Daily Economic Commentary: United States

Trading Discussion News and Economy
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Congratulations Mr. Greenback! It looks like you’re off to a wonderful start this week! Thanks to risk aversion on European debt woes, risk sentiment turned sour yesterday, consequently helping the Greenback rally across the board. The U.S. dollar index, which measures the strength of the Greenback versus a basket of other major currencies, surged higher to close the U.S. trading session at 75.57.

Data weren’t as impressive as the dollar’s gains. The Net Foreign Purchases of Long-Term Securities report released yesterday showed a 23.6 billion USD figure, more than half the initially projected 48.4 billion USD.

Today, we’ve got two important reports on the U.S. economic cupboard. At 12:30 pm GMT, the reports on housing starts and building permits will come out. The market expects housing starts to have risen to an annualized rate of 580,000 (from 560,000 last month) and building permits to have climbed to 610,000 (exactly the same as the previous month). With risk sentiment driving price action, worse-than-expected results could actually give the Greenback additional support.

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Hello, thank you for posting great fundamental views everyday!! If you could have time, could you tell me what impact does U.S. President Obama’s negative-viewed speech, in which he even used a word “Armageddon,” have? Or, there wouldn’t any impact since he is not professional of finance? Or the Dollar Index is rallying because the United States may incline its debt ceiling? Even though some say it’s on the risk of default, I hardly think that though.

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To what extent the US Dollar strength is coming from the deep concerns about the European Monetary Union and European debt crises? If the Euro zone was not facing the sovereign debt problems, would the faltering US recovery and concerning level of indebtedness (currently at 65%) determine a much weaker US Dollar. Recently, the topic of alternative reserve currencies has also re-appeared. Who are the main contenders and what will it take to eventually replace the US Dollar from its dominant position. If such a scenario was to be realized what would it mean to the US economy and currency to borrow in international markets at interest rates well above its current cost advantage level?

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Right now, it seems that traders aren’t willing to buy the U.S. dollar because the U.S. is also dealing with debt problems and the possibility of a credit downgrade. Add to that the possibility of QE3, which Fed head Bernanke talked about in his latest speeches, and the weak U.S. data being printed recently (which just puts the U.S. closer and closer to more easing). Because of that, the Japanese yen and the Swiss franc are emerging as the more preferred safe-havens, but the threat of intervention (as we’ve witnessed historically from the BOJ and SNB) are also stopping traders from buying up those currencies. Gold and other commodities are also acting as nice safe-haven alternatives.

And you’re right, that might make it tougher for the U.S. economy to borrow in international markets especially since other economies are starting to think about hiking rates. Also, if the U.S. does get a downgrade, they’d be required to pay higher interest on their debt as well to compensate for the increased possibility of default.

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Is risk appetite back in the game? With the rally in U.S. equities and higher-yielding currencies, it sure looks like it! Strong U.S. housing data combined with the upbeat developments in the country’s deficit reduction plan even allowed the Greenback to outpace its safe-haven rivals. USD/CHF closed 68 pips above its .8179 open price while USD/JPY ended 22 pips above the 79.00 handle.

U.S. housing data came in better than expected as building permits landed at 0.62 million while housing starts printed a 0.63 million reading for June. These were better than the predicted 0.61 million and 0.58 million figures respectively.

But the good news for the U.S. doesn’t end there! Apparently, the U.S. Congress is set to reach an agreement on their deficit reduction plan by the end of the week. As you may recall from Forex Gump’s article on the U.S. debt problem, lawmakers who couldn’t seem to see eye to eye before have now decided to work together to trim the U.S. deficit. Could they come up with a plan and raise their debt ceiling just before the August 2 deadline? Make sure you stay on your toes for any updates on the U.S. debt issue!

Also, don’t forget to keep watch for the existing home sales report due today. This could print a reading of 4.92 million for June, up from the 4.81 million seen last May. Another better than expected housing figure could keep risk appetite in the markets, which could boost the U.S. dollar against its safe-haven counterparts.

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Reports of progress on talks about US debt ceiling and upbeat economic data, including better than expected corporate reports and growth in new housing construction, led to the best day in one year for the US stock market. The US currency strength seems to be logical, with commodities keeping a negative trend. To what extent the strength of the US dollar is sustainable and what are the likely scenarios for the rest of the week?

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Don’t count your chickens before they’re hatched. Nothing is set in stone yet, at least not until Congress makes an official announcement. Luckily, we won’t have to wait long since the deadline is set on July 22. If tomorrow comes and goes without any major developments, the dollar slide could continue. But if the U.S. delivers a firm solution, I suppose we could see the dollar regain some of its recent losses.

But keep in mind, the U.S. has been in this scenario before. The U.S. has raised the debt ceiling several times and not once has it defaulted on its debt. Just a little food for thought.

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Risk appetite be killin’ the dollar yo! The American currency dropped amid weak existing home sales data and debt ceiling talks, posting losses against ALL of its major counterparts. Is it doomed to do the same today?

The only bit of hard data released was the existing home sales report, which didn’t do much to restore confidence in the U.S. economy. Instead of printing a rise from 4.81 million to 4.92 million, the report showed a decrease in the annualized number of residential buildings to 4.77 million in June.

Economic nerds are blaming the soft figure on a large number of contract cancellations. If there’s anything I hate, it’s flakers! The good news is that house prices stabilized last month and managed to rise a bit.

In other news, traders are feeling more and more excited about the prospect of the U.S. and European debt dramas coming to an end this week. This could explain why risk appetite has been up in the past couple of days.

In any case, as forum user Hantec has said, there has been progress in talks about the U.S.'s debt ceiling, with the Senate making plans to cut the deficit by 3.7 trillion USD over the span of 10 years. This is a big step, if you ask me. After all, Obama has said in the past that he won’t sign a bill to raise the debt ceiling unless big spending cuts are involved.

Up ahead, we have a few more potential market movers coming out of the U.S. At 12:30 pm GMT, we have the weekly initial claims report, which is expected to show a total of 409,000 claims for unemployment insurance, up from 405,000 the previous week.

Then at 2:00 pm GMT, Big Ben Bernanke will take the mic again and testify on the implementation of the Dodd-Frank Act. I think Forex Ninja will be writing a piece about that act soon, so stay tuned for that.

At the same time, the Philly Fed manufacturing index is due. The report is slated to jump from a reading of -7.7 to 2.7. But be careful! If results come in below expectations, it could remind traders of how frail the U.S. economy is and spark another dollar selloff.

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With European debt concerns growing ahead of the summit and no decisive resolution to the US debt ceiling concerns, the flight to safety is as high as ever. The precious metals group and the Swiss franc, as clear alternatives, both trade at high territory. At the same time, the scale and depth of the problems on both sides of the Atlantic seem to be very different. The pervasive debt problems in Europe, with deep contagion effect strike at the heart of the European Monetary Union threatening the existence of the single currency. On the other hand, the unsteady recovery and debt ceiling obstacles in the US, although serious, are no match in scale and scope. With this in mind, would you agree that the Euro seems overvalued to an extent, especially in the medium and long run.

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Is time running out for the U.S. to pass a new debt ceiling proposal? The markets seem to think so! With debt concerns still weighing heavily in the markets, the dollar found itself on the losing end yesterday. EUR/USD finished 162 pips higher at 1.4378 , while USD/JPY closed at 78.44, its lowest level in four months.

The dollar was hammered by reports that ratings agency S&P has given 50/50 odds that it could downgrade U.S. debt over the next three months. While chances are that Uncle Sam won’t default, the repercussions of the U.S. losing its AAA rating could lead to a flow out of Treasuries and a weaker dollar in the medium term.

Furthermore, if the U.S. doesn’t come up with a solution to its debt ceiling problems, I suspect that the markets could be less willing to hold on to their Greenbacks and will instead look to park their money in other safe havens likes the franc or yen.

In other news, the Philly Fex index printed a slightly better than expected figure, printing at 3.2, after early estimates were projecting a 2.7 index figure. This was a nice improvement from the previous month’s release of -7.7 and signals improved business conditions in the Philadelphia manufacturing sector.

Weekly unemployment claims were also released, with last week’s figures printing at 418,000 just slightly above the expected 409,000. This highlights that the U.S. labor market is still struggling as many people are still collecting their unemployment stipends. If conditions get worse, it’ll only lead to louder cat calls for more quantitative easing from the Fed.

Nothing biggies on the docket today, so let’s see if the dollar can make a comeback or if it’ll continue to take hits across the board. Good luck homies!

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Zzz… Price action on the dollar was about as exciting as watching paint dry! It seems the big moves on the dollar last Thursday had markets too exhausted to move on Friday as the dollar traded within tight ranges and ended the day hardly changed.

Without any U.S. reports to guide them, the markets were practically deadlocked… just like White House officials and Republican leaders! Obama’s deadline came and went, but the two sides have yet to reach an agreement about the debt ceiling. The issue at hand at the moment is Republican demand for a short-term raise in the debt ceiling which would entail a request for more borrowing in 2012.

Now that the August 2 deadline is just 8 days away, markets are growing more anxious and are beginning to wonder whether the U.S. will sort out its problems in time. I suppose this explains why the dollar gapped down against the Japanese yen and the Swiss franc over the weekend.

In the week ahead, look for debt ceiling talks to continue driving price action on dollar pairs. Developments on the situation have the potential to trigger reversals, so make it a point to keep yourself up to date by reading my Daily Forex Fundamentals and Forex Gump’s blog.

As for this week’s economic reports, we’ve got several high-impact releases due from the U.S.

Starting off the week, we have CB consumer confidence and new home sales data due tomorrow at 2:00 pm GMT. This will then be followed up by durable goods orders at 12:30 pm GMT on Wednesday. Then on Thursday, we have initial jobless claims and pending home sales data due for release at 12:30 pm GMT and 2:00 pm GMT respectively. Last but not least, the Advance GDP report will be available at 12:30 pm GMT on Friday.

As heavy as these reports are, keep in mind that they will probably take a backseat to any updates on the U.S. debt issue. Good luck, kiddos!

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The current US Dollar weakness is supported by the uncertainty related to the US debt ceiling increase, with the Congress rejecting a proposal and negotiations between the main parties in a deadlock. There is an increasing fear that failure to reach a resolution before 2 August will bring a US default and a series of downgrades of the US debt.
What is the extent of a potential dollar rebound if a quick resolution of the crises occurs and will it be sustained toward a long term adjustment?

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Relatively quiet day in the markets, as we saw a repeat of Friday’s consolidation. EUR/USD stayed within range and closed at 1.4370, down just 14 pips for the day. However, USD/CHF shot down to finish at an all-time low at .8056. Could we see more dollar weakness in the days ahead?

With U.S. legislators still butting heads over the debt ceiling and with time running out, we could see the dollar take some hits over the rest of the week. People aren’t sure what’s gonna happen and that’s why we’re seeing the franc, yen, and gold surge to new highs. It’s all about the safe havens baby and unfortunately, it’s starting to look like the dollar is gonna be kicked out of the club!

For today, we’ve got some top tier data coming out at 2:00 pm GMT in the form of the CB consumer confidence and the monthly new home sales reports. Consumer confidence is expected to have dropped slightly from 58.5 to 57.1. This is a troubling trend, as we’ve seen confidence drop over the past three months.

Meanwhile, the annualized rate of new home sales is projected to have risen slightly to 321,000 from 319,000. Now, with everything that’s going on, I ain’t quite sure how big an effect these reports will have unless they come in drastically better or worse-than-expected. In any case, stay on your toes and good luck out there today!

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Argh! The Greenback must be getting really frustrated by the lack of progress on the U.S. debt talks because it ended up losing against its major counterparts again. USDX breached the 74.00 handle and closed at 72.96 as other major currencies reached all-time highs against the U.S. dollar. How much further can it fall?

Even though U.S. CB consumer confidence data came in better than expectations yesterday, the U.S. dollar lost ground against its rivals as the U.S. government failed yet again to come up with a plan to reduce its deficit. Forex Gump pointed out what could happen to the U.S. dollar in any scenario and the odds aren’t looking too good. President Obama himself expressed his frustration over the U.S. debt situation!

It didn’t help that new home sales fell short of consensus and printed a mere 312K figure for June while the May figure was revised downwards from 319K to 315K.

Up ahead, the U.S. has the durable goods orders figures on deck but these are likely to get overshadowed by U.S. debt talks. Durable goods orders are expected to post a 0.4% uptick while the core version of the report could show a 0.5% increase for June. Watch out for those figures due 12:30 pm GMT today.

As always, keep an eye out for any updates regarding the U.S. deficit plan and whether it gets a thumbs-up or not. Bear in mind that the August 2 deadline set by credit rating agencies is fast-approaching and, if the U.S. fails to meet this deadline, they could be one step closer to a debt default. Stay on your toes at all times!

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It seems like risk aversion is the only thing that can save the dollar nowadays! With the markets getting a little jittery, the dollar was able to post small gains in yesterdays trading. The scrilla ticked higher against its major counterparts, but with legislators nowhere closer to a new debt ceiling deal, could the dollar be prone to weakness the rest of the week?

The main reason why the dollar rallied yesterday was due to concerns that the new Greek bailout package would not be enough to stop contagion from spreading in the euro zone. Fitch warned that Italy has a lot more work to do in order to prevent debt woes to overrun the economy, while S&P downgraded Greek debt from CCC to CC. These concerns sparked a run of risk aversion, which helped the dollar rally.

In other news, durable goods orders came in disappointing, with orders falling by 2.1% in June, way off the expected 0.4% increase. This highlights continued weakness in the U.S. economy, and indicates that manufacturers just aren’t dropping some Franklins ($100 bills yo!) right now. If businesses aren’t investing in equipment, it means that activity is down, which of course, ain’t good for the economy.

Notes from the latest Beige Book further supported this notion, as the report revealed that 8 out of 12 Fed areas performed poorly, while the employment is still very weak.

For today, we’ve got unemployment claims and pending home sales data on tap at 12:30 pm GMT. Weekly jobless claims are expected to weigh in at 413,000, marking one billionth month in a row that it’s printed above the key 400,000 mark. Okay fine, I exaggerate… but not by much.

Later on at 2:00 pm GMT, pending homes sales figures will be available. Word is that sales dropped by -1.5% in June, down from the sweet 8.2% growth the month before. If you’re worried about the steep drop, don’t be – the report normally post huge differences in month to month sales growth.

Besides, I have a feeling that the main focus of the markets today will still be about the debt ceiling. We’re just a few days away from the deadline, and chances that Uncle Sam could default on its debt are as large as ever! For those of you who are brave enough to put on positions in this market, good luck!

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Is the U.S. dollar selloff over? The Greenback managed to score some wins against the Aussie, Loonie, and euro but lost a bit of ground against the Kiwi, Swissy, yen, and pound. Will we see more mixed results today or can the U.S. dollar find a clearer direction?

By the looks of it, traders are getting uneasy about the looming debt ceiling deadline as U.S. lawmakers still haven’t shown much progress in getting a deficit plan in place. They were scheduled to vote on the Boehner bill, which aimed to raise the $14.3 trillion debt ceiling, but they postponed this vote after lengthy debates. Unless we see more progress on the U.S. debt talks today, we might be in for another huge dollar selloff before the end of the week. Brace yourselves!

On the economic front, the advanced GDP for the second quarter of the year is due 12:30 pm GMT today. The report could print a 1.7% economic expansion for the period, but a higher than expected reading could provide support for the U.S. dollar. Then again, this report could get overshadowed by the debt talks in Congress.

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EPIC FAIL! The dollar was the butt of all jokes last Friday as it ended weaker against all its major counterparts. With U.S. policymakers unable to come to an agreement regarding the debt ceiling and GDP falling below expectations, the dollar was forced to end July on a sour note. Will August be any different?

Despite all their efforts, U.S. policymakers just couldn’t see eye to eye last week. Now they have to scramble to meet their deadline tomorrow, making today a make-or-break day. If the U.S. isn’t able to seal the deal with regards to a debt ceiling increase before August 2, the dollar could be in for a world of hurt. To learn more, check out Forex Gump’s article as he outlines three different scenarios for the U.S. debt drama and the dollar.

On the economic front, U.S. GDP provided no consolation, and instead, gave dollar sellers more fuel to feed their fire. According the the report, the economy only grew 1.3% last quarter, well below the forecasted 1.7% expansion. To make matters worse, the U.S. was prompted to downgrade the previous quarter’s growth from 1.9% to just 0.4%.

Much of the growth in Q2 can be attributed to business investment and trade while consumer and government spending were notably weak. With such a sad economic performance, the Fed may have no choice but to continue to adopt an accommodating monetary policy in the months to come. Is that QE3 that I see on the horizon?

In any case, we’ll have more to think about later when the ISM manufacturing PMI comes out at 2:00 pm GMT. Forecasts have the index falling from 55.3 to 55.0, but given the recent trend in U.S. data, it could come in below expectations as well.

Also, be sure to keep yourself up to date with U.S. debt ceiling talks. The big deadline is just a day away, and it’ll be interesting to see what the U.S. has under its sleeves. Good luck, folks!

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The dollar looked mighty fine in yesterday’s trading as it snatched pips from most of its counterparts. EUR/USD ended the day 126 pips lower at 1.4258 and GBP/USD closed 118 pips lower at 1.6297.

As Forex Gump talked about in his article yesterday, the U.S. Congress was finally able to come up with a plan for the debt ceiling. Consequently, this boosted a little optimism in the markets during the early part of yesterday’s trading.

However, during the New York session, the ISM manufacturing report for July came in worse than expected. Although that sparked a tinge of risk aversion and allowed the dollar to snatch pips out of its higher-yielding counterparts, the disappointment got it sold off against the yen and the Swissy. In fact, it spooked investors so much that USD/JPY and USD/CHF both hit new all-time lows!

Analysts were expecting the figure to post a modest pullback to 55.0 after coming in at 55.3 in June, but the actual figure printed at 50.9.

It was just the perfect reminder for the markets that the U.S. doesn’t just have fiscal problems but the economy is a headache as well!

Now market junkies have their eyes set on the NFP report. But since it won’t be released until Friday, keep tabs on the data we have on tap for today. Later at 12:30 pm GMT, we’ll have the PCE report for June. It is deemed to be Fed’s favored measure for inflation so a figure higher than the expected 0.2% may just give the dollar a little boost on the charts.

Along with that, we’ll also have the personal spending and income reports for the same month. Consumer expenditure is seen to have increased by 0.2% while income is eyed at 0.3%.

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For the second straight day, the dollar was able to snatch a victory over other major currencies. The dollar index closed the U.S. trading session at 74.88, 16 percentage points higher where it was during the Asian session.

While not as strong as the day before, risk aversion was the reason behind the dollar’s rally again. With the debt deadlock in the U.S. now over, the markets are now reassured that the U.S. market as a viable safe-haven.

Data from the U.S. weren’t doing as well as its currency though. The Core Personal Consumption Expenditure price index came out with only a 0.1% increase, a tick lower than the 0.2% gain initially predicted. The report on personal spending, on the other hand, showed a 0.2% drop, opposite the 0.2% rise consensus.

Today, the driving force behind the dollar’s price action will be the ADP’s version of the non-farm payrolls and the ISM non-manufacturing PMI. Scheduled to come out at 12:15 pm GMT, the ADP non-farm employment change is expected to print a 101,000 increase in jobs. The non-manufacturing PMI, which is due at 2:00 pm, is slated to print a 53.8 reading.

Judging from how the dollar has been reacting to data, we could see worse-than-expected numbers actually result in risk aversion and help the dollar. Let’s see whether risk aversion will continue to move the dollar later!

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With risk appetite finally picking up this week, the dollar went for a mid-week reversal of the wrong kind. The dollar took some hits against its major counterparts and generally closed lower across the board. Overall, the USDX at 74.457, 42 points lower from its opening price on the day.

Aside from improved risk sentiment, the dollar may have also suffered thanks to the releases of poor economic data.

First, we got the ADP report, which showed an increase in employment of 114,000. You might be thinking, “Hey, wasn’t this higher than the projected 110,000?” Well, yes it was, but last month’s figure was revised down from 157,000 to 145,000. In addition, this continues an on-going trend of weak employment figures, which certainly doesn’t bode well for the U.S. economy.

Second, the ISM services PMI also disappointed, printing a score of 52.7, after expectations were for it to come in at 53.8. This indicates that services industries aren’t growing as fasts as experts thought and marked the fourth time in the last 5 months that the index has failed to hit consensus. Take note, service industries make up more than 75% of the U.S. economy, so if this trend continues, the economy could be in for a bumpy ride.

Third, factory orders dropped by 0.8% in June, nearly double the projected 0.4% decline. Moreover, May’s figures were revised down from 0.8% to just 0.6% growth.

Lastly, the U.S. dollar may have also taken a hit thanks to renewed comments about another round of quantitative easing. Word on the street is that some Fed officials have been calling for QE3. While this may or may not have prompt some optimism in the markets, it’ll be interesting to see how this develops in coming weeks and whether this will continue to weigh down the dollar.

The only report scheduled for today is the weekly unemployment claims report, which, once again, is projected to come in above the key 400,000 mark. The only way I see this affecting the market is if it comes in way below 400,000. If it does, it may just give the dollar some nice support.