Daily Economic Commentary: United States

[PipDiddy]

Ho ho, it looks like risk was on like Donkey Kong yesterday! Based on Swissy’s 80-pip rise to .7936 and Cable’s 79-pip gain to 1.6462, it looks like markets found it easier to take on risk. What gives?

Well, it definitely helped that the U.S. registered strong economic reports yesterday. For one, the building permits report came in near market expectations at 600,000 in July, while capacity utilization rate shot up to 77.5% in July from its upwardly revised figure of 76.9%. Lastly, the industrial production surprised markets to the upside by printing a 0.9% growth in July, which is a lot stronger than the expected 0.5% increase.

Today at around 12:30 pm GMT we’ll get hold of the U.S. PPI numbers for July, followed by the crude oil inventory numbers at 2:30 pm GMT. Markets are expecting producer prices to flatten to a 0.0% growth after slipping by 0.4% in June, but stay close to your charts in case of surprises!

[PipDiddy]

The dollar was the butt of all jokes yesterday as it was whipped across the board. It yielded ground against both safe havens and comdolls as uncertainties in the U.S. economy continued to dampen demand for the Greenback. Has the dollar lost its safe haven status?

Although U.S. PPI came in above expectations at 0.2% (versus the 0.0% forecast), the dollar simply couldn't find any buyers. While such a figure would normally alarm investors as it implies stronger inflation, details of the report reveal that the cost of crude goods, led by petroleum and food prices, dropped in July for the third straight month. As a matter of fact, this is one of the reasons why the Fed has more leeway to ease monetary policy further.

Lately, the dollar hasn't been a popular choice for traders, which has led many to believe that it has lost its safe haven status. You'd expect it to be gaining ground with so much uncertainty surrounding the global economy, but that hasn't been the case as of late. The U.S.'s domestic problems seem to be too much for even the dollar to handle.

In any case, the dollar will need solid readings from today's reports if it wants to recover some of its recent losses. Luckily, there's no shortage of reports to support it today!

At 12:30 pm GMT, the CPI report will be available. Forecasts call for a 0.2% rise to reverse the previous month's 0.2% decline. At the same time, unemployment claims data will be published. Expect the number of claims to grow by 402,000, up from 395,000 last week.

Then at 2:00 pm GMT, the U.S. will roll out its most recent existing home sales data. Many expect the report to print a healthy rise from 4.77 million to 4.91 million. Meanwhile, the Philly Fed manufacturing index is anticipated to raise its reading from 3.2 to 4.0.

Forecasts for these reports show a bit of optimism for the economy. For the dollar's sake, let's hope they live up to their expectations. Good luck, kids!

[PipDiddy]

Ain’t no thang but a chicken wing! With risk aversion taking over the markets, investors bought up the dollar like good ol’ Wingstop wings! EUR/USD closed almost 100 pips lower to finish at 1.4336. Meanwhile, AUD/USD came tumbling down as well, losing 160 pips to end the day at 1.0395.

The wave of risk aversion that hit the markets was due to a combination of factors.

First, concerns about the state of European banks began to creep back in the markets. Word through the forex grapevine is that one European bank had to request an emergency loan of as much as 500 million USD from the ECB.

This led to a sharp selloff in the stock market, with the FTSE and DAX closing over 4% lower, while the Dow dropped by as much as 500 points.

Second, we got a slew of poor economic reports, all of which pretty much came in worse-than-expected.
Unemployment claims came in at 408,000, which marked the bazillionth time that the figure has come in over the 400,000 level.

Existing home sales data was also disappointing, printing an annualized rate of 4.67 million, which was way off the expected 4.91 million figure. This was also a big drop off from June’s strong revised showing of 4.84 million.

The bad news continued when the Philly Fed Index flopped and came in at -30.7. The Ben Affleck-like performance wasn’t only way off the expected 4.0 figure, but it also marked the worst showing since March 2009! Ay caramba!

The only bit of “good news” was that CPI figures came in stronger than anticipated. Over the past month, prices rose by 0.5%. The index was expected to show an increase of just 0.2%. Ironically, this helped boost the dollar as well, as it gives the Fed less reason to be raising rates any time soon.

With no data releases scheduled for today, you might wanna keep an eye out on other markets to help you gauge risk sentiment. If it looks as if equity markets are falling and if gold is reaching for new highs, it may be a sign that risk aversion is still clouding the market, which may give you opportunities to build long dollar positions.

[PipDiddy]

You win some, you lose some. After getting a strong boost from risk aversion, the Greenback had a mixed performance against its major counterparts on Friday. The U.S. dollar consolidated against the Aussie, Loonie, and yen while it managed to score some wins against the pound and the Kiwi. Will it find a clearer direction today?

Traders probably needed to take a breather from all that safe-haven buying on Friday. The U.S. didn't release any top-tier data then, which also explains its lack of direction.

Today, only the mortgage delinquencies report is due from the U.S. This report is usually considered an indicator of the housing sector's health, so you better keep your eyes glued to the release at 2:00 pm GMT. Bear in mind that mortgage delinquencies were up by 8.32% during the first quarter and a lower figure for the second quarter could be positive for the U.S. dollar.

Tuesday has the new home sales report on tap and we just might see an increase from 312K in June to 316K in July. By Wednesday, the U.S. will release the durable goods orders data and show a slight decline in the core version of the report. Thursday has the usual jobless claims data while Friday has the preliminary GDP figure on tap. I know it's the lighter than usual load of economic data for the U.S. but those could still be good opportunities to trade the news!

[PipDiddy]

Yeeesh. With no market moving events coming out, trading was as quiet as a Mr. Bean episode, as most pairs stayed within range. EUR/USD traded within a range of just 89 pips, closing 15 pips lower for the day at 1.4364 while GBP/USD managed to close just 3 pips higher to finish at 1.6468.

One thing I couldn’t help but notice was that stocks bounced back yesterday. Bargain hunters may be going around town, looking for cheap stocks after the steep drop the past couple of weeks. With this in mind, risk appetite may pick up this week, which could mean weaker support for the dollar.

We could see more movement later today, as new home sales data will be available at 2:00 pm GMT. Pipstadamus’ crystal ball predicts that the annualized rate of new home sales rose slightly from 312,000 to 313,000 in July. A better than expected figure may just boost risk appetite, which could spell gloom and doom for the dollar.

[Hantec]

Markets anticipate Ben Bernanke's press conference at Jackson Hole on Friday. Many believe that the Fed is not going to introduce any additional monetary stimuli. However, it is also clear that the faltering US recovery may need more than low interest rates to regain momentum. The possible scenarios range from the announcement of QE3 to no intervention. QE2 was announced at the same time last year. This round of monetary easing had a profound effect on the US stock market fuelling rallies in equities and other asset classes. Relaxed monetary policy also suppressed the value of the US dollar supplying vast quantities of the currency to the money market.
What would be the likely impact of a new round of quantitative easing on the US currency and its exchange rate to other major currencies?

[PipDiddy]

“Down, down in an earlier round, and dollar we’re going down swingin’!” The Greenback lost to almost all of its counterparts yesterday as the market grooved to the talks of further stimulus from the Fed. It gave up 77 pips to the euro, 9 pips to the yen, and 104 pips to the Aussie.

From what I’ve heard around the FX hood, it seems like investors are bracing themselves for the Fed to announce further stimulus this Friday when Fed Reserve Chairman Ben Bernanke heads to the Jackson Hole Symposium.

Market junkies think that all signs of weakness in the economy that we’ve been seeing warrant further easing from the central bank. To make it even worse, yesterday’s reports only supported this thesis.

New home sales for July printed at 298,000 and fell short of the 313,000 forecast. Meanwhile, the Richmond manufacturing index showed further decline in activity when it came in at -10 for August following its -1 reading last month. Analysts had only predicted a more modest decline to -7.

Don’t fret yet though. They say that the chances of QE3 are very slim… for now.

With that said, make sure you pay attention to the economic reports we have on tap from the U.S. today. At 12:30 pm GMT, the durable goods report for July will be released. Considered as a leading indicator of production, the headline figure is seen to come in at 2.1% while the core report is anticipated to print a 0.3% decline.

If the reports came in worse than expected, we’ll probably see the dollar get sold off again. So watch out!

[PipDiddy]

Aaand the dollar strikes back! With a better-than-expected showing from durable goods orders, the American currency was able to end the day higher against all of its major counterparts, save for the Loonie.

Once again, we saw low volatility across the board as traders await the big Jackson Hole symposium scheduled to begin today. If you look back to last year's symposium, you'll see that the exact same thing happened- markets ranged ahead of the meeting. Considering that finance officials often use this as a venue to make market-shaking announcements, it isn't all to surprising to see forex markets remain range-bound.

In other news, for the first time in a long time, the U.S. printed celebration-worthy data! Yesterday's durable goods orders report provided relief from the recent series of negative reports as it showed a 4.0% rise (versus 2.1% forecast) in orders last month. Even core durable goods rose much more than expected, recording a 0.7% uptick instead of the anticipated 0.3% fall.

Orders rose on a sudden surge in demand for aircrafts and automobiles. Apparently, Americans just gotta get their hands on them G6s and R8s yo! But on the downside, business equipment ticked down last month, hinting at continued weakness in the private sector.

Looking forward, we have the weekly initial jobless claims report on tap at 12:30 pm GMT. On its own, this report probably won't do much to move markets unless it prints some ludicrous number. Look for claims to come in at 403,000, down from last week's 408,000. And as always, keep risk sentiment in check! Peace!

[LFRon]

India’s currency closely correlated to stock market
The Reserve Bank of India (RBI) has been working overtime recently to hold down the value of the Rupee. The RBI has been buying dollars for over two weeks in order to make sure exports remain competitive. Nonetheless, the Rupee may still be overvalued by as much as 3%, reckon some analysts. This is largely due to foreign capital inflows, as foreigners have poured money into Indian equities at an astounding rate. Investors are anxiously awaiting the presentation of India’s federal budget, on Febrary 28. If the budget conforms to investor expectations, India’s stock market should continue to hit new highs. Reuter’s reports:
India’s coalition government will present its second budget a week from Monday, in what analysts expect to be an expansionary package, focused on farms, healthcare, education and sanitation along with major tax reforms.

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[PipDiddy]

With the moment of truth for the U.S. only hours away, it looks like traders are placing their bets on the scrilla. The dollar gained against most of its high-yielding counterparts with EUR/USD slipping by 34 pips to 1.4386 and GBP/USD falling by 89 pips to 1.6291.

Was it because risk aversion was also felt in markets yesterday? After all, it was easier for investors to focus on the weak U.S. initial jobless claims report since it was one of the few market-moving reports released. The data showed an additional 5,000 claims from the previous reading, which brought up the initial claimants to 417,000 from its revised figure of 412,000.

Of course, we all know what markets are truly waiting for – the big Jackson Hole meeting today! At 2:00 pm GMT we’ll see the text of Fed Chairman Ben Bernanke’s keynote address to the Jackson Hole symposium. The speech will be watched closely not only because the Fed Chairman is speaking, but also because investors will be watching for any signs of additional economic stimulus. Recall that it was also this time around last year when Big Ben hinted at the Fed’s QE2 program.

Before you snooze in your charts ahead of Big Ben’s speech though, you might also want to trade the preliminary U.S. GDP report coming out at 12:30 pm GMT, followed by the revised figures of the University of Michigan’s consumer sentiment and inflation expectations at 1:55 pm GMT. Though most of the reports are expected to print a bit lower than their previous readings, significantly weaker numbers might send the dollar tumbling against the other safe havens ahead of Bernanke’s speech.

Good luck in your trades today, kids!