially announced.

Economic reports were scarce last week but this upcoming week would prove to be the exact opposite. The greenback gears up for an eventful week, starting off with the release of personal spending and personal income reports at 12:30 pm GMT. Personal income is projected to print another 0.1% uptick for February while personal spending is expected to post a 0.4% increase. Also due today is the core PCE price index, which is considered to be the Fed's choice inflation indicator. It could report a 0.1% increase in prices of goods and services for February after staying flat in the previous month.

On Tuesday, the S&P house price index and the CB consumer confidence report will be released. Based on the consensus, house prices are still expected to decline in January but at a much slower pace than the 3.1% drop seen last December. The CB consumer confidence index is expected to climb back above the 50.0 mark, which indicates optimism, after dipping to 46.0 last February.

The ADP non-farm employment change and the factory orders report are due Wednesday. Net hiring is expected to increase by 38,000 in March after posting a drop of 20,000 in February. Could this foretell a positive NFP figure come Friday? Ohh, I can't wait! Factory orders, on the other hand, could be less upbeat. Only a 0.5% increase is expected for February, down from the 1.7% growth seen in January.

Aside from the usual weekly jobless claims due Thursday, the ISM manufacturing PMI is also set for release. The index could climb from 56.5 to 57.0 in April, indicating that the industry's expansion is still strong.

Come Friday, the much-awaited NFP report will be released. A total of 179,000 in net hiring is expected for March, a stark improvement over the 36,000 in net job losses reported in February. Would we really see a positive jobs figure this time? Stay tuned at 12:30 pm GMT on Friday!

[PipDiddy]

The greenback woke up yesterday on the wrong side of the bed as it got trumped by all of the other majors except the yen and the euro. The return of risk appetite led investors to buy up the high yielding currencies and to sell the USD.

News of a Greek bailout plan last Friday spilled over yesterday to bring a broad-based optimism in the markets. The jump in commodity prices later in the day also placed a lot of selling pressure on the USD. Crude oil, for one, closed with a 2.7% gain to $82.16 per barrel.

During the US session, data regarding the US’s core PCE index, personal spending and income for the month of February were issued. The core PCE index, which is the Fed’s preferred measure of inflation, came in flat at 0.0% versus an estimate of 0.1%. Personal spending in February also logged in a weaker gain of 0.3% against the market’s 0.4% estimate. Moreover, personal income likewise registered a zero growth during the same period. These weak inflation and income figures weighed more on the USD.

Later at 1:00 pm GMT, the US’s S&P/Case-Shiller Composite-20 Home Price Index will be on tap. The selling price of single-family homes in 20 major cities in the US is seen to have declined again by 0.6% on a year-over-year basis in January after already sliding by 3.1% in the month prior.

On a separate report, the CB consumer confidence index in March will be on deck. The index is projected to rise to 50.1 from 46.0. This jump in optimism could lead to some risk taking among the higher yielding assets. Such, however, could be bearish for the USD.

[PipDiddy]

The USD traded in a mixed fashion yesterday, gaining against the EUR, the CHF and the JPY, but lost out versus the GBP and the commodity-based currencies. Economic data that came out was likewise mixed.

The US's S&P/Case-Shiller Composite-20 home price index came out slightly worse-than-expected, showing a 0.7% year-on-year in January. Meanwhile, the CB consumer confidence survey printed a reading of 52.5 for this month, better than the 50.1 initially expected and higher than the previous month's revised up 46.5 reading.

The data to watch out for today is the ADP non-farm employment change (1:15 pm GMT) and the Chicago purchasing managers' index (2:45 pm GMT).

The expectation for the ADP non-farm employment change is that net number of 40,000 people were hired in March, opposite the 20,000 job losses experienced in February. The ADP report is typically considered as a leading indicator of the NFP report coming out later in the week.

The Chicago purchasing managers' index, which assesses whether business conditions in the Chicago area are improving or not, is predicted to print 61.5, roughly a point lower from the previous month's reading.

With the current sentiment towards risk, we could see the USD get sold off if the results of the reports manage to beat forecast.

[PipDiddy]

The dollar cried uncle against its European counterparts, as it dropped like a hot potato against the euro and pound. Both the EURUSD and GBPUSD pairs rose almost 100 pips from their opening prices. The dollar did however, hold its own against the yen and other majors. Could we see more mixed results today?

Part of the reason why the dollar took a hit yesterday was because of the poor ADP figures that were released. The ADP report printed job losses of 23,000, after it was expected to print an increase in hiring of 40,000. Talk about missing the mark! This caused the dollar to take a hit against higher yielders, as it suggests that the NFP figures coming out on Friday may also miss its targets.

In other news, the Chicago PMI report printed a reading of 58.8, coming up short of consensus of a score of 61.5. This indicates that while business conditions in the Chicago area are improving, although not as good as in previous months.

We could see some strong moves once again tonight, as unemployment claims figures (12:30 pm GMT) and the ISM manufacturing PMI (2:00 pm GMT) are on deck.

Jobless claims are expected to be at 440,000, which would be in line with what came in the week before. If claims come in worse than expected, it may lower expectations from the NFP report once again...

The US may finally get some good news when the ISM manufacturing PMI comes in. The index is projected to have risen from 56.5 to 57.0 last month. This would indicate that business see more favorable economic conditions in the months to come.

[PipDiddy]

A positive NFP reading, whee! It was a Good Friday, Good Payrolls for the greenback indeed as my buddy Forex Gump pointed out. Although the greenback ended higher against most major currencies, its gains against the commodity-based currencies were limited.

Last Friday, the NFP report showed that a total of 162,000 workers were hired in March - its best reading in the past three years! The increase was led by a rise in private sector hiring, which climbed by 123,000 during the month. Well, the warmer spring weather seems to have thawed out the hiring freeze seen during the first two months of 2010. Still, the actual figure missed the consensus of 185,000 and the unemployment rate didn't budge from 9.7%. Aside from that, underlying figures showed that average earnings per hour dropped in March as the number of people who couldn't find full-time jobs settled for part-time work. But hey, a positive NFP figure was good enough to boost the greenback higher!

The greenback has quite a busy week ahead and it begs the question: Would it be able to keep up its recent rally?

For today, the US is set to release its ISM non-manufacturing PMI, which is expected to climb from 53.0 to 54.2 in March. Also due today is the pending home sales report for the month of February. After posting a massive 7.6% slide for January, a smaller decline of 0.6% is projected for February. Watch out for the actual figures at 2:00 pm GMT. Better than expected results could allow the greenback to add to its recent gains.

Come Tuesday, the minutes of the latest FOMC meeting are due. Note that the Fed has already implemented a discount rate hike and ended its asset purchase program. Would it make another hawkish monetary policy move this time? The US economy has shown plenty of improvements recently but then again, the Fed could stick to its cautious wait-and-see approach. Stay tuned for the minutes at 6:00 pm GMT then.

No economic reports are due on Wednesday but speeches from a couple of Fed officials, namely Big Ben Bernanke and FOMC member Thomas Hoenig, could impact the greenback's price action. Still, if these speeches highlight the strength of the US economy, we might be in for a run of risk appetite as investors gather up enough courage to pursue higher-yielding assets.

The frenzy could die down towards the end of the week since the US has only the weekly unemployment claims on deck for Thursday. A total of 433,000 in jobless claims are expected for the week, a bit less than the 439,000 seen in the previous week. If the actual figure comes below expectations, it could throw the spotlight back on the improving trend in the labor market, allowing the greenback to push for more gains.

Fed Chairman Ben Bernanke is scheduled to deliver another speech on Friday although this could echo the same tone of his speech on Wednesday. No other economic reports are due from the US then.

[PipDiddy]

If the American Idol judges were to comment on the greenback's performance yesterday, they'd probably say it was all over the place. The USD emerged stronger than the EUR, NZD, and CHF but had lackluster movement compared to the JPY, GBP, AUD, and CAD.

One possible reason behind the greenback's unimpressive performance was the US Treasury's decision to delay their currency report. Weren't they supposed to declare China as a currency manipulator by mid-April? Apparently, Chinese President Hu Jintao is set to visit Washington this month and may still reach a compromise with the US in terms of the yuan's valuation. Perhaps the mixed movement of the greenback reflected traders' indecision amidst this looming currency war...

Meanwhile, US economic reports came in stronger than expected yesterday, allowing the greenback to push for some gains against some of the major currencies. The ISM non-manufacturing PMI climbed from 53.0 to 55.4 in March, indicating that growth in the services sector accelerated during the month. Also, the pending home sales report printed a whopping 8.2% increase instead of the projected 0.5% slide. This huge jump in pending home sales for February was most likely a result of an expanded tax credit program, which boosted demand in the housing market.

Up ahead, the FOMC minutes are set for release at 2:00 pm GMT today. As usual, the Fed could keep their cautiously optimistic stance in saying that more convincing signs of improvement are needed before they tighten their monetary policy. Still, upbeat comments from Fed Chairman Ben Bernanke could help lift the USD, giving it a more definite direction in today's trading. Keep an eye out for that!