Daily Economic Commentary: United States

Trading Discussion News and Economy
61

The USD edged lower versus other major currencies early in Asia but managed to fight back once the US session went underway. It seems, though, that the move was more of a retracement than a decisive directional move.

Economic data out of US yesterday was mixed as some posted gains while some came in line with expectations.

The building permits report, which is used by economists as a leading indicator of construction, printed that 580,000 million (annualized rate) residential building permits were given in August. Last reporting period�s figure stood only at 560,000. The forecast on housing starts for the same month was also right on the money, posting minor gains. It reported an annualized number of 600,000 from 590,000 in July.

On the positive side, the weekly report on unemployment claims showed that 545,000 people claimed jobless insurance for the first time last week instead of the 554,000 consensus. The Philadelphia manufacturing index, which assesses whether the manufacturing industry is improving or not, gave a reading of 14.1, significantly higher than the 8.1 prediction.

No economic data today but it is the end of the week and we might see some investors unwind their investments and take profit! Hopefully, this could provide some volatility to the market for currency traders to play with.

62

The dollar finally fought back yesterday, as it pushed ahead against most major currencies during the Asian and European sessions, before wobbling a little bit during the US session. Still, the buck remained on top for the day. With no economic data that was released, could this move be attributed to case of profit taking, as it was the end of the week?

It�s Monday again, and what does that mean? Another round of economic data! We�ll be starting off with the Conference Board�s leading index, which is forecasted to have risen by 0.8% in August.

Tomorrow, we�ve got the housing price and Richmond manufacturing indexes on deck. Housing prices are expected to have increased by 0.5% from June to July. The Richmond manufacturing index � which measures manufacturer�s sentiment on current business conditions - is projected to increase to a score of 14, indicating further expansion. Normally, neither of these reports have a strong market impact, but I suspect that if these come out to print discouraging figures, it could prompt a further push back up for the dollar.

On Wednesday, we could be in for some strong moves in the market, as the Fed will be releasing its Fed funds rate (interest rate) decision. Also, the FOMC statement will be released. I don�t think we�ll be seeing a rate change, but I�d be wary of statements regarding the state of recovery. Will the FOMC improve their forecasts for the economy? Or will they call for more stimulus, as hinted by some FOMC members the past couple of weeks?

Also on Wednesday, we�ve got US Treasury Secretary Tim Geithner testifying to the House Financial Services Committee about financial regulatory reform. There have been times when we�ve seen some extra volatility after Geithner�s speeches, so be on the lookout when he talks at 1:30 pm GMT. Keep in mind, financial reform has been a hot topic from recent G20 meetings�

Speaking of the G20� The next series of G20 meetings will begin this Thursday! Awhile back, I wrote on how the main topics being discussed in the most recent meeting were about how banks compensate their employees and what strategies will be put in place when the time to withdraw government stimulus comes. We will probably see more talks about this, but let�s see if more detailed plans emerge from this week�s meeting.

After Friday�s movement, could there be some hesitancy in the markets concerning USD weakness? Is the dollar poised for a correction? With durable goods orders and existing and new home sales also due, this could be a pivotal week for the dollar. Whoo � my Forex senses are tingling with excitement! Good luck trading this week!

63

“It’s time for revenge!” yelled the USD as it rallied against all major currencies yesterday. Could this be a pullback from the USD sell-off in the past weeks? Are traders turning USD-bullish ahead of the FOMC meeting? Or is the currency market simply missing the presence of Japanese traders who are on a holiday?

With Japanese traders off on a holiday, trading volume was relatively light yesterday. Also, last Friday’s profit-taking carried on until the start of this week as major event risks, such as the FOMC statement, are on tap. The Fed is expected to upgrade their growth forecasts based on the recent set of strong US economic data. Still, the central bank might keep rates at their target range of 0.0 to 0.25% since they continue to anticipate that economic conditions would benefit from low rates for some time. Unless the Fed comes up with any surprises, like say announcing an exit from their stimulus programs, volatility is expected to stay in check.

But let’s not get ahead of ourselves! The FOMC statement is set for 6:15 pm tomorrow! For today, we have a couple of low-impact reports on the table: HPI and Richmond manufacturing index. House prices are projected to rise by another 0.5% in July while the Richmond manufacturing index is expected to climb from 14 to 17 this month. Wild price moves are probably not in the cards for today… except maybe for the USDCAD and NZDUSD since we have Canadian retail sales and New Zealand GDP on the docket. Stay on your toes and catch those pips!

64

The greenback snapped its 3-day winning streak against the Aussie and the Kiwi in yesterday�s trading. The dollar weakness drove up buying interest in the commodity-related equities which consequently lifted the comdolls.

A couple of low-tiered reports were issued yesterday: HPI and the Richmond Manufacturing Index (RMI). Both accounts came in below expectations with the HPI posting only a 0.3% gain versus the initial estimate of 0.5%. The Richmond Manufacturing Index did not even advance as its score just stayed at 14. The dismal results in the two issues did not stir up USD buying. The bounce in commodities, at the end of the day, gave support not only to the commodity-related stocks and currencies but to the entire capitals markets as well.

The spotlight of today will be the Fed�s interest rate decision at 6:15 pm GMT. Market participants expect the Fed to hold its interest rate at 0.25%. Earlier this month, Fed Chairman Bernanke stated that the US is likely out of the recession already. However, he cautioned that the road to full recovery, particularly regarding job creation, will take time.

Liquidity or the lack-of due to tight bank credit continues to be one of the Fed�s major concerns. Such would undercut the Fed�s efforts to restore market efficiency and would very much put a drag in the country�s growth. If tight lending persists, the central bank may have to leave its rate at a very low level for an extended period of time. Previously, unconventional actions such as lowering the rates given on bank reserves were also suggested. Both of which would be bearish on the USD.

65

The USD was taken for a wild ride yesterday as the Fed left benchmark interest rates steady at 0.25% and maintained the size of its asset buying programs. Investors sold the dollar after the announcement but the currency found support quickly when the initial selling frenzy ended.

Federal Reserve officials had a slight change in their tone regarding their bond buying purchases. They said that they have decided to extend their program into March 2010 from December this year. This boded well for the dollar as it made distributed the injection of paper money into the economy more evenly.

Two important economic reports are due today: the weekly unemployment claims and existing home sales.

First up at 12:30 pm GMT is the survey on unemployment claims. According to estimate, there were 548,000 people that claimed jobless insurance last week. Unless we see employment pick up, I believe recovery would remain merely a �prospect.�

At 2:00 pm GMT, the report on existing home sales would be released. The report, which measures the annualized number of previously owned homes that were sold in September, is predicted to hit 5.36 million from 5.24 million the month prior.

If any of these come up with an upside surprise, we might see more risk-trades put on the table. That means more dollar selling across the board!

66

�Dolla dolla bill yo!� was buzzing through my head yesterday as dollar buying blazed through the markets yesterday. The USD gained against most major currencies, after it had been hitting yearly lows. Is the dollar back on track… or could this merely be a retracement?

Data was mixed yesterday, as unemployment claims and existing home sales had contrasting results. Unemployment claims came in better than expected, as jobless claims fell to 530,000, down from 550,000 the previous week. While some took this as a sign that firings we�re slowing down, some point to rising unemployment as something that will slowdown recovery.

Existing home sales � which measures the annualized rate of existing homes sold based on the ongoing month’s results - however, came out disappointing, as it printed a figure of 5.10 million. This was much worse than the expected increase to an annualized rate of 5.36 million.

I suspect that this caused risk aversion to creep back into the minds of investors and traders. With recent speculation that investors have priced in the recovery too quickly, this could be the breakout back to risk aversion that many have been waiting for. Let�s see if there is more follow through in the coming weeks.

Don�t think just because we�ve seen some major moves the past few days, we won�t see another one today! We�ve got some high impact reports coming out, with durable goods orders due at 12:30 pm GMT, to be followed by new home sales data at 2:00 pm GMT. Durable goods growth is expected to have fallen in the past month � given the strong move yesterday, could this be priced in already? Also, will today�s new home sales data reflect the same result as yesterday�s report?

Will USD bulls continue to drive it higher? Or will investors look at this as another opportunity to sell it? I think the results of today�s economic reports will weigh heavily on investor�s minds! That being said, good luck trading and enjoy the weekend!!

67

The Greenback ended on a strong note last week despite the overwhelming amount of volatility in the markets. The upcoming week looks fully-loaded with hard-hitting, high-impact, sentiment-shifting economic reports so the price action is bound to be pretty exciting as well.

Monday looks like the calm before the storm since no US economic reports are due today. Price consolidation could be the theme for the day unless any major news hits the airwaves and makes a significant impact on risk sentiment.

On Tuesday, we take a look at the Conference Board’s consumer sentiment index at 2:00 pm GMT. The indicator is expected to stay above the 50.0 mark as it climbs from 54.1 to 57.0. A housing price index is also due on Tuesday. After posting a 15.4% slump in July, house prices are projected to be down by 14.3% in August.

Come Wednesday, we shift our attention to employment data as ADP releases their measure of non-farm employment change. This indicator is often considered to be a preview of the non-farm payrolls report, which is due on Friday this week. ADP is anticipated to report a 194K increase in unemployment, which is a notable improvement over last month’s -298K change in employment. Chicago PMI is set for release on Wednesday 1:45 pm GMT. The index is projected to seal its place above the 50.0 mark as it rises to 52.0. Also due on Wednesday is the final GDP for the second quarter. I’m crossing my fingers in hopes that no downward revisions are made, otherwise things could get ugly for the USD…

Aside from the usual weekly first-time jobless claims report on Thursday, a bunch of economic indicators are also on the agenda. These are core PCE price index, personal income, personal spending, ISM manufacturing PMI, and pending home sales. Whew! Aside from those reports, another event risk for the day is Fed Chairman Ben Bernanke’s speech before the House Financial Services Committee in Washington, DC.

Lastly, on Friday we have the non-farm payrolls report and we all know how much of a ruckus this report causes in the markets! After posting 216K in job losses last month, the total unemployment change is expected to be at 186K this time around. That’s a pretty huge improvement! If the actual figure meets the consensus, that is. Would we see risk tolerance make a comeback in the markets and allow higher-yielders to recover last week’s losses against the Greenback? Whatever happens, I’m sure it’s gonna be legen… wait for it… dary! Have an awesome week my forex friends!

68

Trading got �out of sync� again yesterday as the greenback strengthened further against most of the other majors despite the broad-based buying in equities. Is yesterday�s price action just an oddity? Will we see the dollar rise with risk appetite again?

The US�s economic calendar was report-free yesterday. Its capitals market got a lift, though, from several merger and acquisition news in the US. According to some announcements, Xerox will shell out about $6.4 billion in cash and stock to buy Affiliated Computer Systems. Abbott Labs will also acquire Solvay’s drug business for about $6.6 billion in cash while American Securities is said to offer $38.00 per share for GenTek. But as mentioned, the USD still advanced despite the rally in equities.

Today (2:00 pm GMT), the Conference Board consumer confidence index for the month of September will be published. The index is predicted to advance to 57.0 from 54.1. It assesses the consumers� sentiment regarding business conditions, employment and personal income. Any increase in the account would generally translate positively in the US�s economy. Though, it would be typically bearish for the USD. Now, however, it�s a little bit difficult to say which way the USD will go given yesterday�s trading.

69

It seems that the dollar generally moved sideways versus most major currencies yesterday as traders sit on the sidelines prior the NFP report coming out on Friday. There was a slight bias in buying dollars though as the economic data released out of US were mixed.

S&P�s home price index for July, which measures the change in selling price of homes year-on-year, showed another decrease. This time, the decrease was 13.3%, slightly lower than the 14.3% drop predicted. Still, looking at the general long-term trend in home prices, it seems that the pace of decline is easing.

The CB consumer confidence report that followed showed a reading of 53.1, much lower than 57.0. It seems that consumers remain, well, unaffected of all this talk about �global recovery.� Unless employment starts picking up, consumer confidence would probably remain at low levels. After all, these consumers are the people who experience the economy first hand…

Speaking of employment, the ADP non-farm employment change is due today at 12:15 pm GMT. The report tends to have a high market impact as investors consider it as a leading indicator of the NFP report coming out on Friday. The forecast is that another 200,000 jobs were lost for this month.

In other news, the Chicago PMI for September will be released at 1:45 pm GMT. It measures whether the manufacturing industry in the Chicago area is expanding or contracting. A reading greater than 50 indicates expansion while a reading below 50 indicates otherwise. The consensus is 52.1, slightly higher than last month�s figure of 50.

70

The dollar got smacked around yesterday, dropping across the board. More specifically, com-dolls (AUD, NZD, and CAD) all made significant headway in their respective battles. With another heavy round of economic data coming out today, will the dollar be able to gain any support?

Dollar selling dominated yesterday, as more signs of economic recovery boosted risk appetite. The final revision to the latest GDP report indicated that the US economy shrank by only 0.7% in the 2nd quarter! Initial reports had posted a contraction of 1.2% during the quarter. In addition, reports showed that consumer spending fell by just 0.9% in the quarter, which was less than initially posted. It�s no surprise that the markets jumped for joy following the report � consumer spending makes up 70% of the economy! If consumers are spending, then something must be right� right?!

Amidst all the noise about recovery, market participants seemed to ignore other high impact reports that came out. The ADP non-farm employment change report indicated that companies slashed 254,000 jobs in the past month, much worse than the forecasted 200,000 figure! There was a short market reaction, as we saw the dollar bump slightly higher� but traders just took it as another pullback to sell the USD!

Traders also seemed to overlook the Chicago PMI report, which printed a reading of 46.1 for the month of September. The index � which measures the state of the manufacturing industry in the Chicago area using 50.0 as the benchmark score separating contraction from expansion � was expected to have a score of 52.1, after it had posted a 50.0 last month. Some suspect the drop could be attributed to the fear that once government stimulus ends, the economy will still be stuck in a rut�

Well� I don�t blame them for their concern. Why? Even Fed officials are expressing cautious over the state of recovery. FOMC members Dennis Lockhart and Donald Kohn both expressed that it was too early to rush for the exits. Lockhart said that he wanted more evidence that the economy could stand on its own without government stimulus, while Kohn warned that tight credit conditions, low inflation and slow demand warranted low interest rates. The thing is � I think most of what they are saying is true… We aren�t exactly out of the woods yet my friends! As my mama always told me, �Better to be safe than sorry��

Today, we could be in for another crazy day, as a whole boat load of data will be arriving today. At 12:30 pm GMT, we�ve got more news on labor conditions, with unemployment claims and personal spending and income data all due. Jobless claims are expected to rise slightly, from 530,000 last week to a projected 532,000 figure for this week. Spending and income are also expected to have rose � could this be the cause of the �increase� in consumer spending in the past few months?

Later on at 2:00 pm GMT, the ISM manufacturing PMI will be released, along with pending home sales. The index is expected to rise slightly, from a score of 52.9 to 53.9 for the past month. Can we expect a surprise like the one we got from the Chicago PMI report?

Also, before I forget, at 1:00 pm GMT, the big boss � Big Ben Bernanke � will be speaking in front of the House Financial Services Committee regarding financial regulation. This topic has been a major issue at recent G20 meetings so let�s see what emerges from his speech.

Tomorrow should also bring some fireworks, with the non-farm payrolls report due. With the ADP report showing worse than expected losses, what can we expect from the NFP on Friday? Hmmm� I think I should post something about this later tonight�

Phew! That was a long one! Hopefully we all start the month of on a good note � good luck trading!

71

The greenback fights back! The USD ended higher against most major currencies, except the JPY, as risk appetite retreated yesterday. Mixed economic data, combined with tentativeness ahead of today’s NFP report, caused investors to let go of riskier assets in exchange for the safe-havens.

First, the good news… Consumer data was very promising as personal income rose by 0.2% and personal spending soared by 1.3%. The increase in purchases resulted mostly from the government’s cash-for-clunkers incentive program, which raises concerns on whether the uptick in spending will last even without the stimulus.

Meanwhile, pending home sales surged by 6.4%, which was much higher than the forecast of a 0.9% rise. Government stimulus, along with bargain home prices and lower mortgage rates, had a lot to do with the unexpected improvement in pending home sales… Again, this begs the question: Would the “rebound” be sustained once the stimulus is gone?

Fed Chairman Ben Bernanke spoke of the importance of protecting users of financial services. According to him, protecting consumers from unfair and deceptive dealings would preserve savings and promote confidence in the financial market. Regarding the USD’s reserve status, he said that there is no immediate threat to the world reserve currency.

Now, the not-so-good news… Initial jobless claims for the week summed up to 551K, which is higher than the consensus of 532K and the previous week’s 534K in unemployment claims. This signals that companies still continue to cut jobs amidst signs that the economy is improving.

The ISM manufacturing PMI was not so upbeat either. The index slid from 52.9 to 52.6 in September when the consensus stood at 53.9. Still, the report indicates that activity in the manufacturing sector is expanding, but at a more moderated pace this time. ISM manufacturing prices also came below forecasts as it fell from 65.0 to 63.5 in September.

Moving on… Traders are getting pumped up for the most-awaited release this week: The NFP report! In August, a total of 216K job losses were reported. For September, job losses are expected to moderate as the NFP is projected to print 179K in layoffs. This should bring the unemployment rate to 9.8%. Would the USD continue to rally on risk aversion or would we see a reversal? Now, I don’t know for certain whether the actual figure would meet expectations and how the markets would react to the employment report but one thing’s for certain… Price action’s bound to be wild after the release! Stay on your toes!

72

The greenback was on snooze mode for the most part of last Friday’s trading prior the release of the NFP report in the US. Volatility started to pick up a couple of hours before its announcement. The USD initially swung positively then reversed when the result came out rather disappointing.

US firms slashed more jobs than initially expected (-263,000 vs. the consensus of -175,000) in September, consequently lifting the nation’s unemployment rate to 9.8% from 9.7%. While the decline in job losses has been decelerating over the past months, hiring among businesses remain subdued as they wait for the economy’s recovery to be sustainable. Ironically, a sustainable recovery can only happen with an improvement in employment.

The equities markets dove into the red territory following the report. It seemed that the market has already priced in the weak data in the previous day’s 2.6% decline given the fairly small 0.5% drop last Friday. Interestingly, buyers bought up the other higher yielding currencies in exchange for the USD shortly after.

This week’s economic calendar for the US will be relatively light with only the release of the country’s weekly unemployment claims on October 8 and trade balance on October 9. Unemployment claims for the week ending October 3 is seen to come in at 543,000 from 551,000. The US’s trade deficit, on the other hand, is projected to expand to -$32.7 billion from -$32.0 billion.

Firms like Pepsi Company and Yum Brands, Inc. will also release their third quarter earnings this week. Positive earnings could lift investor demand for higher yielding assets and currencies.

73

I hope you aren’t tired of hearing this but the USD took another hit from the commodity-based currencies (AUD, NZD, and CAD) yesterday. The USD was also sold off slightly versus European currencies such as the EUR and the CHF.

The ISM non-manufacturing report, which assesses whether the services sector is expanding or contracting, came out with a reading of 50.9, higher than the 50.0 forecast. This is the first time the report printed a number above 50.0 in twelve months. Remember, a reading above 50.0 means the service sector is expanding.

For today, although no economic data is due for release, the International Monetary Fund begins their meet in Istanbul. The speculation is that IMF member countries would continue to keep a very accommodative stance in terms of financial policy until recovery is assured. In addition, there have been talks of forming a governing committee aimed to ensure the stability of exchange rates. If we see the IMF dive into the issue of currency, we could see some fireworks in the market… Stay alert.

74

Rinse and repeat! The dollar lost out yesterday, as news reports from Australia and the Gulf states boosted risk appetite. As a result, the dollar took a beating in yesterday’s trading session, more specifically against commodity dollars like the AUD and CAD.

The Reserve Bank of Australia gave the markets a surprise by raising their base rate from 3.00% to 3.25%. It marked the first time in 19 months that a G20 nation hiked interest rates. This means that the RBA believes that the economy can withstand higher borrowing costs and that recovery is on its way. Once the rate statement was released, we saw a USD sell off across the board, probably due to increased risk tolerance.

Later in the day, the dollar suffered another setback on a report that hinted that Gulf states (nations found in the Middle East) are considering dropping the dollar in oil trade. Instead, they may use a basket of currencies to facilitate trade. Things aren’t looking good for the dollar right now…

Amidst all this, we saw stocks and commodity prices rise. This in turn, helped boost the AUD and CAD significantly, with the dollar hitting yearly lows against both currencies.

What’s next for the dollar? Today, we’ve got crude oil inventory levels at 2:30 pm GMT. Let’s see what this does for USDCAD trading. Also, tomorrow, weekly unemployment claims are on deck. Jobless claims are expected to have decreased by slightly in the past week to 543,000, after they surprisingly rose to 551,000 last week.

We could see dollar weakness persist as some believe that corporate earnings will show some good results later this week. In any case, I think traders may be positioning themselves before reports are released, so be careful trading out there!

75

“Not so fast,” said the greenback as it put up a good fight against the other major currencies yesterday. However, the greenback’s rally turned out to be a short-term pullback from Monday’s strong sell-off. At the end of the day, USD weakness spurred by an improvement in risk appetite resumed its course.

On the economic front, data from the US has been… zzzz. Woah! Dozed off right there! But hey, it’s Thursday already and the drought in US economic data ends today. Weekly unemployment claims and a speech by Fed Chairman Ben Bernanke are the two major things to watch out for this day.

A total of 543K in jobless claims are expected to be posted this week after last week’s 551K figure came in worse than expected. The actual number is due 8:30 pm GMT. Later on, Bernanke will be talking about the Fed’s balance sheet as he delivers a speech during the Federal Reserve Conference on Key Developments in Monetary Policy in Washington, DC.

It seems like the economic schedules of other major economies also resume their usual hustle-and-bustle today. We all know what that means… more volatility! Now, volatility can be a double-edged sword, if you ask me. So be careful out there!

76

The US capitals markets marked its fourth straight advance yesterday which consequently pulled the USD down. Except for some sudden spikes during the euro session, the USD pretty much exhibited a broad-based weakness for the most part of the day.

Some positive corporate earnings along with the better-than-expected initial jobless claims have kept the US equities markets above water again for the fourth time this week. US firms like Alcoa and JCPenney logged some encouraging third quarter earnings, with Alcoa gaining $0.04/share after previously losing $0.09/share. Meanwhile, the initial jobless claims for the week ending October 3 also fared better at 521,000 versus the 543,000 consensus.

On a separate note, Fed Chairman Bernanke mentioned that the Fed is ready to tighten its policies “when the economic outlook has improved sufficiently.” Remember that the Fed extended the appropriation of its asset purchases up to March 2010. The USD gained some support following his remarks. Though, the market just took such as an opportunity to jump back and dump the USD.

Today (12:30 pm GMT), the US trade balance in August will be published. The country’s trade deficit is projected to expand to -$32.8 billion from -$32.0 billion. The account measures the difference in exports and imports. An expansion in trade deficit means that US’s imports are outpacing its exports. Given the nation’s already daunting public debt, the US needs every penny from its exports to pay for their dues. The US market’s four-day winning streak may be broken if indeed the country’s trade deficit in August expanded. Ironically, this could benefit the USD in the short term.

77

The dollar retraced some of its losses last Friday when Federal Reserve Chairman Ben Bernanke said that the bank would need to tighten its ultra-accommodative monetary policy down the road to avoid excessive inflation.

You see, even if low interest rates and quantitative help ease the flow of credit in the economy by making borrowing easy, it could eventually lead to hyperinflation if it is not controlled. Although not always the case, the common assumption is that the value of money goes down when money supply in the economy increase. The idea that the Fed is thinking of unwinding its stimulus measures gave a chance for trades to take profit off the table prior the long US weekend.

No data today as US celebrates Columbus Day but we’ll begin seeing some important economic releases once the week unfolds.
First up will be the September retail sales report on Wednesday. The forecast is that sales fell again, this time by 2%. However, the core report, which excludes the sales of volatile items such as cars, is expected to print a growth of 0.3%.

Following on Thursday is weekly jobless claims figure and the core consumer price index for September. The consensus is that 525,000 people claimed unemployment insurance for the first time. Meanwhile, the core consumer price index – the Fed’s primary measure of inflation – probably remained at 0.1%.

Finally, there’s the numbers on the TIC long-term purchases for August on Friday. Economists forecast a net balance of 10.9 billion dollars. This means that securities sold by the US were more than securities purchased by other nations from the US.

You may head on over to our economic calendar the actual time of release of the reports.

78

The other majors were like the Roadrunner, running circles around the USD in yesterdays track meet. Com-dolls continued to dominate the greenback, while European currencies also made headway. With traders coming in from the long weekend, let’s see if dollar selling continues.

“The Great Recession is Over!” Well, at least according to the report released by the National Association of Business Economics (NABE). According to economists surveyed, the recession is over, as business conditions have picked up. They warned however, that recovery would be slow, as unemployment and debt will plague the government. Sounds familiar, eh? Well it should be – it’s what everyone is talking about, myself included!

FOMC member Donald Kohn will be speaking later today at the NABE’s annual meeting at about 6:45 pm GMT. With the minutes of the last FOMC meeting coming up tomorrow, who knows, maybe Mr. Kohn will drop some hints of what was discussed…

Tomorrow, we could be in for a rocky trading day, as the retail sales reports comes in. Retail sales are projected to have fallen by 2% in the past month. However, core retail sales – which doesn’t include items volatile items like automobiles - is expected to print an increase of 0.3%.

Also, the minutes of the last FOMC meeting will be available at 7:00 pm GMT. I’m interested to see what the FOMC discussed, especially after Fed Chairman Ben Bernanke’s comments last Friday. Bernanke said that the Fed was looking too tighten their monetary policies so as to avoid a sharp rise in inflation.

Lastly, we’ve got earnings reports coming in the next few days. These reports could either spell support or doom for the dollar. If we see that companies have bounced back, we could see risk trades to continue and dollar weakness to persist. On the other hand, if companies show that things are still bleak… we could see all hell break loose. This should be an interesting couple of days – be careful and good luck trading!

79

USD price action had no clear direction for the first two days of this week mostly because the US economic calendar was free from high-impact reports. Yesterday, USD trading was mixed as it closed lower against the EUR and GBP but higher against the commodity currencies. Today, brace yourselves as the action heats up with a bunch of highly anticipated releases on tap.

The main events for today are the release of the retail sales report and the minutes of the latest FOMC meeting. Let’s talk about retail sales first… Sales at the retail level, which is expected to be down by 2% in September, is due at 12:30 pm GMT along with core retail sales, which could print a mere 0.3% uptick. August retail sales and core retail sales were up by 2.7% and 1.1% respectively. Expectations of slowdown in consumer spending for September were probably borne out of the continued deterioration in the US labor market. Also, the end of the cash-for-clunkers program puts a dent in automobile sales, thus dragging retail sales down.

Moving on to the second major item on today’s agenda… FOMC meeting minutes could show that Fed officials are still not ready to withdraw their easing policies anytime soon. Yesterday’s speech by FOMC member Donald Kohn hinted that recovery may remain moderated and mentioned that, with output and inflation seen to remain below the Fed’s targets for some time, interest rates are likely to stay at their low level for an extended period as well. But let’s not forget last week’s words from Fed Chairman Ben Bernanke, when he said that they are looking to tighten their monetary policy soon. So, what’s the verdict? Find out upon the release of the minutes at 6:00 pm GMT.

Other economic reports due today are data on import prices, business inventories, and the Federal budget balance. Prices of imported goods and services are projected to rise by 0.3% in September after posting a 2% increase in the previous month. Business inventories, which printed a 1% decline in August, are expected to slide down by 0.8% in September. Lastly, the Federal budget balance could show that their budget deficit narrowed significantly from 111.4 billion USD to 43.3 billion USD.

That’s all for today folks! Be mindful of the extra volatility ahead of these major releases and stay focused!

80

Down he goes! The greenback fell across the board in yesterday’s trading as risk appetite was turned up a notch. As the DOW reached 10,000, the dollar sunk to new fresh yearly lows against several other major currencies.

The US equities markets were primarily lifted by the better-than-expected earnings of several high-profile firms in the US. JPMorgan Chase brought $0.82/share while Intel also chipped in $0.33/share. Abbot Labs and CSX also raked in some encouraging profits with each bringing in $0.92/share and $0.74/share, respectively.

Buying interests were further supported by the positive economic reports in the US. Both headline and core retail sales logged in some better-than-expected results. The headline account came in at -1.5%, better than the -2.0% initial projection. The core account, on the other hand, advanced by 0.5% against the 0.3% initial estimate.

Meanwhile, it was also reported that some Fed members are still open to the expansion of the central bank’s $1.25 trillion asset-backed securities purchase program. They reasoned that doing so would help support the economy’s recovery. This suggestion did not help the dollar’s cause as it slid further following the announcement.

Today, several notable economic updates are due in the US. The headline and core CPI are seen to come in at 0.2% and 0.1%, respectively. Unemployment claims for the week ending October 10 is estimated to reach 524,000 after last week’s 521,000 count. The Empire State Manufacturing Index is seen to taper to 18.2 from 18.9 while the Philly Fed Manufacturing Index is likewise anticipated to cool down to 12.3 from 14.1.

With today’s accounts seen to cool off plus yesterday’s feat in the equities markets, we could be up for some profit taking action. This could be bullish for the USD at least for today.