Daily Economic Commentary: United States

[PipDiddy]

Better luck next time, folks! The Fed surprised markets yesterday when its FOMC minutes revealed less inclination to pull the QE3 trigger. The Greenback bulls celebrated the news and pushed USD/JPY to 27 pips higher to 79.68 while EUR/USD made a two-year low at 1.2243.

In its FOMC meeting minutes yesterday, the Fed cited worries over U.S. and Chinese economic growth as the main reasons why it had decided to extend its Operation Twist program. Unfortunately for QE3 fanatics, the Fed wasn’t convinced that the weaknesses warranted more bond purchases, at least for last month.

In fact, the minutes even revealed that a couple of Fed head honchos are thinking of other tools that could stimulate growth. No specific tools were discussed yet, so it’s still anybody’s guess for now. It could be Thor’s hammer, Dumbledore’s wand, or the One Ring for all we know!

The important thing to note is that the lack of willingness to pull the QE3 trigger caused a dollar rally and dragged high-yielding currencies lower across the board. But can the dollar bulls sustain the rally today?

Traders barely reacted to the trade balance data yesterday, but maybe the initial jobless claims and import prices out at 12:30 pm GMT will give them a kick.

If you remember, the U.S. trade deficit shrank from 50.6 billion USD to 48.7 billion USD in May due to lower oil prices and weak consumer demand. Let’s hope that the initial claims and import prices will show more optimism!

Oh, and don’t forget to watch the 30-year bond auction coming up at 5:00 pm GMT as well as the Federal budget balance report at 6:00 pm GMT!

[PipDiddy]

When risk aversion is here, the U.S. dollar is the king of the hill! The Greenback raked in gains against most of its major counterparts yesterday as rate cuts from all over the globe triggered a strong safe-haven rally. Will the U.S. dollar be able to hold on to its gains?

News of rate cuts from South Korea's and Brazil's central banks took the markets by surprise yesterday as this revealed that other economies are showing concern about the global economic welfare. Stronger than expected economic data from the U.S. also provided some support for the U.S. dollar as this eased fears of further easing from the Fed. The latest jobless claims figure came in at 350K, which was less than the estimated 376K in first-time claimants.

The U.S. is set to release its PPI data and its preliminary University of Michigan consumer sentiment report today. Producer input prices are expected to slip by 0.5% in June, following the 1.0% drop seen last May, while the core version of the report could show a 0.3% uptick. Meanwhile, the consumer sentiment reading for July is expected to improve from 73.2 to 73.5 but, if the actual figure misses the mark by a huge margin, the Greenback might be forced to return some of its gains. Keep an eye out for those releases starting 12:30 pm GMT!

[PipDiddy]

“Not today, not today,” cried the dollar bears last Friday as they were able to end the bull's streak. The U.S. Dollar Index, which had made 3 consecutive winning daily candles, finally posted a losing day as it fell to 83.83 from 84.10.

Data released was mixed. On the one hand, the headline Producer Price Index came in much better than expected as it posted a 0.1% rise. The forecast was for a 0.5% decline. On the other hand, both the core PPI and the University of Michigan consumer sentiment survey failed to meet forecast as they printed a 0.2% gain and a 72.0 reading, respectively.

Will the Greenback continue to fall this week or is the Greenback’s sell-off merely a one-day thing? With the amount of market-moving events due this week, anything can happen.

Today, at 12:30 pm GMT, the U.S. retail sales report and the Empire State Manufacturing Index will be released. The retail sales report is predicted to show a 0.1% for both the headline and core versions. Meanwhile, the Empire State Manufacturing Index is anticipated to print a 3.9 reading.

There will be more going your way on the following days: the U.S. inflation figures on Tuesday, the building permits and housing starts on Wednesday, and the initial jobless claims and Philadelphia Manufacturing Index on Thursday.

As I said, anything can happen this week. Be prepared for a lot of volatility!

[PipDiddy]

And the Biggest Loser is... The Greenback! Weaker than expected U.S. consumer spending data triggered a U.S. dollar selloff as retail sales declined for the third consecutive month in June. Higher-yielders took advantage of dollar weakness and climbed after the release, but will these rallies last?

U.S. retail sales chalked up a 0.5% decline in June while the core version of the report showed a 0.4% drop instead of rising by 0.1%. This followed May's 0.2% decrease in headline retail sales and the 0.4% drop in core spending. In fact, this was the report's third month in consecutive declines!

Apparently, the weakness in spending was a result of the high level of unemployment in the U.S. and concerns about the state of the global economy. Traders were so overwhelmed by the disappointing retail sales figure that they simply ignored the better than expected Empire State manufacturing index, which climbed from 2.3 to 7.4 this month.

Today, the U.S. is set to release its CPI figures along with a few medium-tier reports such as industrial production and capacity utilization. Core CPI is expected to have risen by 0.2% in June while the headline figure could post a flat reading. With market participants buzzing about QE3 again, weaker than expected inflation data could actually result to another dollar selloff. Stay on your toes during the actual release at 12:30 pm GMT!

[PipDiddy]

Nice try, dollar bulls, but you're gonna have to do better than that if you want to lock in some gains! Though the dollar gave other currencies a run for their money, it was unable to seal victories against its higher-yielding counterparts. At the end of the day, EUR/USD closed 11 pips higher at 1.2288, after falling to as low as 1.2189.

Fed Chairman Ben Bernanke played the markets like a fiddle yesterday! First, he sent the dollar racing up the charts by failing to hint at QE3. And then he sent traders on a dollar-selling spree after telling Congress that the Fed is prepared to take action if necessary! Way to confuse the markets, Bernanke!

But while the central bank head has steered away from committing the Fed to further QE, other Fed members have been vocal about the possibility of more stimulus. Cleveland Fed President Sandra Pianalto, for one, thinks that the U.S. still needs a "highly accommodative policy."

Overall, it seems we cannot rule out the possibility of further easing. Some say it may come as soon as September!

In other news, yesterday's inflation reports fell in line with expectations. Headline CPI clocked in at 0.0% from -0.3% the month before. Meanwhile, core CPI came in at 0.2% again, just as expected.

Today, we have a couple of U.S. reports on tap that are worth noting. At 12:30 am GMT, building permits data will be available. Look for the June report to show a total of 770,000 permits, down from May's 780,000. Housing starts data is also set to come out at the same time, and survey says we could see an increase from 710,000 to 740,000.

Then at 2:00 pm GMT, Ben Bernanke will testify again. Though this speech may not have as big an impact as the one yesterday, it could clarify issues regarding the Fed's stance, so don't miss it!

Rounding up our day is the release of the Beige Book, due at 6:00 pm GMT. If you want an idea of what influences the FOMC's rate decisions, this is the report to catch!

[PipDiddy]

Hang in there, fellas! Except for USD/JPY, the scrilla capped the day almost unchanged against its counterparts. It’s not due to lack of major market-moving reports though. What are the dollar bulls and bears are up to?

Yesterday Ben Bernanke fired up the dollar bears’ party when he repeated his stance on not implementing more QE in the near future. Of course, it also didn’t help the Greenback that the Beige book report hinted at weakening economic growth. Three Fed districts clocked in slower economic growth, which is thrice the number from the previous release. Weaknesses in manufacturing, confidence, and employment were also featured in the report.

But the dollar bulls didn’t give up without a fight! With Bernanke’s testimonies over and done with, traders are turning their focus back on the euro zone and the EZ officials’ lack of teamwork in dealing with the debt crisis. As a result, the dollar capped the day almost unchanged against the euro, pound, and the franc.

Will today’s U.S. economic data steal back the spotlight from the euro region? The 6.9% growth in housing starts and the 3.7% gain in building permits didn’t catch attention yesterday since the reports are known to show volatile results anyway.

Maybe the initial jobless claims data at 12:30 pm GMT and the existing home sales and Philly Fed index reports out at 2:00 pm GMT will provide more action. The initial jobless claims is expected to rise after the July 4^th holidays, while markets are expecting better numbers for existing home sales and the Philly Fed data.

Trade well today, homies!

[PipDiddy]

More data = more bad news! The U.S. added to its collection of disappointing stats yesterday, fueling bets for QE3 to the dismay of dollar bulls. Soft U.S. reports crippled the dollar, leading it to weaken against all of its major counterparts except for the euro and the franc.

Jobless claims rose once again, hitting 386,000 last week to exceed forecasts which called for 367,000 filings. However, I did some research and apparently, these figures were bloated by a change in the timing of annual automobile plant layoffs.

Existing home sales, on the other hand, had no excuse for printing crummy results. Home sales slumped to its lowest level this year, clocking in at 4.37 million last month. This is a huge disappointment considering many had anticipated home sales at 4.63 million.

The Philly Fed manufacturing index rounded up the pity party with more worse-than-expected results, as it rose from -16.6 to just -12.9, instead of hitting -7.9 as many had expected. Hah! It looks like the case for QE3 is getting stronger and stronger! The question is, will the Fed bite?

Hmm... From the looks of it, it may take a few months worth of dismal data to convince Bernanke of the urgent need for more easing, so we may have to wait a bit longer to see how all of this plays out.

No big reports from the U.S. today. So if you plan on trading the dollar, set your eyes on Europe and keep track of the market's risk sentiment!

[PipDiddy]

Now that’s how you end the week in style! With risk aversion back with a vengeance, the dollar trumped all its major counter parts last Friday. EUR/USD tested as low as 1.2150, while GBP/USD closed over 100 pips lower to finish at 1.5615.

The dollar benefitted last Friday, as concerns about the European debt crisis continued to weigh heavily on the markets. Apparently, a bank bailout may not be enough for Spain, and its government may be required to beg for one as well! Investors are quickly losing confidence in Spanish debt, whose yields traded as high as 7.18% last Friday. Yikes!

Once again, no hard data headed our way from Uncle Sam today, but make sure you keep tabs on Europe. Also, take note that many dollar pairs have weekend gaps (in favor of the dollar), and normally, these gaps tend to fill. Good luck trading today homies!

[PipDiddy]

If risk is off and it don't look good, who ya gonna call? The Greenback! Thanks to uncertainties in the euro zone, risk aversion propped the U.S. dollar up against most of its counterparts yesterday. Read on to find out what's in store for the Greenback today.

Although the U.S. didn't release any data yesterday, the Greenback found support from ongoing euro zone debt concerns. Apparently, another major Spanish city is rumored to need financial assistance from the government as the debt crisis in Spain grew worse. Make sure you check out my euro zone commentary for the rest of the details!

There aren't any top-tier reports due from the U.S. today, but don't forget that Fed Chairman Ben Bernanke is set to give a speech at 12:45 pm GMT. Even though we've probably already heard most of what Big Ben has to say during his testimonies last week, it'd be best to prepare for additional volatility just the same. Make sure you set those stops right if you're trading the dollar pairs!

[PipDiddy]

Chalk up another victory for the scrilla baby! Once again, the dollar edged higher versus higher yielding currencies, as risk aversion was still present in the markets. Can dollar domination continue or could we see a midweek reversal?

Only piece of data to hit the airwaves yesterday was the manufacturing purchasing managers’ index, which came in slightly worse than expected at 51.8, just below the 52.1 forecast. This just goes to show that manufacturing industries are still chillin’ right now, as business activity is quite slow.

In other news, Bernanke didn’t drop any clues in his speech about early childhood education yesterday.

For today, we’ve got new homes sales figures headed our way at 2:00 pm GMT. Expectations are that the annualized pace of new home purchases rose to 372,000, up from the 369,000 we saw last month. Keep in mind that housing figures have been on a roll lately, so it’s quite possible that we could be in for an upside surprise later today.

We also have Treasury Secretary Timothy Geithner speaking tonight in front of the House Financial Services Committee today at 2:00 pm GMT. As the top gun of the Treasury, his words can sometimes weigh heavily on the markets, especially if he begins commenting on the state of the economy and the dollar.