Daily Economic Commentary: United States

Trading Discussion News and Economy
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The US dollar traded in a mixed fashion across the board yesterday, gaining early on during the Asian trading session but reversing all of its gains once the US trading session went underway. The dollar ended the day higher against the pound and the yen, but lower versus the euro and the franc.

It looks liked the varied results of economic data released was the primary reason why the dollar failed to pick a direction yesterday. The Empire State manufacturing index came in below expectations and printed a reading of 19.11, while net long-term TIC flows beat forecast and showed a 140.5 billion surplus instead of the 50 billion USD surplus initially predicted.

There are two red flags on US’s economic calendar today.

The first one comes in the form of the US producer price index. The index, which takes into account the monthly change in the price of goods and services sold by producers, is predicted to show a rise of 0.1%, a couple of notches lower from the 0.7% increase seen the month before.

The second one is the building permits and housing starts report. Economists believe that the annualized number of building permits fell to 675,000 from 680,000 while housing starts rose to 650,000 from 626,000.

Hmm, given the recent strength of the dollar, it looks like better-than-expected results could currency traders more reason to buy up the dollar!

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And the dollar trend continues! Thanks to renewed risk aversion, the dollar soared higher against most other majors. As Pip Surfer always says when there’s a nice trend, “Cowabunga dudes and dudettes!”

Equities took a hit as risk aversion remained the central theme of the markets. My buddies over at Berlin told me that German officials have decided to ban “naked” short selling. No, no, this doesn’t mean traders won’t be allowed to trade in their undies. Naked short selling of equities refers to traders who take short trades on stocks even without having to borrow the stock. Normally, traders borrow the stock from another trader, and using the stock itself as the collateral needed for margin.

In any case, Germany decided not to allow this for certain stocks, in order to reduce speculation (ahem, uncertainty!) in the financial markets. By putting restriction on naked short selling, this helps give support to financial assets as it limits how much they can actually drop in value. This decision may have been partially responsible for the dip in equities on both sides of the Atlantic yesterday.

Now, moving on to other economic news, we got some mixed news from the housing market. The annualized pace of new building permits issued drop to 610,000 in April, down from the previous month’s estimate of 680,000. Housing starts, on the other hand, rose from 626,000 to 672,000, which was far better than consensus of a pace of 650,000.

Meanwhile, producers in the US paid less for their raw materials and goods last April. Producer prices fell by 0.1%, after forecasts were calling for a rise of 0.1%.

What does all this data tell me? Well, it suggests to me that there is still some weakness in the US economy and that inflation remains subdued. And as long as there is no signs that inflation is rising, we should probably expect the Fed to keep interest rates at current levels.

Speaking of the Fed, they’ll be releasing the minutes of the latest monetary policy meeting later today at 6:30 pm GMT. It’ll be interesting to see what was discussed in the last meeting, now that the EU and IMF have come up with a bailout plan to save the euro zone.

Keep an eye out also for the consumer price index, which will be released at 12:30 pm GMT. Consumer prices are expected to have risen by 0.2% in the past month, but seeing as how producer prices unexpectedly dipped, could we be in line for a downside surprise?

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The greenback’s scorecard showed mixed results: A couple of losses against the euro and yen, a draw against the Swissy and pound, and knockout wins against the comdolls.

Yesterday’s price action suggests that, although risk aversion is still in place, the possibility of currency intervention by the ECB and SNB kept the euro and Swissy afloat. Aside from that, traders who started closing their short euro positions allowed the EURUSD to land back above 1.2400.

In the meantime, weak economic data discouraged investors from taking on more risk. The US reported an unexpected increase in weekly jobless claims as the actual figure landed at 471,000. This is much higher than the previously reported 446,000 and the 439,000 consensus, reflecting how companies continued to cut hiring to boost profits. Aside from that, the Philadelphia Fed index came short of expectations as it climbed from 20.2 to 21.4, instead of the expected 21.9.

As usual, fears of debt contagion continued to haunt the markets and it seems that the US is in danger as well. According to Fed official Tarullo, the euro zone debt crisis poses a threat to global credit markets and large American banks. It could then hurt bank lending and eventually put a strain on US exports.

Moving on to today’s economic agenda, it looks like the US has barely any reports on deck. I have a hunch that global debt concerns could keep risk-taking in check, much to the delight of the safe-haven greenback.

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Friday turned out to be a relatively slow trading day, as most major currency pairs generally traded within tight ranges. The dollar ended the week slightly lower against the European currencies and the comdolls but higher against the Japanese yen.

No data came out on Friday, but don’t expect this week to be the same. The US economic calendar presents a huge number of red flags, so we could see a lot action this week!

It all starts today, when the US releases its existing home sales report at 2:00 pm GMT. The report is expected to show that the number of home resales in April hit 5.62 million, up from the 5.35 million seen the month before. Rising home resales is usually considered bullish for the domestic currency because it indirectly stimulates business activity.

On Tuesday, the Conference Board consumer confidence survey will be released. The forecast is a reading of 59.1 for this month, which is an improvement from last month’s reading of 57.9. This means that economists believe that consumers are became more confident in their financial standing, which could lead to increasing consumer spending in the future.

Then, on Wednesday, the reports on durable goods orders and new home sales will come out. Durable goods orders are expected to have risen by 1.4%. The core version of the report that excludes airplanes, large boats and cars in its count is predicted to show a 0.5% rise. As for the new home sales report, it is estimated that an annualized number of 420,000 newly constructed homes were sold in April.

Lastly, on Friday, the US will print its first estimate of its GDP for the first quarter of this year. The estimate is that the US economy grew by another 3.5% during the first quarter after expanding 3.2% during the final quarter of 2009.

If there’s one thing I’ve learned in using news reports to trade is that to always consider market sentiment. As of the moment, there is a strong bias in buying dollars, which means that the currency could easily rise on good news from the US!

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Despite European traders still on holiday, risk aversion still weighed heavily in the markets, allowing the dollar to manage some decent gains versus the EUR and GBP. The EURUSD broke through key support and closed almost 200 pips lower, effectively ending the euro’s three day winning streak.

If you ask me, its starting to look more and more like last week’s euro rally was simply a case of short covering. With a long weekend coming up, I think that traders decided to just lock in some profits, just in case the markets would be hit with any surprises. Besides, I’m sure traders will keep finding reason to move their funds back to the mighty dollar.

Like, for example, a major bank in Spain (CajaSur) got seized by the Bank of Spain. Just in case you don’t have a hot tub time machine, let me remind you that this bank was operating for 146 years! So, even with all the bank holidays yesterday, traders started dumping their euros again in favor of the dollar.

In other news, existing home sales figures came in better than expected, as the report registered an annualized pace of 5.77 million. This was significantly better than forecasts of 5.62 million, and a major improvement from the previous month’s pace of 5.36 million. While this would indicate strength in the labor market, I decided to dig a little deeper to see why it rose so much. It appears that homeowners are rushing to avail of government tax credit programs before they expire in June. So for the meantime, we may continue to see existing home sales rise in the coming months.

Tonight at 2:00 pm GMT, the Conference Board will be releasing its monthly consumer confidence report. Early estimates are calling for a rise in the index from 57.9 to 59.1, which would indicate the consumer confidence is rising. Given the renewed risk aversion that is dominating the markets due to all the euro zone debt issues, there is a chance that we could see today’s figure come in a little disappointing. If this happens, it might just lead to another round of dollar buying across the board.

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Risk aversion still reigned supreme in the markets but it seems that investors got a new bee in their bonnet lately. Aside from the usual debt woes, the ongoing tension in Korea is also causing investors to flee to the safe-havens, much to the delight of the greenback.

First, here’s an update on the debt situation. The spotlight has now shifted to Spain as weaknesses in their banking sector hints at another possible credit crisis in the euro zone region. Last I heard, four regional banks agreed to merge some of their operations in order to make up for non-performing loans. Is this another debt drama in the making? Yikes!

On top of that, the tension between North and South Korea poses a threat to the economies in the Asian region. And since Asia is a crucial part of global trade, trouble in the region could dampen overall economic activity.

Still, it seems that consumers in the US are unfazed by these concerns. The index of consumer confidence even rose from 57.7 to 63.3 this month, surpassing the consensus at 59.1. This marks the indicator’s highest level since March 2008, implying that consumers are more optimistic about current and future economic conditions. The increase in confidence was spurred by
improvements in the labor market, suggesting that this upbeat outlook could translate to improvements in consumer spending as well.

However, the housing price index reported by the S&P was a bit of a downer. Although it printed a 2.3% annualized increase in house prices for March, it came short of expectations of 2.5% rise. On a monthly basis, this amounts to a 0.5% decline, suggesting that the housing market is still fragile. The new home sales report, which is scheduled to be released today, would provide more details on the state of the housing sector. Stay tuned at 2:00 pm GMT to find out whether new home sales for April land at 425K as expected.

Also due today is the durable goods orders report, which will be released at 12:30 pm GMT. The report could print a 1.4% rebound in April over the 0.6% decline seen last March. The core version of the report, which excludes volatile items in the calculation, is expected to show a 0.5% uptick. Better than expected figures could signal that production would pick up in response to higher order volumes and this could be bullish for the greenback.

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Ho hum, for the second day in a row, the US dollar found itself trading within a tight range against most major currencies. The so-called world’s reserve currency posted some spectacular gains over the euro again though, as the EURUSD closed the US trading session at 1.2193, down almost 150 pips from its opening price during the Asian session.

Mixed results on US economic data was probably the culprit for the dollar’s directionless movement yesterday.

For one, durable goods orders for April increased 2.9% (vs. 2.5% forecast), but the core version of the report that excluded big-ticket items such as airplanes, ships, and vehicles in its tally fell 1.0% (vs. 1.5% forecast). Generally, an item is considered a durable good if its life span exceeds three years. Secondly, the annualized number of new home sales covering the same period soared to 504,000, higher than the previous month’s 439,000.

Today, two important economic reports will come out at 12:30 pm GMT.

The first one will come in the form of the weekly initial jobless claims. The report, which measures the number of people who claimed for unemployment insurance for the first time, is expected to print 450,000. The second one is the preliminary estimate on US’s GDP for the first quarter of this year. The consensus is that the economy grew by 3.5% and not 3.2% like the advanced GDP initially predicted. With risk sentiment dominating the market, better-than-expected figures on the reports can temper risk aversion and lead to a dollar sell-off.

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Ka-ching! Sorry folks, but that wasn’t dollar cash registers that were ringing all day! A mini-return of risk appetite helped boost higher yielding currencies like the euro and pound. The question is, will this be just a one-day sale? Or will jumpers jump at the chance to buy the dollar at a cheaper price?

Word on the forex grapevine is that this run of increased risk appetite was caused by some appetizing news that China said that they had no intentions of selling Eurobonds. Now, China is normally pretty secretive with all their plans, so I don’t know how seriously we can take this. In any case, traders took this as a sign to wipe the sweat off their eyebrows and buy back some of those higher yielding assets.

Traders were so giddy, they practically ignored the bad data that came out in the US. First quarter GDP figures disappointed, as they indicated that the US economy expanded by an annualized 3.0%. It was expected that GDP growth would surpass the previous quarter’s figure of 3.2% and post a rise of 3.5%. Apparently, consumer spending is suffering due to concerns surrounding the euro zone’s debt problems.

Now that GDP seems to be lagging behind estimates, could this provide even more reason for the Fed to keep rates at low levels? If the economy is still showing pockets of weakness, I suppose the Fed would be more inclined to keep rates low in order to spur the economy.

In other news, weekly unemployment claims also failed to hit consensus, as 460,000 people filed for jobless insurance last week. Still, this was slightly better than the previous week’s release, when a revised 474,000 filed for insurance. With jobless claims hovering over the 400,000 yet again, this reflects continuing weakness in the labor market.

Now, lets skip on over and take a look at today’s [=&currency[]=AUD&currency[]=CAD&currency[]=CHF&currency[]=EUR&currency[]=GBP&currency[]=JPY&currency[]=NZD&currency[]=USD&importance[]=&importance[]=3&importance[]=2&importance[]=1&display=daily"]economic calendar](Forex Economic Calendar[) to see what’s going to be on the tube tonight.

First, we’ve got personal spending and income data due at 12:30 pm GMT. This could reveal more insight as to whether consumers are actually spending or not. Remember, about 70% of the US’ GDP comes from consumer spending, so if all them average Joes are increasing their spending, it’s a good sign for the US economy.

Next, keep an eye out for the core PCE price index report also coming out at 12:30 pm GMT. Take note that the Fed looks at this report as its primary gauge of inflation. The report is expected to show that inflation has remained subdued and that consumer prices did not rise from March to April. As long as prices refuse to rise, I believe we can expect the Fed to keep rates at low levels.

Lastly, a revision of the monthly University of Michigan consumer sentiment is due at 1:55 pm GMT. The index is expected to be revised down to a score of 72.5, down from the initial release of 73.3. Given all the uncertainty surrounding the financial markets, I wouldn’t be surprised if this sentiment trickled down to everyday consumers as well.

Phew – that was a long one! To recap – the dollar got walloped in yesterdays trading sessions, but we’ll have to wait and see whether this was just a case of a mid week reversal due to profit taking… GDP growth and labor market data disappointed… and today, the key reports to look out for are the core PCE index and the UoM consumer sentiment reports. Good luck everybody!

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Risk sentiment turned sour again last Friday when Fitch, a global credit rating agency, decided to downgrade Spain’s sovereign debt rating to AA+ from AAA. In effect, the dollar was crowned king of the FX markets again, helping the currency rally against other major currencies.

Moreover, poor results on economic data from the US increased the uncertainty surrounding global economic recovery, which further fuelled risk aversion.

For one, the core personal consumption expenditure price index, the Federal Reserve’s preferred gauge of overall inflation, showed a measly 0.1% rise in consumer prices.

Secondly, data on consumer activity came out worse-than-expected. Instead of increasing 0.5%, disposable personal income was reported to have only risen by 0.4% in April. Meanwhile, personal spending, which accounts for more than two-thirds of the US’s economic activity, remained flat as opposed to growing 0.3% like expected.

Lastly, Chicago’s purchasing managers’ index dropped to 59.7 from 63.8. Although the reading was still above 50.0 – the figure that separates growth from contraction – this meant that businesses in the Chicago area did not grow as fast as expected.

With overall inflation still far off from the Fed’s 2% target, consumer activity low, and businesses growing slower-than-expected, it seems that there is no reason for the Fed to change its stance in keeping rates low for an “extended period.”

No data coming out of the today, but the US economic calendar presents a laundry list of high-profile economic reports.

It all begins on Tuesday when the ISM manufacturing purchasing mangers’ index comes out. A reading of 59.6 is expected for April, which is slightly lower than the 60.4 reading from the month before.

Then, on Thursday, the ADP will release its version of the non-farm employment change. The consensus is that a net number of 56,000 jobs were created in May, which is an improvement from the 32,000 figure seen in April. Traders usually use the report as a way to predict how the US non-farm payrolls will come out, so the ADP’s version tends to garner quite a bit of attention from traders too!

As for the actual non-farm payrolls, it will be released on Friday. The expectation is that another 465,000 (net) jobs were added in May. Meanwhile, joblessness in the US is predicted to have eased to 9.8% from 9.9%.

Given how risk sentiment has been driving price action for the past week, we will probably see the dollar fall on better-than-expected data and rise on worse-than-expected results. In any case, be sure to keep those money management rules in check! Do well this week folks!

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With US traders chillin’, sippin’ beers and kickin’ with their families to celebrate the Memorial Day holiday, trading was pretty quiet. With both the US and London markets coming back to life today, we could be in for some wild swings as traders reposition themselves.

The only significant news that came out yesterday were comments made by US Fed Chairman Ben Bernanke, who said that central banks would implement their respective exit strategies at different times, depending on their economic conditions. Well, this is pretty obvious if you ask me – just look at the Australia, who’s economy has been kicking butt this year, which has resulted in the RBA raising interest rates like crazy!

Then again, maybe this is just a coded message of saying that perhaps the Fed will lag behind in any tightening of quantitative easing measures! Bernanke and his boys at the Fed have been notorious for repeatedly saying that they will keep rates low for an “extended period” but still keeping a cautiously optimistic approach. With that said, watch out in the future for any surprisingly concrete comments regarding tightening measures.

In case you haven’t taken a look at today’s [=&currency[]=CAD&currency[]=USD&importance[]=&importance[]=3&importance[]=2&importance[]=1&display=daily"]economic calendar](Forex Economic Calendar[) yet, watch out at 2:00 pm GMT, when the ISM manufacturing PMI report will be released. The index surveys managers from different industries on their thoughts on the economy. Today’s report is expected to print a reading of 59.3, a tad lower than the previous month’s score of 60.4. This would indicate that while purchasing managers are still optimistic, they aren’t as optimistic as they were last month. With risk sentiment still the dominating market theme, could a worse than expected score send the safe haven dollar soaring once again?

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After the slow trading seen on Monday due to Memorial Day, the dollar simply burst with life yesterday. The dollar started out with a strong rally early on, outpacing other major currencies. Then, once the US trading session came along, risk appetite made its way back into the markets, which led to a dollar sell-off.

The appetite for risk from Wall Street was also supported by better-than-expected results on the ISM manufacturing purchasing managers’ index and a report on construction spending.

The ISM manufacturing PMI printed a reading of 59.7, higher than the 59.5 initially expected. Since the reading was higher than 50.0 - the figure that separated growth from contraction – it meant that the manufacturing industry was expanding. Meanwhile, the report on construction spending revealed a 2.7% surge, three times the 0.9% forecast.

For today, the important piece of data to watch out for is the pending home sales report at 2:00 pm GMT. It is expected to show a rise of 4.9% in April, which is slightly lower than the 5.3% increase seen the month before. If the actual figure comes in higher, we may see the dollar fall again.

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Dollar bulls paused to catch their breath yesterday, probably in anticipation of the upcoming top-tier economic reports. Because of that, most majors were able to stay range-bound against the US dollar, except for the weak yen and the strong Loonie.

US economic figures came in better than expected, with the pending home sales report printing a 6.0% increase for April and total vehicle sales amounting to 11.6 million USD in May. However, the increase in home sales was mostly a result of buyers taking advantage of the government tax credit, which is set to expire soon. Still, this uptick in both home and vehicle sales indicates that spending on furniture, appliances, and fuel could also pick up.

Today, the US is set to release the ADP non-farm employment change report. Since this is usually considered a preview of the upcoming NFP report due Friday, a better than expected ADP figure could give the dollar a boost. Net hiring is estimated to increase by 68,000 in May, more than twice as much as the rise in employment seen last April. Although the forecast is already optimistic, we could be in for an upside surprise since the recently released Challenger job cuts report came in stronger than consensus. Keep an eye out for the actual ADP report due 12:15 pm GMT today.

Also on today’s economic schedule is the release of the US weekly jobless claims, which are slated to show that 451,000 first-time unemployment claims were filed this week. Later on, at 2:00 pm GMT, the ISM non-manufacturing PMI will be reported. The index is expected to climb a few notches from 55.4 to 55.7, signaling that the services sector expanded at a slightly faster pace in May. The factory orders report, also scheduled at 2:00 pm GMT, could show that new purchase orders climbed by 1.7% in April, higher than the 1.1% increase seen in March.

Later on, Fed head Ben Bernanke is set to give a few remarks at the Financial Needs of Small Businesses event in Chicago. Stay tuned to his speech at 3:15 pm GMT and keep your ears open for possible hints on the central bank’s future monetary policy decisions. A couple of other Fed officials, namely Eric Rosengren and Thomas Hoenig, are also set to deliver speeches today.

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While equity markets fell as risk aversion took its toll on the markets, we only saw the dollar make significant gains versus the slumping euro. However, the dollar has struggled to post gains versus the currencies of better performing economies like Australia and Canada. So what is driving the market right now, fundamentals or risk sentiment?

If you ask me, its a combination of both and we may get a clearer indication later when the NFP report comes out. But first, a quick recap of what happened yesterday!

The ADP employment change report came in slightly worse than expected, printing a rise in employment of just 55,000. Initial forecasts were for a net figure of 70,000. Still, there was some pretty good news when the previous month’s rise was revised more than DOUBLE the initial release! So instead of 32,000 jobs added last April, it turns out that that figure was really 65,000! Yowza!

In other news, we didn’t receive any surprises, as unemployment claims showed a figure of 453,000 while the ISM non-manufacturing PMI report printed a reading of 55.4. The claims were just a tad higher than consensus of 451,000, a level it’s been at for some time now.

Meanwhile, the reading of the ISM report showed no change from the previous month’s. Take note though, that the employment component of the report showed its first increase in almost 17 months. This is another sign that the labor market is improving.

One thing I want to point out were some comments made by Fed officials yesteray. First, Chairman Ben Bernanke expressed concern about the state of the labor market, even though recent data has been showing some improvements. He said that the Fed would continue to try and provide liquidity so that consumers would have access to credit. Hmmm… are these subtle hints of saying that he intends to keep rates at low levels?

On the other hand, Fed officials Dennis Lockhart and Thomas Hoenig made some contrasting comments of their own. First, Lockhart said that in order to avoid a sudden rise in inflation, the Fed should consider raising interest rates. Next, Hoenig, who has long been an advocate of raising rates, said that the Fed should increase the base rate to 1.0% by September, stating that the US economy has enough fuel to keep pushing forward.

Dissention amongst the ranks? I’m not sure, but since the next meeting is three weeks from now, let’s focus on what’s happening today – the non farm payrolls employmentreport!

Consensus is that we are going to see a massive jump in employment of 514,000. Let me point out however, that a big chunk of the net job gains is expected to come from census hiring, so we may not see similar figures in coming months. Nevertheless, the question that is on my mind is how will traders react to the report? Will a better than expected figure give traders more reason to buy up the dollar? Or would it boost risk appetite, causing higher yielding currencies (excluding the euro!) to soar higher?

In any case, stay tuned at 12:30 pm GMT, when the report will be released. Like I always say, keep your risk management rules in check and if you are unsure what to do, stay out of the markets! The NFP report is high volatility event and you don’t want to get caught in a whipsaw!

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Thanks to a strong case of risk aversion, the dollar was able to stage a stellar rally against most major currencies last Friday. The US dollar index that tracks the performance of the dollar against a basket of other currencies rose to more than 100 points to 88.77, which marked its highest level this year.

The sell-off came in two waves. The first surge came from an announcement by the Prime Minister’s spokesman. He spooked the markets by saying that a default from their nation “isn’t an exaggeration.” Although Hungary doesn’t use euro as its official currency, it is still part of the European Union. A Greek-style situation could have a damaging effect on the broader European markets.

The second wave of risk aversion originated from the worse-than-expected results of the US non-farm payrolls. The highly anticipated report showed that only a net number of 431,000 people were hired in May, and not 521,000 like initially expected.

For this week, the US economic calendar presents a couple of high-profile events.

It all begins on Tuesday, when the US releases its Beige Book at 6:00 pm GMT. The Beige Book is a detailed summary of the current economic conditions by each of the 12 Federal Reserve banks. On Thursday, at 12:30 pm GMT, the US trade balance will be released. The expectation is for a balance deficit of 40.8 billion USD for the month of April, slightly wider than the 40.40 billion USD deficit from the month before.

On Friday, be aware of two reports.

The first report is comes in the form of the US retail sales report. To be released at 12:30 pm GMT, the report is predicted to show that sales grew 0.2% in May. Meanwhile, the core version of the report that excludes automobile sales in its tally is only expected to print a 0.1% gain.

The second one, which will be published at 1:55 pm GMT, is the preliminary University of Michigan consumer sentiment survey. It is expected to print a reading of 74.7, higher than the previous month’s reading of 73.6.

Given the overwhelming case of risk aversion we saw seen last Friday, better-than-expected results on the reports could end up beneficial for the dollar.

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The Greenback seemed to be all over the place yesterday as it strengthened against the euro, Aussie, and Kiwi but weakened against the yen, pound, and Loonie. Maybe the lack of economic reports from the US is to blame for the Greenback’s mixed performance.

The US won’t be releasing any top-tier reports again today, which could mean that the Greenback might be in for another directionless day. Still, concerns over the euro zone debt situation could keep risk aversion in play, which could boost the safe-haven Greenback.

Keep your ears open for a couple of speeches from two Fed officials later today. FOMC members Elizabeth Duke and Thomas Hoenig are scheduled to speak at 12:25 pm GMT and 11:00 pm GMT respectively. Watch out for possible hints on the Fed’s future monetary policy moves and how they plan to deal with the possibility of debt contagion to the US.

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Renewed risk appetite sent traders scurrying back to higher yielding assets, leaving the dollar to give up some of its gains from the previous day. The dollar fell against the com-dolls, but was able to stay in pace with the euro and pound.

Some hawkish comments from Fed members helped spur the rise in risk appetite yesterday. Apparently, Fed Chairman Ben Bernanke delivered some positive comments, saying that consumer spending and investment had some momentum. Of course, being the good ol’ Big Ben that he is, he quickly added that it “won’t feel terrific”. Cautious optimism once again eh!?

It’s not surprising that traders reacted positively to Bernanke’s comments. After all, he is the head of the Fed (oooh, I just dropped a rhyme!), so he does have a lot of influence over monetary policy. Furthermore, out of all the Fed members, he has probably been the most dovish and cautious over the state of the economy. So when you hear Bernanke dismiss fears of a double dip recession, it’s a victory in itself!

In other news, Fed member Charles Evans also provided more fuel to burn for risk hungry investors, when he said that the debt crisis in Europe may have a limited impact on the US economy. He pointed out that while GDP growth may take a hit, US exports to the euro zone only account for 15% of total exports.

Tonight, Bernanke will be speaking again, at 2:00 pm GMT and at 8:00 pm GMT. Will he give more calming words to the market?

Watch out also for the release of the Beige Book at 6:00 pm GMT. This book contains analysis that the FOMC uses to help make decisions regarding interest rates. Now, even with Bernanke showing more optimism, I don’t think this will translate to any rate hikes soon, but it’ll be interesting to see if more evidence pops up pointing towards stronger recovery.

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No thanks to improved risk appetite, the dollar was sold-off across the board yesterday. The USDX, which tracks the performance of the dollar against a basket of other major currencies, marked its second day of decline and fell as low as 88.00 before retracing its losses to end the US trading session at 88.40.

The surge in risk appetite was from two sources.

The first one came from the stellar performance of major Chinese and European stock indices also helped risk appetite pick up. The Shanghai Composite Index rose almost 2.8% while Germany’s version, the DAX, climbed roughly 1.9%. The second one rooted from Federal Reserve Chairman Ben Bernanke, when he said with confidence that economic growth will persist this year.

For today, look forward to the release of the US trade balance and the weekly initial jobless claims report at 8:30 pm GMT. According to estimates, the US trade balance deficit rose to 41 billion USD in April from 40.4 billion USD the previous month. Meanwhile, the jobless claims report is expected to show that 450,000 people claimed for unemployment insurance for the first time the week ending in June 5. Given how risk is pushing the currencies around, worse-than-expected figures on these reports could help the dollar find some buyers.

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The rest of the major currencies bullied the Greenback yesterday and forced it to cough up its recent gains. Improved risk appetite, spurred by better than expected economic data, gave the higher-yielders enough strength to beat up the safe-haven Greenback.

Almost all the major currencies enjoyed strong economic reports yesterday, allowing them to recover from their losing streak last week. China’s impressive trade surplus, which jumped from 1.7 billion CNY to a whopping 19.5 billion CNY, also boosted risk appetite. Components of the trade balance showed that Chinese exports surged by a staggering 48.5% in May, its fastest pace of increase in over six years.

The US trade balance, which showed that the deficit widened from 40 billion USD to 40.3 billion USD in April, paled in comparison to China’s. This marks their largest trade deficit in more than a year as both exports and imports dropped during the month. US imports slipped by 0.4% but were outpaced by the 0.7% decline in exports.

Meanwhile, the weekly jobless claims figure also came in weaker than expected, printing a total of 456,000 claims for the week. Still, this is 3,000 less than the 459,000 first-time jobless claims in the previous week, signaling a slight improvement in the labor market. Aside from that, continuing claims dropped to their lowest level since 2008, possibly because of the expiration of some unemployment benefits.

Up ahead, we’ll take a look at US consumer spending upon the release of the retail sales and core retail sales figures. After seeing 0.4% upticks in April, both reports are expected to post smaller increases for the month of May. Also due today is a consumer sentiment index from the University of Michigan. The report could show that confidence improved from 73.6 to 74.7 in June. If the actual results beat expectations, investor confidence and risk appetite could stay for another day. But if the actual figures fall short of consensus, risk aversion could rear its ugly head back in the markets. Stay tuned for the release of the retail sales report at 12:30 pm GMT and the consumer sentiment reading at 1:55 pm GMT.

Also keep an eye out for China’s economic reports, namely their CPI, industrial production, PPI, and retail sales figures, due 2:00 am GMT today. If China unloads another set of eye-popping figures, the safe-haven Greenback might be in for another beating.

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The dollar managed to recuperate some of its losses last week, as it ended Friday slightly ahead of its major counterparts. Will risk appetite continue dominate this week? Or will dollar bulls jump all over the chance to buy it at cheaper prices?

We got some mixed news from the US last Friday, which was probably why risk appetite didn’t dominate like it did the previous three days. Retail sales came in weaker than expected, as reports printed that sales dropped by 1.2% last May. This was a surprise, as it was expected that sales would rise by another 0.1%. Instead, this marked the first time in eight months that retail sales dropped.

Oh boy, is this the start of a… yes I will say it!.. double dip recession? Hmmm… part of me doesn’t think so. Looking a lil’ deeper, it seems that the cause for the drop in sales was caused by the expiration of energy saving appliances. Let’s see if consumer spending smoothens out over the next couple of months.

Meanwhile, the University of Michigan consumer sentiment report indicated that consumer confidence is at its highest level in two and a half years, as it printed a reading of 75.7. This was a nice increase from last month’s figure of 73.6, and beat consensus of a reading of 74.7. This indicates that the euro debt crisis hasn’t affected consumers thoughts on the economy.

No biggies coming out today, but watch out for any swings in the equities markets. If last week was any indication, it seems that traders risk appetite is starting to grumble. We could see commodity dollars continue their impressive run against the dollar, but watch out for the EURUSD and USDJPY. If those two pairs continue to rise, it could be a clear indication that risk appetite is back in vogue.

Tomorrow, keep an eye out for the TIC long term purchases report at 1:00 pm GMT. Early projections are that 77.3 billion USD worth of Treasury securities were bought up last April. It’ll be interesting to see if demand for US securities has risen, especially now that some countries (like Iran) have decided to start dumping the euro. If this figure comes in better than expected, we could see the dollar get a boost.

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The dollar was pounded across the board yesterday when a strong wave of risk taking made its way back to the markets. Late in the US session, however, the dollar was able to find some relief when news of a Greece credit rating downgrade tempered risk appetite.

Following Fitch and S&P’s footsteps, Moody, another widely known credit rating agency, announced yesterday that they have downgraded Greece’s government bond rating to junk. Unsurprisingly, the dollar still ended mostly lower against most major currencies. Hah, I guess the ugly state of Greece’s finances wasn’t exactly something new to traders!

Up ahead, we’ve got two important reports on the docket that could move the dollar.

Set to come out at 12:30 pm GMT, the first one comes in the form of the Empire State survey. The survey, which is designed to see whether conditions of the manufacturing industry in the state of New York is getting better or not, is predicted to print a reading of 20 for this month, a slight improvement from last month’s reading of 19.18.

The second one, which comes out at 1:00 pm GMT, is the TIC long-term purchases report. The forecast is that a net value of 77.3 billion USD worth of Treasury securities were bought from the US last April. Like I said in my update yesterday, it might be an interesting report to watch as some countries have started to exchange their euros for the good ol’ safe haven dollar. If the report comes better-than-expected, we could see the dollar get a boost.