Daily Economic Commentary: United States

Trading Discussion News and Economy
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After a strong performance from Monday to Thursday, the Greenback finally decided to take a break and give others a chance to catch up last Friday. TheU.S. dollar index, which tracks the performance of the Greenback versus other major currencies closed Friday at 78.65, 18 percentage points lower from its opening level during the Asian session.

The dollar’s losses was probably the result of profit taking than anything else. In the days prior to Friday, the dollar had [B]FIVE[/B] straight positive days.

No tier 1 data released last Friday but we will be seeing loads of reports this week to cap off the month.
The first important piece of data will come out today. At 2:00 pm GMT, the U.S. new home sales report will print. It is expected that the annualized number of new home sales to decrease to 296,000 from 298,000.

Tomorrow, on Tuesday, both the S&P/CS Composite house price index and the Conference Board’s consumer confidence survey will be released. The S&P/CS HPI is predicted to show a -4.4% figure while the consumer confidence survey is slated to print a 46.4 reading.

On Wednesday, await the durable goods orders. The headline figure is forecasted to be -0.4%, but the core version of the report which excludes the orders for transportation items is anticipated to show a 0.2% gain.

And finally, on Thursday, the U.S.'s final GDP report and the weekly jobless claims will be published. The market expects the final GDP to show that growth was revised up to 1.2% from 1.0% while the weekly jobless claimed is expected to fall to 420,000 from 423,000.

The price action following the upcoming reports to reflect market sentiment. Given how risk averse traders have been, results that fail to meet consensus could actually provide support for the dollar. Be careful trading this week folks, you all know how sentiment can shift on a dime.

612

No thanks to risk appetite and dollar aversion in markets, the Greenback took another step back against its major counterparts. EUR/USD caped the day with only a 6-pip slip at 1.3512 after hitting an intraday low of 1.3363, while Cable ended the day in the green for the second day in a row at 1.5559.

Though there were barely any market-moving economic data released in the markets yesterday, the high-yielding currencies pared back its losses against the Greenback on reassuring speeches from European leaders.

Of course, it might have also helped the high-yielding currencies that the new home sales report from the U.S. yesterday highlighted the weakness in the U.S. economy. New home sales fell to a six-month low at 295,000 in August after clocking in a 302,000 figure in July.

Today at 1:00 pm GMT we’ll get hold of the S&P house price index report, followed by the CB consumer confidence data and Richmond manufacturing index at 2:00 pm GMT. If these reports print to the downside, then we might just see more Greenback weakness against the high-yielding currencies!

613

Uh oh! It seems like investors are getting tired of listening to the rumors coming out of Europe and are starting to focus on the U.S. Too bad for the dollar, two not-so-optimistic Fed officials took centerstage yesterday.

As a result, the currency lost to most of its major counterparts. It gave up 84 pips to the euro as EUR/USD closed at 1.3595 while GBP/USD ended the day 72 pips higher at 1.5630 and AUD/USD was up 102 pips at .9912 at the end of the day.

Operation Twist hasn’t come into play yet, but Fed President Lockhart of Atlanta and Fed President Fisher of Dallas were already talking about the need for the Fed to step up its game as its most recent decision probably won’t do much to boost the economy. Although both aren’t voting member of the FOMC, some market junkies took their remarks as a sign that QE3 may not be off the table yet.

It also didn’t help the dollar that we saw mixed figures from yesterday’s roster of economic reports.

According to S&P, house prices fell less than what was expected in July. Analysts were expected a 4.4% drop but data showed that prices only contracted by 4.1%. The Richmond Manufacturing index for September also beat the forecast by 2 points when it printed at -6.

However, the consumer confidence index for September disappointed the consensus when it came in at 45.4. Economic gurus were expecting a higher improvement to 46.2 following the 45.2 reading we saw for August.

I wonder if the durable goods report will provide the dollar with support on the charts in today’s trading. Let’s find out later at 12:30 pm GMT! Keep in mind that the market is expecting to see that the total value of newly purchased durable goods placed with manufacturers declined by 0.2% in August. However, excluding volatile items, the core durable goods report is anticipated to print an increase of 0.1%.

614

Was risk aversion back in fashion yesterday, or were the currency bulls simply out to see the new Kindle Fire tablet? Whatever the reason, the Greenback once again gained across the board, which sent EUR/USD 47 pips down to 1.3548. Meanwhile, GBP/USD also suffered a 54-pip slide to 1.5576.

Based on the yesterday’s overall price action though, I’m betting my neighbor’s cat that risk aversion was a bigger factor in the dollar’s rise. Aside from the rapidly deteriorating investor sentiment in the euro region, the U.S. data released yesterday also gave little to cheer about.

The durable goods orders not including transportation items printed a 0.1% decline in August, a bit weaker than the 0.1% increase that markets were expecting. Demand for capital goods rose though, which signals that companies are still willing to invest.

Will the U.S. follow up with more good news today? The initial jobless claims report is due today at 12:30 pm GMT, which is around the same time that the U.S. final GDP report will be released. Then, at 2:00 pm GMT we’ll also get hold of the pending home sales report. If the data prints substantially weaker than expected, then we might see more risk aversion in markets today.

Good luck in your trades today!

615

The dollar’s performance was as messy as a Sloppy Joe yesterday. It was able to munch on pips from the comdolls and the yen. However, it closed with losses against its European counterparts.

Why was the dollar all over the charts yesterday?

Well, the successful vote on the EFSF bill in the German parliament might have boosted demand for European currencies. Word around the hood is that 523 policymakers out of the 620-member Bundestag voted in favor of an increase in the fund. And not only that! When the votes were broken down, it showed that Chancellor Angela Merkel got enough support from her coalition with 315 of her allies saying yes to the bill.

On the other hand, the surprise cut on New Zealand’s credit rating from Fitch might have spooked investors out of the commodity currencies and ushered them into the dollar. I’ve got all the details on Fitch’s move in my New Zealand commentary. So check it!

As for the dollar’s win against the yen, I have a feeling that yesterday’s better-than-expected roster of economic reports allowed the currency to rally.

The unemployment claims report printed below 400,000 for the first time in six weeks at 391,000 and was short of the consensus which was at 420,000. The pending home sales report also topped expectations when it showed a more modest decline of 1.2% than what analysts had predicted at 1.7%.

To top it all off, the final version of the Q2 2011 GDP report showed an upward revision to 1.3% after being previously reported at 1.0%. The figure was also better than the 1.2% forecast.

With that said, make sure you be on your toes for the reports we have on tap from the U.S. today. Who knows, they may just reel you in a handful of pips!

According to our forex calendar, the PCE and personal spending and income reports for August will be released at 12:30 pm GMT. Then at 1:45 pm GMT, the Chicago PMI for September will be on tap. We’ll then have the revised University of Michigan consumer sentiment index at 1:55 pm GMT to cap off the week.

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Give the Greenback a standing ovation folks! Thanks to positive U.S. data and euro zone debt fears, the currency was able to stage a magnificent performance last Friday as it gained against almost all major currencies. EUR/USD, for instance, closed the day at 1.3396 , 194 pips lower from its opening price during the Asian trading session.

The Chicago purchasing managers’ index, which measures how healthy the manufacturing businesses are in the Chicago area, came out 60.4 reading, much higher than the 55.8 figure initially expected. At the same time, the University of Michigan consumer sentiment survey was revised up to 59.4 from 57.9.

The only not-so-good news that day was the result of the core PCE price index. It showed that the inflation rate was only at 0.1%, and not 0.2% like forecast.

This week, we have a lot on our economic plate as an overabundance of top-tier data reports are scheduled to be released.

The first one is the ISM manufacturing PMI at 2:00 pm GMT today. The forecast is a 50.6 reading, a tick lower than last month’s 50.7 figure. Keep you’re a close eye on you trades once the report is released as the report tends to have a strong impact on price action.

Then, on Wednesday, both the ADP non-farm employment change and ISM non-manufacturing PMI will be published. The ADP report is slated to show a 76,000 figure while the ISM non-manufacturing PMI is expected to print a 53.1 reading.

Lastly, on Friday, we’ll see the mother lode of all economic releases, the U.S. non-farm payrolls. For August, we saw zero growth in jobs, so it’ll be interesting to see if hiring was able to pick up in September. The market is predicting the NFP to show a 51,000 increase and the unemployment rate to have remained at 9.1%.

Hopefully, the upcoming reports will be able to meet expectations and give the market a bit of positive news.

617

Thanks to a strong case of risk aversion, the U.S. dollar scored gains against most of its major counterparts, except for the Japanese yen. EUR/USD tumbled to the 1.3200 area while USD/CHF soared past .9200. Can the Greenback continue to benefit from the flight to safety today?

The usual lack of progress in euro zone debt talks kept risk-taking at bay yesterday, forcing traders to flee to the safe-haven currencies. On top of that, strong economic figures from the U.S. rendered the Greenback as the more stable safe-haven currency. Their ISM manufacturing PMI beat expectations and climbed from 50.6 to 51.6 in September, signaling that the industry’s expansion was much stronger during the month.

Aside from that, construction spending in the U.S. rose by 1.4% in August, erasing the 1.4% decline seen last July and coming in much better than the expected 0.1% drop. Total vehicle sales also surpassed expectations as the report printed a 13.1M figure, higher than the projected 12.3M reading.

The U.S. won’t be releasing any top tier data today as traders focus their attention on Fed Chairman Bernanke’s speech. He is scheduled to testify on his economic outlook and recent monetary policy decisions at 2:00 pm GMT so make sure you listen to what the Fed head has to say. Does he think that Operation Twist is enough to stimulate the U.S. economy? Is the central bank considering more easing? What kind of product does he use on his hair? These are just some of the many questions Big Ben could answer so y’all better stay tuned!

618

After staging a solid rally throughout the Tokyo and London sessions, the dollar executed a complete reversal to head down the charts. It took a blow to the gut as Fed Chairman Ben Bernanke dished out very dovish words, snuffing out demand for the American currency. As a result, EUR/USD finished 117 pips higher at 1.3321.

Blame it on Big Ben! He left little to the imagination when he said that the central bank was ready to act to boost the economy’s “close to faltering” growth. He even added that higher inflation won’t stop the Fed from easing policy should it decide to take that path!

Bernanke seemed sincerely disappointed in the weakness of the U.S. recovery and called for Congress to step up its game, saying that the Fed can only do so much. He also added that although Operation Twist will help a bit, it won’t give “an enormous support to the economy.” It doesn’t get any more dovish than that! No wonder many are starting to believe that it’s only a matter of time before the central bank announces more stimulus.

Today, we’ve got some really heavy reports on tap.

At 12:15 pm GMT, we’ll take a look at the ADP non-farm employment report, which is slated to show a weak rise of 76,000 in September, following the 91,000 increase in jobs in August. As you all know, the U.S. labor market has been in a ridiculously stubborn slump lately. As such, any signs of recovery would be a welcomed sight and could reignite demand for the dollar.

After that, the ISM non-manufacturing PMI will be available. Look for it to tick down from 53.3 to 53.0 when it comes out at 2:00 pm GMT.

The Fed will probably be looking at today’s big reports for its future policy decisions, as they will serve as a good gauge of how pressing the need for more stimulus is, so be sure to check them out too!

619

Are the good times over for the dollar bulls, or are they just taking a breather? The dollar ran into a one-two punch against its counterparts yesterday as both risk appetite and weak U.S. data weighed on the Greenback. EUR/USD showed a 24-pip gain at 1.3345, while USD/JPY slipped by 16 pips to 76.75.

Aside from the continuation of the “relief rally” in the markets yesterday, the disappointing employment-related reports from the U.S. also dampened the demand for the Greenback. The Challenger job cuts data showed a whopping 126% spike in September, the highest number of planned job cuts since April 2009.

The ISM services index also showed weakness in the labor sector in September, clocking in at 53.0 from its 53.3 reading in August. Good thing the ADP employment report inched higher at 91,000 from its 89,000 figure in August. Still, market geeks remain skeptic on the ADP figures, so the overall outlook for the U.S. labor market remains weak.

Will the weekly initial jobless claims report at 12:30 pm GMT provide any relief? If the report prints dramatically lower than the expected 411,000 figure, then we might see traders position themselves for a weaker NFP report this Friday.

But don’t forget – we also have the BOE’s interest rate decision today, which will be followed by ECB President Trichet’s last interest rate decision speech. There will be plenty of market-moving reports today, so make sure you practice sound risk management!

620

What’s another way of spelling “weak sauce?” U-S-D! The U.S. dollar was one of yesterday’s weakest currencies as traders continued to ditch it in favor of its major counterparts, taking EUR/USD up 104 pips to 1.3348 and USD/JPY down 13 pips to 76.60. Will today’s NFP report cause a major shift in sentiment for the dollar?

Traders didn’t wait for today’s big NFP release to get moving! One explanation as to why the dollar found no love was the market’s healthy risk appetite. Once again, we saw stocks rally yesterday, and this can be considered a sign that investors are feeling comfortable enough to shift back into riskier assets. Of course, such a shift in sentiment is usually bad for the dollar, considering its safe haven status.

The only data to come out yesterday was the initial jobless claims report, which came in above expectations but failed to get dollar bulls going. From 395,000, jobless claims rose to just 401,000 and not to 411,000 as many had feared.

But enough about that! We’ve got a major event on tap today - the monthly NFP report! Survey says that most are expecting it to show a pitiful increase of 55,000 jobs following the big fat zero it printed in August. In turn, this is expected to keep the unemployment rate at 9.1%. It’ll be interesting to see how today’s release will affect the markets.

On one hand, better-than-expected data could result in a stronger dollar. However, it’s not uncommon for positive NFP data to trigger risk appetite, so this report could turn out to be dollar negative in the long run. In any case, it’s best to stay on your toes when the report comes out at 1:30 pm GMT. For more tips on how to trade this report, I suggest you take a look at Forex Gump’s piece on Making Money on the Non-Farm Payrolls.

621

That’s what you call a rebound! Thanks to some great NFP figures, we saw higher yielding currencies soar up the charts early in last Friday’s New York session, with EUR/USD hitting as high as 1.3526. However, the gains were short lived as a couple of credit downgrades sent traders back to the safety of the Greenback, causing EUR/USD to finish at 1.3387, down 63 pips on the day.

Traders went hungry for higher yielders once the NFP report hit the airwaves, as the nominal employment figure jumped up by a tremendous 103,000, nearly double the anticipated 55,000 figure! Also, remember that big fat ZERO we saw in August? It turns out that that was revised, and the labor market actually gained 57,000 jobs during the month! As the great Ric Flair would always say, WOOOOOOOO!!!

This spurred a risk rally, sending higher yielding currencies higher. However, downgrades of Italy and Spain by Fitch soon killed that move, and by the end of the day, the dollar was back on top of the currency charts.

In any case, the NFP figure was somewhat encouraging, as anything above 100,000 is definitely progress. It could also give the Fed more reason to pause on any further quantitative easing measures.

Of course, there are those who’ll argue that 100,000 isn’t nearly enough. Remember, the U.S. economy needs somewhere between 150,000 to 200,000 jobs added EVERY month just to get back to pre-Great Recession employment levels. If we continue to see dismal and sub-100,000 numbers, Bernanke and his boys may have no choice but to pull the trigger on QE3.

Looking ahead, we may not see much movement today as both Japan and the U.S. are off on holiday. Of course, you never know what may happen, so stay on your toes and be flexible! Good luck trading today!

622

Risk appetite was up again yesterday, and the U.S. dollar was not too happy about it. The Greenback lost ground to its major counterparts, including the Japanese yen and the Swiss franc, as traders gobbled up the higher-yielding currencies. EUR/USD reached a high of 1.3699 while AUD/USD closed 13 pips shy of parity. Will risk appetite extend its stay in the markets today?

Market participants were optimistic that euro zone policymakers would see eye to eye and reach an agreement on the euro zone debt situation. In fact, many believe that France and Germany could come up with a joint solution before the end of October. Drop by my euro zone economic commentary thread for more details on this issue.

In the meantime, the focus could shift to the U.S. as the Fed is set to release the minutes of its latest monetary policy meeting tomorrow. Recall that the U.S. central bank decided on Operation Twist the last time they met and Fed head Bernanke doesn’t seem to be satisfied with the results. Why did they end up choosing Operation Twist anyway? How close were the FOMC members to implementing QE3 last time? These are just some of the questions that might be answered when we see the minutes at 6:00 pm GMT on Wednesday so keep an eye out for those!

If the minutes suggest that the Fed policymakers were just a couple of nudges away from deciding on QE3, the Greenback could be forced to return its recent gains. After all, if Big Ben still isn’t happy with the outcome of Operation Twist, that could be enough to convince the rest of the FOMC to pull the trigger on QE3 soon. There are no red flags due from the U.S. today so be mindful of market sentiment!

623

Even with traders coming back from the long weekend, we didn’t see too much movement in the markets, which left the dollar trading mixed versus its major counterparts. EUR/USD pretty much stayed in range, as it traded between 1.3680 and 1.3700. Meanwhile, the dollar booked a nice gain versus the pound, as GBP/USD dropped 58 pips to finish at 1.5615.

One reason why we didn’t see a continuation of Monday’s movement was probably due to some profit taking ahead of the Slovakian vote about EFSF expansion. Aside from that though, there was no hard hitting news that drove dollar trading.

Over at Washington D.C., we saw the U.S. Senate pass a bill that would let American companies to seek duties if a government undervalues a currency and doesn’t do anything to fix it… Okay fine, we’re really just talking about China here! Some companies feel that the Chinese yuan’s value is severely undervalued and that this has hurt local businesses.

With the passing of the new bill, we may see added friction between China and the U.S., so this is something to keep an eye on going forward.

Looking ahead, we could be in for a volatile New York session, as the minutes of the latest FOMC meeting are scheduled to hit the airwaves at 6:00 pm GMT. The minutes should give us a clearer idea on why the Fed decided to stick with Operation Twist and moreover, whether or not QE3 is still in the cards for the central bank.

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It seems like the dollar still hasn’t found its mojo yet with risk appetite continuing to dominate market sentiment. It scored losses to most of its higher-yielding counterparts, with EUR/USD closing 112 pips higher at 1.3792 and GBP/USD up 141 pips at 1.5756 at the day’s close.

Good thing it was still able to bag 69 pips against the yen as USD/JPY ended the day 69 pips above its opening price at 77.34.

It looks like the FOMC minutes provided the dollar with very little support either as investors continued to focus on the developments in the Euro Zone. The minutes of the most recent meeting showed that policymakers are saving QE3 in case the economy takes a turn for the worse. Operation Twist is less dire, but if it proves to be enough to get the economy hustlin’ there is no need for QE3.

Then again, maybe it was good that market participants were so focused on the sovereign crisis. Heck, the fact that the Fed is open to more easing should’ve been pretty bearish for the dollar. So make sure you keep tabs on the Euro Zone, ayt? More good news would probably continue to fuel risk appetite and weigh down on the dollar.

Also be on your toes from the U.S. trade balance and unemployment claims reports at 12:30 pm GMT. The trade deficit for August is seen to have widened to 46 billion USD from 44. 8 billion USD in July. Meanwhile, the unemployment claims report is seen to print at 406,000. Better-than-expected figures will probably be bullish for the dollar so watch out!

625

Hold the fort, Uncle Sam! After several days of losing, the Greenback was able to stand its ground yesterday. EUR/USD ended the day at 1.3786, just 6 pips lower from its opening price. Meanwhile, GBP/USD closed at 1.5756, down from 1.5774.

It appears that the risk rally we’ve been seeing the past few days has receded as the Greenback was able to stay afloat versus other major currencies. A couple of negative data came into light yesterday including the weaker-than-expected Chinese and U.S trade balance data. The unemployment claims report also continued to paint a depressing picture as it remained above the 400,000 mark.

We’ve got a lot on our economic plate today as the U.S. retail sales report (12:30 pm GMT) and University of Michigan consumer sentiment survey (1:55 pm GMT) are due.

The U.S. retail sales report is expected to show a 0.5% gain, which is an improvement from last month’s flat reading. Meanwhile, the core version of the report that excludes automobiles in its computation, is expected to print a 0.2% increase.

As for the University of Michigan consumer sentiment survey, the market is expecting a 60.2 reading, a slight increase from the previous month’s 59.4 (revised up from 57.8). With price action primarily driven by risk sentiment, better-than-expected results could trigger another safe haven sell-off. Make sure to stay on your toes once the reports are released folks!

626

Talk about having a bad week! Save for the yen, the dollar scored losses against all of its major counterparts. Heck, the USDX even posted a five-day losing streak, ending the week at 77.05 after opening at 79.19.

What caused the dollar’s demise? It was nothing more than good ol’ risk appetite. With the developments in Europe’s sovereign crisis last week, investors moved their money out of the dollar and into higher-yielding currencies.

It seems like the better-than-expected reports released from the U.S. on Friday did more harm than good to the dollar as they only fueled risk appetite even more. It was reported than consumer spending rose in September with the headline retail sales figure printing more than twice the 0.3% forecast and almost four times August’s reading at 1.1%. Excluding volatile items, the core retail sales figure came in at 0.6% and topped the 0.2% consensus.

It wasn’t all good in the hood though. The preliminary University of Michigan consumer sentiment report hinted that Americans are still not giddy about the future of the economy. The figure came in lower than expected at 57.5 versus estimates of 60.2.

I wonder if there are still enough good vibes left in the markets. If so, positive figures from today’s roster of reports from the U.S. may just contribute to risk appetite and could send the dollar to the bear lair once more. So watch out for them!

At 12:30 pm GMT, the Empire State Manufacturing index for October is expected to print at -3.9. Then at 1:15 pm GMT, we’ll get dibs on the industrial production report for September which is anticipated to match its previous reading of 0.2%.

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When there’s a will, there’s a way! After several days of losing, the dollar was able to fight back and regain some lost ground yesterday. Take a look at EUR/USD for instance. It had gone as high as 1.3900 during the day, before falling back down below 1.3750 to clock in 117-pip loss.

The dollar’s rise was mainly the result of risk aversion that stemmed from some downbeat comments from German Chancellor Merkel. She indicated that the search for the resolution to the ongoing debt crisis will “surely extend well into next year.”

U.S. data didn’t surprise at all though. The industrial production report a 0.2% rise just as expected while the Empire State Manufacturing Index printed a -8.5 reading, worse than the -3.9% forecast.

Today, we’ve got two tier 1 economic reports coming out.

The first one is the producer price index at 12:30 pm GMT. The market expects the PPI to show a 0.2% rise following the flat reading seen the previous month. Meanwhile, the core PPI is expected to print a 0.1% rise just like last month.

Then, at 1:00 pm GMT, the TIC long-term purchases will come out. It is expected to rise to a 27.8 billion USD surplus from last month’s 9.5 billion USD surplus as investors ramped up their purchases of U.S. securities. Let’s see if the positive expectation can help the dollar continue with its rally.

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Mixed results for the dollar, which gained versus the pound and euro, but fell victim to comdolls in yesterday’s trading action. Could we see more of the same today as we hit the middle of the week?

The dollar’s fortunes were once again tied to risk sentiment flows. With the U.K posting some disappointing data and Moody’s downgrading Spain, it’s no surprise that the dollar managed to stay ahead of its European counterparts.

On the other hand, improved risk appetite helped equity and commodity markets, allowing the comdolls to outgun the Greenback.

As for hard data, the TIC long-term purchases report basically said, “Who cares if the dollar no longer has a AAA-rating?”

Foreign demand for Treasuries came in more than DOUBLE the expected 27.8 billion USD figure, printing at 57.9 billion USD. Yes folks, this is the same month when the U.S. Congress was still trying to make a debt deal happen and when the U.S. got downgraded! This just goes to show that no matter what, the dollar remains king in times of uncertainty.

We also received the monthly PPI report, which showed that producers paid 0.8% more for their raw materials in the month of September. This was much higher than the anticipated 0.2% figure and is a sign of rising inflation.

This is actually a little problematic. Remember, the U.S. Fed is contemplating on whether or not to inject some QE3 juice into the economy in order to get it pumping. The problem is that more monetary easing could result in hyperinflation, which is something that the central bank does not want.

Considering that the euro zone is struggling and that the recent Chinese GDP report showed its lowest figure in two years, we could see demand taper off, which should keep inflation in check. In any case, this is something that we should all keep an eye on in the coming months.

Looking ahead, we’ve got a bunch of 2[SUP]nd[/SUP] tier reports on tap, as the CPI report and building permits and housing starts data will all be available at 12:30 pm GMT, while the Beige Book will be released at 6:00 pm GMT.

The monthly CPI report is expected to show that prices rose by 0.3% last month, slightly down from the 0.4% growth we saw in August. Meanwhile, the building permits and housing starts reports are expected to print annualized rates of 610,000 and 590,000 respectively, which would be very close to recent releases.

Lastly, the Beige Book should reveal some insight as to what Fed officials are thinking regarding monetary policy. We’ve been seeing some improvements lately, so we can probably expected the report to acknowledge this. At the same time though, I expect that we’ll hear some concerns about the state of economic recovery across the globe.

In any case, I’m not too sure whether these reports will cause too much of a ripple in the markets. I suspect that risk sentiment and developments over in Europe will continue to drive the markets. Good luck trading today!

629

It was a crazy day for the dollar yesterday as it traded in a mixed manner versus other major currencies. While it didn’t move versus the yen, it gave up a lot of ground to the pound. Against the euro, the dollar initially started the day very weak but it suddenly rallied once the Asian session ended! The U.S. dollar index ended the U.S. trading session at 77.55, just 8 percentage points higher from its opening level that day.

The dollar sell-off early in the day was the result of leftover risk appetite from the day before. Traders were extremely optimistic on the outcome of this weekend’s EU summit as speculations that Germany and France have agreed to expand the European Financial Stability Facility (EFSF).

But once the afternoon European trading session began, market optimism subsided, and the dollar was once again well-bid. Risk aversion revisited the market as concerns that the plan Germany and France would agree upon wouldn’t be able to meet expectations. French President Sarkozy also flew to Germany to meet with German Chancellor Merkel since talks have been “stuck.”

Economic data from the U.S. were mixed as well.

The consumer price index came in at 0.3%, just as expected. The core version of the report, however, only showed a 0.1% gain, which was lower than the 0.2% forecast.

Meanwhile, housing starts beat forecast and showed an annualized 660,000 number. Building permits, on the other hand, failed to meet expectations and fell to 590,000 from 630,000 last month.

Today, we’ve got three important reports from the U.S. that you should keep tabs on. Let me go through them one by one.

First, we’ve got the weekly jobless claims at 12:30 pm GMT. The market is expecting claims to fall to 401,000 from 404,000 last week.

Second is the existing home sales report at 2:00 pm GMT. For this report, the market consensus is an annualized 4.94 million figure, lower than last month’s 5.03 million.

The third report, which is the Philly Fed Manufacturing Index, will also be released at the same time as the existing home sales. The index is expected to a -9.0 reading, which is an improvement from the previous month’s -17.5.

Given how risk sentiment has been driving the market, it looks like any better-than-expected result could trigger another risk rally. Be careful trading today folks! Sentiment can shift any time!

630

With risk sentiment twisting and turning throughout the day, dollar trading was as mixed as a bag of M&Ms! EUR/USD tested both its recent highs and lows, but ultimately stayed within range and closed at 1.3783, up just 32 pips on the day. Meanwhile, USD/JPY remains in consolidation mode, as it is still chillin’ below the 77.00 handle.

There is a lot of uncertainty in the markets, and traders have been jumping off the edge of their seats whenever new developments hit the airwaves. This was clear in yesterday’s price action, as higher yielding currencies rose as proposals over EFSF leverage were released. However, this was short lived as German Chancellor Angela Merkel continued to slam the markets with statements doubting that the EU could come up with a “definitive solution” at this weekend’s EU summit.

As for U.S. economic data, we also received mixed results.

Weekly unemployment claims came knocking in at 403,000, just slightly higher than the anticipated 401,000. More importantly, the four-week moving average dropped to its lowest level since April, which indicates that less people are filing for jobless benefits.

Meanwhile, we also saw a drastic improvement in the Philly Fed manufacturing index, which printed a reading of 8.7. Not only was this much better than the projected -9.0 figure, but it was a sharp reversal from the previous month’s score of -17.5. Moreover, the report showed that labor conditions appear to be improving in the Philadelphia area.

The one piece of bad news though, was that existing home sales came in slightly weaker-than-expected, printing an annualized rate of 4.91 million as of September. However, August’s figures were revised up to 5.06 million, up from the initial release of 4.76 million. Let’s see how this pans out over the next few months.

No hardcore data on the docket today, but watch out for choppy trading in the markets. As we’ve seen throughout the week, anything can happen in the blink of an eye! Be safe and good luck trading today!