Daily Economic Commentary: United States

[ForexGump]

The dollar took more hits to end the week, as it fell across the board. There was major volatility with the EURUSD, GBPUSD and USDCHF pairs, while the dollar lost slightly against the commodity dollars. It appears that risk appetite remains as the dominant market theme. This could be a crucial week in trading, as the several pairs are approaching key support / resistance levels – will these levels hold or will the recent rally have enough push for a major breakout?

On Friday, the University of Michigan released the final versions of its Inflation Expectations and Consumer Sentiment reports. The reports showed that consumer sentiment fell for the first time in 5 months, as its reading for July was at 66, down from June’s showing of 70.8. The decline was attributed to rising unemployment concerns. Consumers also expect an inflation rate of 2.9% over the next year, as compared to the 3.1% expected figure last June. It will be interesting to see whether consumer confidence will continue to fall in the coming months. If so, could this dampen market optimism and cause another run to risk aversion? In any case, this is something to keep note of for in the next couple of months – right now, it’s all about risk appetite!

US Fed Chairman Ben Bernanke reiterated prior statements calling for an expansion of the Fed’s powers to have “broader supervisory powers”. Bernanke, along with the Obama administration, has been pushing towards giving the Fed more power to supervise financial institutions so that exposure to systematic risks can be avoided. Some have criticized that this would give the Fed too much power. Can Obama gain enough support to convince legislation to pass this?

Late last night, Bernanke spoke again, this time defending the actions and decisions he has made over the past couple of years. Bernanke said that the economy should stop contracting by the end of this year. He added however, that inflation will remain to be low and that the labor market would not stabilize until early next year.

At 2:00 pm GMT, new home sales data will be available. It is expected that the annualized rate of new sales as of June will rise to 353,000, up from May’s figure of 342,000. This would not be surprising, as June is normally one of the busiest months as families adjust and move before the new school year begins.

Due tomorrow, are the S&P/CS Composite – 20 HPI y/y (1:00 pm GMT), the CB Consumer Confidence and Richmond Manufacturing Index (both at 2:00 pm GMT).

It will be another busy week for Big Ben, as his interview with PBS’s Newshour. The 3 part telecast will begin later at 10:00 pm GMT, with parts 2 and 3 to be released at the same time over the next two days.

[ForexGump]

Risk tolerance was kicked into high gear yesterday as US new home sales surged 11% in June, its strongest pace of growth since December 2000. A total of 384K new homes were sold last month, beating the consensus at 353K. Does this translate to a housing market rebound?

Looking beyond the headline numbers, the rise in new home sales was merely a result of massive discounts in house prices. House prices in June are, on the average, 5.8% lower than in May and 12% lower than that of last year. Nonetheless, the increase in home sales was generally taken to be grounds for a housing market recovery. As a result, the USD sold off against most major currencies but at a slightly moderated tone compared to last week.

Could we expect a little more excitement from today's price action? Several economic reports are due from the US, starting with the S&P house price index at 1:00 pm GMT. House prices are projected to be down by 17.8% in May after recording an 18.1% drop in April. Next up is the CB consumer confidence index, which is expected to take it down a notch from 49.3 to 49.1. Lastly, Richmond manufacturing index, which could inch up from 6 to 8, is due at 2:00 pm GMT.

Also on the line-up for today are speeches from key officials such as Fed Chairman Ben Bernanke, Treasury Secretary Timothy Geithner, and FOMC member Janet Yellen. Could their words boost hopes of an economic recovery and thus spur risk appetite yet again? We'll just have to wait and see!

[ForexGump]

The USD picked up some slack as it closed the day colored “green” against most of the other majors except those in the pacific (JPY, AUD, and NZD). The USD made a late rally against the pacific boys but it already dug itself a very deep hole. Nonetheless, it showed some resiliency as it managed to erase its early losses and even gained against likes of the EUR, GBP, CHF, and CAD.

Risk aversion returned in the capitals markets yesterday as the Conference Board consumer confidence index declined for the second month this July. The index came in below expectations at 46.6 from 49.1. It was projected to even rise to 49.3. Some economists say that the drop in the index mirrors the US’s weak labor market that threatens to dent household spending. The decline in confidence as reported in the index stirred the capitals market which in turn gave boost to the USD.

In another event, US Treasury Secretary Timothy Geithner, along with Secretary of State Hillary Clinton and Chinese Vice Premier Wang Qishan, concluded their US-China Strategic and Economic Dialogue, in Washington DC yesterday. In their meeting, both parties vowed to erase the differences on trade, investment and income disparity. China also urged the US to look after the Chinese assets ($801.5 billion of Treasury holdings) and keep the value of the dollar stable. The US, in turn, assured China that it will shrink its deficit.

Today (12:30 pm GMT), market participants will keep their eyes on the release of the US durable goods orders for the month of June. The account is expected to increase by only 0.1% after rising by 1.1% during the last period. The markets have been rallying these past couple of weeks due to better-than-expected economic data particularly in US housing and retail sectors. Increased activity in housing and retail spending may lead to a rise in durable goods orders. Given the recent better-than-expected results, we may see an upside surprise in the upcoming account. This could then spark another round of risk tolerance that could be bearish for the USD.

[ForexGump]

Risk aversion sparked by mixed economic data and the crash in China’s stock market kept the USD well bid all throughout yesterday’s trading session. Investors just pulled money out of equities and commodities, much to the benefit of the USD.

The headline durable goods orders report for June printed a sharp decline. It came out at -2.5%, more than four times worse than initially predicted. Durable goods are items that have life expectancy of more than three years such as vehicles, computers, appliances and planes. The core report, which excludes automobile and aircraft orders, sang a different tune though. It reported a 1.1% rise in orders, indicating that production is on the rise and might even start to expand in the third or fourth quarter of 2009.

The Federal Reserve’s beige book that was released yesterday just echoed again the bank’s outlook on the economy. It reiterated that the rate of the economic decline in June and July has slowed down. According to the report, even if economic activity is still currently low levels, signs that the downturn is coming to an end is popping up in various sectors of the country’s economy.

For today, we’ve got the weekly report on jobless claims at 12:30 pm GMT. A total of 578,000 people are expected to have claimed for unemployment insurance last week, which is slightly higher than the 554,000 figure the week prior. While the consensus is still huge, it is certainly a far cry from the 600,000++ claims we’ve been so accustomed to seeing a few months back.

The USD has gained for two days already so this question begs to be asked: Was the Chinese stock market crash a catalyst for a major shift in sentiment? Will we see the USD further gain ground against the majors or is the current USD strength merely a correction on the longer time frame?

[ForexGump]

Just when it seemed that we were about to see a shift towards risk aversion, risk-hungry investors jump back into the markets, causing the dollar to give back much of the gains it made the previous couple of days. It appears that the previous days moves were minor pullbacks, as investors jumped on encouraging government data and better than expected earnings reports.

There were some mixed results from the weekly unemployment claims report that was released yesterday. Weekly claims came out worse than expected for last week, posting claims to be at 584,000, more than the expected 573,000 figure. Still, there was some encouraging news as continuing claims – the number of people still on unemployment benefits – fell by 54,000 to 6.197 million. With this figure falling for the 3rd straight week, this could be a signal that we may see some relatively positive news from the non-farm payrolls report due next week.

Coming up today, we have the Advance GDP q/q report due at 9:00 am GMT. It is expected that GDP fell by 1.4% in the 2nd quarter, better than the revised 5.5% fall during the 1st quarter of the year. I suspect that traders and investors will take this as a positive sign that things are improving.

US President Barack Obama commented on the upcoming report, saying that he does expect the US economy to have contracted in the 2nd quarter. Still, Mr. President still shared some optimism, as he pointed out that the contraction has slowed down significantly in the past couple of months.

In any case, be careful trading around this news release (12:30 pm GMT) as it could lead to some major volatility swings in the markets. Also, be aware that the Chicago PMI report will be released at 1:45 although I feel that traders may overlook this report as they gear up for the GDP report. Good luck trading and have a great weekend!

[ForexGump]

Dropped it like its hot! The USD plummeted against major currencies last week as the US GDP report showed that economic growth contracted less than expected for the second quarter of this year. Also, comments from the IMF saying that the USD is overvalued added to the downside pressure.

After shrinking by 6.4% in the first quarter of 2009, the US economy contracted by only 1% in the second quarter. This marks the fourth consecutive quarter of negative GDP growth in the US. Being the longest stretch of negative GDP growth on record, this implies that the current recession is even worse than the Great Depression. The consumer consumption of the report is pinpointed as the weakest area as it posted a 1.2% decline.

Despite the underlying weakness of the better-than-expected GDP report, the USD underwent massive selling as the IMF remarked that the worst may be over and that a recovery is on the horizon. The improvement in Chicago PMI reaffirms this statement as it jumped from 39.9 to 43.4, beating forecasts at 42.5.

In addition, US equities have been rallying, with the S&P 500 moving towards the 1000 level. Analysts expect this level to be tested this week as the USD has reached a new yearly low. Non-farm payrolls, a highly market-moving report, are due later on this week. This could be the perfect catalyst for the USD to drop further.

For today, ISM manufacturing PMI is scheduled for release at 2:00 pm GMT. The reading is projected to climb from 44.8 to 46.4 in July. Construction spending and total vehicle sales are also on the agenda this Monday but both are expected to have minimal impact on the price action.

[ForexGump]

The USD, along with the JPY, got trampled over in yesterday’s stampede as investors hiked their risk appetite and moved their money to higher yielding assets. It got floored all throughout the day from the opening bell up to the end.

The US capitals markets have extended their summer rally as they once again leaped higher in yesterday’s session. The ISM manufacturing PMI in July rose to 48.9 from 44.8. It was only expected to come in at 46.4. The index assesses the business conditions of the US’s manufacturing sector from the point of view of purchasing managers. While a reading below 50 still indicates contraction in the industry, the score still indicates substantial improvements. Investors saw this as an additional sign that the slump in the economy, at least in the manufacturing sector, is abating.

The USD rose further following the issue.

The PCE deflator, which is another tool that is used to gauge inflation, will be reported at 12:30 pm GMT. The account is expected to have risen by 0.2% in June after already rising by 0.1% in the month prior. Data on personal spending, which is projected to grow by 0.2% after gaining by 0.3% previously, will likewise be published at the same time.

Data on US pending home sales will be reported as well at 2:00 pm GMT. Sales are anticipated to have grown by 0.6% in June. It only advanced by 0.1% in May.

We might see another series of USD beating due to the positive expectations in the upcoming US reports.

[ForexGump]

The USD took a nice and quiet pause from Monday’s risk run yesterday as most major USD pairs consolidated in a tight range. Just to give you a quick look, the EURUSD pair drifted up and down a small 55 pip range while the usual volatility of the GBPUSD was reduced to a relatively tight 110 pip range.

US’s economic bag was mixed. On the lighter side of things, the Bureau of Economic Analysis (BEA) reported that consumer spending rose by 0.4%, in June, better than the 0.3% increase initially expected. Still, the increase hard to figure out given how the report on personal income printed that wages received declined by 1.3%, which was much higher than the 0.9% decrease consensus. Americans are spending more... while earning less? Experts and analysts are saying that the reason behind the increase in spending was higher gas prices.

The pending home sales report also came out yesterday. Despite the better-than-expected figure, the report didn’t garner much trader attention. It printed 3.6%, higher than the 0.6% forecast. Perhaps the reason behind this is actual results tend to be very volatile. To illustrate, look at the previous numbers. The report released last June came out 6.7%, more than ten times the 0.4% increase prediction. July’s report was also off target. It showed a 0.1% rise, far off from the 0.7% increase anticipated.

After yesterday’s muted price action, expect volatility to return in full swing today as a bunch of high market impact economic reports are due.

To start off, there’s the ADP non-farm employment change at 12:15 pm GMT. This tends to create a hefty impact on the foreign exchange markets as investors see this as a leading indicator of the NFP report coming out on Friday. The consensus is that 351,000 jobs were lost in July.

ISM’s July non-manufacturing purchasing managers’ index will follow at 2 pm GMT. It asks businesses NOT involved in the manufacturing industry to rate business conditions using a 0-100 boom/bust scale. A reading above base-line 50 means the businesses are expanding. Economists estimate a reading of 48.1, an improvement from last reporting period’s 47.0.

There’s the factory orders report also at 2 pm GMT. The forecast is a 0.7% drop in factory orders June-on-May.

Lots of things will be happening... So, as always, stay on your toes! Given how most major currency pairs consolidated yesterday, we might see some strong one-directional moves today.

[ForexGump]

There was more volatility in the markets yesterday, with some attempted intraday stampedes by dollar bulls. In the end, the market just overwhelmed them and took out their horns as dollar-selling bias reigned. The dollar dropped against most other majors, even falling to yearly lows against the GBP and NZD.

The ADP Non-Farm Employment Change report printed job losses to be at 371,000, more than the expected 351,000 expected figure for July. Still this was a significant improvement from the previous release of a revised 463,000 losses for the month of June. There were mixed reactions to this report, as some currencies rallied against the USD, while others dropped (which I found surprisng - I would have thought that people would jumping all over the improvement). In any case, the USD rally eventually faded and the dollar fell.

The ISM Non-manufacturing index posted a reading of 46.4, a drop from June’s score of 47.0 and lower than the predicted 48.1 score. This was in contrast to the manufacturing index released a couple of days ago, which posted its highest score in a year.

On a brighter note, factory orders increased by 0.4% from May to June, the third straight month that orders have risen. It was expected that orders would fall by 0.8%. Orders have picked up as companies have cut back on slicing inventory levels while demand is slowly picking up.

As I’ve said over and over, risk sentiment has been dominating the markets. Worse than expected news have only had temporary effects on the markets as many remain bullish on economic recovery. With more employment data due over the next two days – Unemployment Claims at 12:30 pm GMT today and Non-Farm Employment Change at the same time tomorrow – we can probably expect more volatility in the markets. Will the government report follow that of the ADP’s? Could the release be a deciding factor on whether or not this recent rally continue? Watch out!

[ForexGump]

Things are heating up in anticipation for today's NFP report. The USD traded higher against most majors yesterday but risk aversion, the usual culprit, pleaded "not guilty" this time. A mixture of excitement and hesitation was evident in the markets as traders reduced their short USD positions in order to steer clear from NFP-induced volatility.

There's no telling what the July NFP report holds. A few days ago, the ADP non-farm employment report posted 371,000 in job losses, which is worse than the expected 351,000 increase in unemployment. Yesterday, weekly jobless claims came in better than expected as a total of 550,000 first-time unemployment claims were made in the past week. This was slightly lower than the forecast of 587,000 in jobless claims, hinting that there are rays of hope in the US labor market.

The most-awaited NFP report is set for release at 12:30 pm GMT today. The consensus is 320,000 in job losses for the month of July. This is an optimistic forecast, considering the worse-than-expected 467,000 job cuts in the previous month. This should bring the US unemployment rate from 9.5% to 9.6% for July... but this isn't for certain. If you can't bear to stay in the sidelines, stay on your toes and watch out for sudden moves and price reversals!