Daily Economic Commentary: United States

Trading Discussion News and Economy
569

What a good day Thursday turned out to be for the Greenback! Once again, risk aversion took hold of the market yesterday, helping the Greenback stage strong rallies versus other major currencies. The dollar index ended U.S. trading session at 75.60, a solid 114 percentage points higher from its Asian session open level.

The unemployment claims report that was released yesterday came mostly in line with expectations. It showed that the number of people who availed jobless benefits was at 400,000, just a notch lower than the 404,000 consensus.

Now let’s focus on to today. Looking at the forex calendar, I see that the non-farm payrolls will come out later at 12:30 pm GMT. This is a very big market mover, so if you don’t know how to trade it, it will be best if you stay out!

In any case, the market is expected non-farm payrolls to increase by 89,000 (net) after showing a 18,000 rise last month. Meanwhile, the unemployment rate is predicted to remain at 9.2%.

Given the strong case of in the market, a negative NFP could actually result in risk aversion and provide support for the dollar. Keep a close eye on the figures and price action traders, as it could be key to the dollar’s direction in the medium-term!

570

…well the Credit rating has dropped from AAA to AA+ thats going to cause a commotion!!!

571

Didn’t I warn you about sentiment shifts? In a surprising turn of events, the dollar took a major hit over the weekend and lost against major currencies. The U.S. dollar index, which tracks the performance of the currency versus other majors, is currently sitting at the 76.00 level, 140 percentage points lower from its close last Friday.

The big news that swept the financial world after the market had closed last Friday was S&P’s surprise downgrade of the U.S. sovereign credit rating. According to S&P, their decision to downgrade the U.S. debt to AA+ from was in response to the deal President Obama and lawmakers reached to raise the 14.3 trillion USD debt ceiling.

In other news, the U.S. employment situation was reported to have improved in July. The non-farm payrolls showed that an additional 117,000 (net) jobs were added while joblessness in the country fell to 9.1% from 9.2%. Average hourly wages also increased much higher than expected, rising by 0.4% instead of 0.2% as expected.

With the downgrade fresh on traders’ minds and the U.S. markets yet to open, we could see the dollar continue to weaken throughout the day.

Looking ahead the week, we’ve got a couple of data releases that could help the dollar get back on its feet.

Tomorrow, at 6:15 pm GMT, the Federal Reserve will announce their decision on interest rates. The central bank is widely expected to keep rates unchanged so the market’s focus will most probably turn to the accompanying statement. Any talk of a third round of quantitative easing will have a strong impact on the dollar.

On Friday, the U.S. retail sales report is due. The retail sales report is slated to show an increase of 0.4% while the core version which excludes volatile items such as vehicles in its computation is predicted to rise by 0.2%.

572

Just like my homeboy Kanye West, the dollar made it back to the spotlight for the wrong reasons. It benefited from the wave of risk aversion sparked by S&P’s move to downgrade U.S. debt.

EUR/USD closed the day a whopping 197 pips below its open price at 1.4210. Meanwhile, GBP/USD closed the day 123 pips lower at 1.6342.

As Forex Gump wrote in his article yesterday, the U.S. got its credit rating stripped of its pristine AAA grade over the weekend. Consequently, this spooked investors and yesterday was the first time they were actually able to react to the news.

Although the dollar was able to rally against its higher-yielding counterparts, it sure wasn’t able to hustle against the other “safe haven” currencies.

USD/JPY tumbled from its intraday high of 78.47 to close the day at 77.71. USD/CHF even tapped a new all-time low at .7484 before closing the day 16 pips above the week open price at .7533.

If risk aversion continues to dominate market sentiment in today’s trading, chances are we’re gonna see the dollar print mixed figures for yet another day.

Also, keep tabs on the reports we have on tap from the U.S. today as they may also affect the dollar’s performance in the charts.

At 12:30 pm GMT, we’ll have the preliminary nonfarm productivity report for Q2 2011 which is anticipated to print a 0.6% decline. Along with that, we’ll also get dibs on the annualized change in labor costs for the same month. The data is seen to come in at 2.1%.

Then at 6:15 pm GMT, the Fed will take centerstage as they announce their interest rate decision. I don’t think anyone is expecting Fed Reserve Chairman Ben Bernanke to holler a rate hike, but that doesn’t mean you can just forget about it!

Keep an ear out for what the head honcho of the central bank has to say. If he hints that more stimulus is needed to fuel economic growth, we may just see the end of the dollar’s rally.

573

Did the FOMC statement released yesterday save the day? Not for the Greenback, it didn’t! Unfortunately for the dollar, the Fed’s decision to keep its interest rates at ridiculously low levels sparked dollar aversion in markets, which dragged USD/CHF to even fresher lows at .7070, while EUR/USD shot up by 125 pips to 1.4335.

After the release of subdued productivity and labor cost numbers in the U.S., traders turned their attention to the big FOMC statement released later in the day. You see, market geeks were waiting to see if the Fed mentions anything remotely related to “QE3.”

Well, they [I]almost[/I] got what they wanted to hear! In its statement, the Fed decided to keep its interest rates at its current levels for two more years until mid-2013. Not only that, the Fed also acknowledged that the U.S. economic growth is more sluggish than expected, and that inflationary pressures had eased somewhat.

But that’s not the only interesting part of the story. For the first time in a long while, there were THREE dissenters in the Fed. Turns out that inflation hawks Fisher, Plosser and Kocherlakota wasn’t on the boat on the Fed’s latest decision.

Still, the markets interpreted the Fed’s decision as an extended period of opportunities for carry trades. With the Fed’s interest rates sure to be ultra-low over the next two years, you can be sure that many traders will take advantage and buy a few high-yielding currencies.

The U.S. economic board will be light today with only the wholesale inventories at 2:00 pm GMT and the Federal budget balance at 6:00 pm GMT scheduled for release, but keep close tabs on market sentiment for any major moves coming your way!

574

Risk aversion? Check! Stronger than expected U.S. data? Check! The Greenback got it all going yesterday as it chalked up gains against its major counterparts. EUR/USD closed 18 pips below the 1.4200 handle while GBP/USD edged closer to the 1.6100 level. The only currency that outpaced the Greenback yesterday was the Japanese yen, leaving USD/JPY to close at 76.83.

Another tough day for the markets, eh? After a day of recovering from some of its losses, higher-yielding assets took another plunge with U.S. equities tanking by almost 5%. Meanwhile, gold prices soared to yet another new record high as it brushed past the $1,800/ounce mark.

This time around, concerns about the worsening euro zone debt crisis kept risk-taking at bay. On top of that, investors feared a repeat of the 2008 recession, which forced them to liquidate their riskier holdings. Perhaps traders were still reeling from the extremely dovish Fed statement, which confirmed that economic activity in the U.S. isn’t as good as expected.

Still, the U.S. managed to churn out a better than expected Federal budget balance yesterday. The actual figure showed a $129.4 billion budget deficit, smaller than the predicted $137.4 billion shortfall but still much wider than the previous month’s $43.1 billion deficit.

Today, Uncle Sam is set to release its trade balance report and jobless claims data at 12:30 pm GMT. The trade balance is expected to show a $47.9 billion deficit for June, a tad better than the $50.2 billion shortfall seen last May. Unemployment claims are expected to land at 401K for the previous week, a notch higher than the 400K figure posted the other week.

576

Due to varied results of economic data released, the dollar’s price action was as mixed as bag of nuts yesterday as it traded higher versus the franc, fell against the euro and the pound, and barely moved versus the yen. By the end of the U.S. trading session yesterday, the U.S. dollar index was sitting at 75.06, a mere 14 percentage points higher from its opening level.

The initial jobless claims report came out better than expected as it showed that the number of people who claimed for unemployment insurance fell to 395,000 from 402,000. Meanwhile, the Trade Balance reported a 53.1 billion USD deficit, significantly higher than the 47.9 billion USD deficit initially predicted and the previous month’s 50.8 billion USD deficit.

Today, two important economic reports are due. The first one, the retail sales report, is slated to come out at 12:30 pm GMT. The market expects retail sales to have increased by 0.4% in July, slightly higher than the 0.1% gain seen the month before. However, the core version of the retail sales report is predicted to rise by only 0.1%.

The second one, the preliminary University of Michigan consumer sentiment survey, will publish at 1:55 pm GMT. It is slated to print a reading of 63.7.

Since risk sentiment has been driving price action, results that actually come in better than forecast could end up hurting the dollar. Stay on your toes traders!

577

The dollar’s currency hiney got whooped by most of its counterparts last Friday. It lost 21 pips to the euro when EUR/USD closed at 1.4250 and 57 pips to the pound as GBP/USD ended the week at 1.6279.

In this humble, not-so-old man’s opinion, the mixed data that we saw from the U.S. must have not impressed investors.

The retail sales report for July topped expectations when both the core and headline figures came in at 0.5% versus the forecasts which were at 0.2% and 0.4%, respectively. However, the preliminary University of Michigan consumer sentiment report for August plunged to its 30-year low at 54.9 and disappointed market consensus which was for a very modest pullback to 63.2 following July’s reading at 63.7.

Sure, the dollar’s scorecard wasn’t all that bad since it was able to gain against the Swissy and the Loonie. But I think it just got lucky that it’s counterparts had their own problems to deal with too.

Our forex calendar has a couple of reports listed for today so make sure you ain’t snoozin’ when they’re released later if you want to make some moolah.

At 12:30 pm GMT, we’ll get dibs on what businessmen think about the business conditions in New York with the Empire State Manufacturing Index for August. After contracting in July, printing at -3.8, analysts are expecting the report to show some optimism with the forecast up at 0.8.

A few minutes later at 1:00 pm GMT, the TIC report will be released. If you’re planning to buy the dollar, you may want to keep your fingers crossed for a figure better than 30.4 billion USD. This would be bullish for the currency as this would indicate that bigger foreign investment during the month.


Come 2:00 pm GMT, the NAHB will release it’s survey on house prices. Keep in mind that the consensus is for the outlook by home builders to have remained steady with the forecast still at 15.0.
578

The Swiss National Bank (SNB) implemented a number of measures to halt the appreciation of the Swiss Franc. After lowering target Libor rates to a range between 0.00 and 0.25%, SNB announced an increase of liquidity supply to CHF120b to meet increased demand for the currency. Furthermore, there were comments of possible temporary peg of the Franc to the Euro. To what extent the appreciation of the US Dollar against the Swiss Franc is a result of the measures to counter strengthening of the Franc by SNB?

579

Oh how the mighty have fallen… again! The great USD declined against practically all its major counterparts yesterday as weak economic data and a solid performance in equities dealt it a one-two combination. As a result, EUR/USD climbed 179 pips to close at 1.4441 just as USD/CHF sank from an intraday high of .7998 to finish at .7856.

Don’t blame it on the a-a-a-a-a-alcohol! Blame it on the Empire State manufacturing index and TIC long-term purchases report!
The Empire State manufacturing index printed a surprise contraction in August, falling from -3.8 to -7-7 instead of rising to 0.5 as many had forecasted. And according to the latest TIC long-term purchases report, foreign investors had no interest in buying long-term U.S. assets in June as the report showed a net value of just 3.7 billion, a far cry from the projected 30.4 billion USD. It seems investors lost their taste for U.S. assets, what with the economy’s gloomy outlook.

The continued strength in U.S. equities was also to blame as stocks posted a gain of over 7% in the last three days. With awesome returns like that, traders have been more inclined to ditch the USD in favor of U.S. stocks.

Today, we’ve got more U.S. to chew on as building permits and housing starts data will be coming out at 12:30 pm GMT. Expect building permits to inch down from 0.62 million to 0.61 million, and housing starts to drop from 0.63 million to 0.60 million. With how the markets treated yesterday’s reports, I’m inclined to believe that the dollar could drop a few more pips if these reports disappoint. Good luck, folks!

580

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!

581

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!

582

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.

583

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!

584

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.

585

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?

586

“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](http://www.babypips.com/forexpedia/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](http://www.babypips.com/blogs/piponomics/why-qe3-is-a-real-possibility.html) 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.](http://www.babypips.com/school/united-states-of-america.html) 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!
587

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!

588

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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Reserve bank of India occasionally intervenes in the foreign exchange market to curtail the exchange rate volatility. The nature of intervention by the RBI in the spot and forward segment of the forex market has always been with a purpose (either implicit or explicit) and sometimes on a continuous basis for several days. This paper empirically examines the profitability and stabilizing effect of the intervention operations of the Reserve bank of India. Murray approach (1990) and GARCH model has been adopted to study the same. It also presents evidence on the extent to which intervention operations are sterilized. The main conclusion is that the central bank has incurred substantial losses on account of negative Net Interest Income and sterilization is almost complete.

589

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. GDPreport 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!