Daily Economic Commentary: United States

Trading Discussion News and Economy
811

Better luck next time, folks! The Fed surprised markets yesterday when its FOMC minutes revealed less inclination to pull the QE3 trigger. The Greenback bulls celebrated the news and pushed USD/JPY to 27 pips higher to 79.68 while EUR/USD made a two-year low at 1.2243.

In its FOMC meeting minutes yesterday, the Fed cited worries over U.S. and Chinese economic growth as the main reasons why it had decided to extend its Operation Twist program. Unfortunately for QE3 fanatics, the Fed wasn’t convinced that the weaknesses warranted more bond purchases, at least for last month.

In fact, the minutes even revealed that a couple of Fed head honchos are thinking of other tools that could stimulate growth. No specific tools were discussed yet, so it’s still anybody’s guess for now. It could be Thor’s hammer, Dumbledore’s wand, or the One Ring for all we know!

The important thing to note is that the lack of willingness to pull the QE3 trigger caused a dollar rally and dragged high-yielding currencies lower across the board. But can the dollar bulls sustain the rally today?

Traders barely reacted to the trade balance data yesterday, but maybe the initial jobless claims and import prices out at 12:30 pm GMT will give them a kick.

If you remember, the U.S. trade deficit shrank from 50.6 billion USD to 48.7 billion USD in May due to lower oil prices and weak consumer demand. Let’s hope that the initial claims and import prices will show more optimism!

Oh, and don’t forget to watch the 30-year bond auction coming up at 5:00 pm GMT as well as the Federal budget balance report at 6:00 pm GMT!

812

When risk aversion is here, the U.S. dollar is the king of the hill! The Greenback raked in gains against most of its major counterparts yesterday as rate cuts from all over the globe triggered a strong safe-haven rally. Will the U.S. dollar be able to hold on to its gains?

News of rate cuts from South Korea’s and Brazil’s central banks took the markets by surprise yesterday as this revealed that other economies are showing concern about the global economic welfare. Stronger than expected economic data from the U.S. also provided some support for the U.S. dollar as this eased fears of further easing from the Fed. The latest jobless claims figure came in at 350K, which was less than the estimated 376K in first-time claimants.

The U.S. is set to release its PPI data and its preliminary University of Michigan consumer sentiment report today. Producer input prices are expected to slip by 0.5% in June, following the 1.0% drop seen last May, while the core version of the report could show a 0.3% uptick. Meanwhile, the consumer sentiment reading for July is expected to improve from 73.2 to 73.5 but, if the actual figure misses the mark by a huge margin, the Greenback might be forced to return some of its gains. Keep an eye out for those releases starting 12:30 pm GMT!

813

“Not today, not today,” cried the dollar bears last Friday as they were able to end the bull’s streak. The U.S. Dollar Index, which had made 3 consecutive winning daily candles, finally posted a losing day as it fell to 83.83 from 84.10.

Data released was mixed. On the one hand, the headline Producer Price Index came in much better than expected as it posted a 0.1% rise. The forecast was for a 0.5% decline. On the other hand, both the core PPI and the University of Michigan consumer sentiment survey failed to meet forecast as they printed a 0.2% gain and a 72.0 reading, respectively.

Will the Greenback continue to fall this week or is the Greenback’s sell-off merely a one-day thing? With the amount of market-moving events due this week, anything can happen.

Today, at 12:30 pm GMT, the U.S. retail sales report and the Empire State Manufacturing Index will be released. The retail sales report is predicted to show a 0.1% for both the headline and core versions. Meanwhile, the Empire State Manufacturing Index is anticipated to print a 3.9 reading.

There will be more going your way on the following days: the U.S. inflation figures on Tuesday, the building permits and housing starts on Wednesday, and the initial jobless claims and Philadelphia Manufacturing Index on Thursday.

As I said, anything can happen this week. Be prepared for a lot of volatility!

814

And the Biggest Loser is… The Greenback! Weaker than expected U.S. consumer spending data triggered a U.S. dollar selloff as retail sales declined for the third consecutive month in June. Higher-yielders took advantage of dollar weakness and climbed after the release, but will these rallies last?

U.S. retail sales chalked up a 0.5% decline in June while the core version of the report showed a 0.4% drop instead of rising by 0.1%. This followed May’s 0.2% decrease in headline retail sales and the 0.4% drop in core spending. In fact, this was the report’s third month in consecutive declines!

Apparently, the weakness in spending was a result of the high level of unemployment in the U.S. and concerns about the state of the global economy. Traders were so overwhelmed by the disappointing retail sales figure that they simply ignored the better than expected Empire State manufacturing index, which climbed from 2.3 to 7.4 this month.

Today, the U.S. is set to release its CPI figures along with a few medium-tier reports such as industrial production and capacity utilization. Core CPI is expected to have risen by 0.2% in June while the headline figure could post a flat reading. With market participants buzzing about QE3 again, weaker than expected inflation data could actually result to another dollar selloff. Stay on your toes during the actual release at 12:30 pm GMT!

815

Nice try, dollar bulls, but you’re gonna have to do better than that if you want to lock in some gains! Though the dollar gave other currencies a run for their money, it was unable to seal victories against its higher-yielding counterparts. At the end of the day, EUR/USD closed 11 pips higher at 1.2288, after falling to as low as 1.2189.

Fed Chairman Ben Bernanke played the markets like a fiddle yesterday! First, he sent the dollar racing up the charts by failing to hint at QE3. And then he sent traders on a dollar-selling spree after telling Congress that the Fed is prepared to take action if necessary! Way to confuse the markets, Bernanke!

But while the central bank head has steered away from committing the Fed to further QE, other Fed members have been vocal about the possibility of more stimulus. Cleveland Fed President Sandra Pianalto, for one, thinks that the U.S. still needs a “highly accommodative policy.”

Overall, it seems we cannot rule out the possibility of further easing. Some say it may come as soon as September!

In other news, yesterday’s inflation reports fell in line with expectations. Headline CPI clocked in at 0.0% from -0.3% the month before. Meanwhile, core CPI came in at 0.2% again, just as expected.

Today, we have a couple of U.S. reports on tap that are worth noting. At 12:30 am GMT, building permits data will be available. Look for the June report to show a total of 770,000 permits, down from May’s 780,000. Housing starts data is also set to come out at the same time, and survey says we could see an increase from 710,000 to 740,000.

Then at 2:00 pm GMT, Ben Bernanke will testify again. Though this speech may not have as big an impact as the one yesterday, it could clarify issues regarding the Fed’s stance, so don’t miss it!

Rounding up our day is the release of the Beige Book, due at 6:00 pm GMT. If you want an idea of what influences the FOMC’s rate decisions, this is the report to catch!

816

Hang in there, fellas! Except for USD/JPY, the scrilla capped the day almost unchanged against its counterparts. It’s not due to lack of major market-moving reports though. What are the dollar bulls and bears are up to?

Yesterday Ben Bernanke fired up the dollar bears’ party when he repeated his stance on not implementing more QE in the near future. Of course, it also didn’t help the Greenback that the Beige book report hinted at weakening economic growth. Three Fed districts clocked in slower economic growth, which is thrice the number from the previous release. Weaknesses in manufacturing, confidence, and employment were also featured in the report.

But the dollar bulls didn’t give up without a fight! With Bernanke’s testimonies over and done with, traders are turning their focus back on the euro zone and the EZ officials’ lack of teamwork in dealing with the debt crisis. As a result, the dollar capped the day almost unchanged against the euro, pound, and the franc.

Will today’s U.S. economic data steal back the spotlight from the euro region? The 6.9% growth in housing starts and the 3.7% gain in building permits didn’t catch attention yesterday since the reports are known to show volatile results anyway.

Maybe the initial jobless claims data at 12:30 pm GMT and the existing home sales and Philly Fed index reports out at 2:00 pm GMT will provide more action. The initial jobless claims is expected to rise after the July 4[SUP]th[/SUP] holidays, while markets are expecting better numbers for existing home sales and the Philly Fed data.

Trade well today, homies!

817

More data = more bad news! The U.S. added to its collection of disappointing stats yesterday, fueling bets for QE3 to the dismay of dollar bulls. Soft U.S. reports crippled the dollar, leading it to weaken against all of its major counterparts except for the euro and the franc.

Jobless claims rose once again, hitting 386,000 last week to exceed forecasts which called for 367,000 filings. However, I did some research and apparently, these figures were bloated by a change in the timing of annual automobile plant layoffs.

Existing home sales, on the other hand, had no excuse for printing crummy results. Home sales slumped to its lowest level this year, clocking in at 4.37 million last month. This is a huge disappointment considering many had anticipated home sales at 4.63 million.

The Philly Fed manufacturing index rounded up the pity party with more worse-than-expected results, as it rose from -16.6 to just -12.9, instead of hitting -7.9 as many had expected. Hah! It looks like the case for QE3 is getting stronger and stronger! The question is, will the Fed bite?

Hmm… From the looks of it, it may take a few months worth of dismal data to convince Bernanke of the urgent need for more easing, so we may have to wait a bit longer to see how all of this plays out.

No big reports from the U.S. today. So if you plan on trading the dollar, set your eyes on Europe and keep track of the market’s risk sentiment!

818

Now that’s how you end the week in style! With risk aversion back with a vengeance, the dollar trumped all its major counter parts last Friday. EUR/USD tested as low as 1.2150, while GBP/USD closed over 100 pips lower to finish at 1.5615.

The dollar benefitted last Friday, as concerns about the European debt crisis continued to weigh heavily on the markets. Apparently, a bank bailout may not be enough for Spain, and its government may be required to beg for one as well! Investors are quickly losing confidence in Spanish debt, whose yields traded as high as 7.18% last Friday. Yikes!

Once again, no hard data headed our way from Uncle Sam today, but make sure you keep tabs on Europe. Also, take note that many dollar pairs have weekend gaps (in favor of the dollar), and normally, these gaps tend to fill. Good luck trading today homies!

819

If risk is off and it don’t look good, who ya gonna call? The Greenback! Thanks to uncertainties in the euro zone, risk aversion propped the U.S. dollar up against most of its counterparts yesterday. Read on to find out what’s in store for the Greenback today.

Although the U.S. didn’t release any data yesterday, the Greenback found support from ongoing euro zone debt concerns. Apparently, another major Spanish city is rumored to need financial assistance from the government as the debt crisis in Spain grew worse. Make sure you check out my euro zone commentary for the rest of the details!

There aren’t any top-tier reports due from the U.S. today, but don’t forget that Fed Chairman Ben Bernanke is set to give a speech at 12:45 pm GMT. Even though we’ve probably already heard most of what Big Ben has to say during his testimonies last week, it’d be best to prepare for additional volatility just the same. Make sure you set those stops right if you’re trading the dollar pairs!

820

Chalk up another victory for the scrilla baby! Once again, the dollar edged higher versus higher yielding currencies, as risk aversion was still present in the markets. Can dollar domination continue or could we see a midweek reversal?

Only piece of data to hit the airwaves yesterday was the manufacturing purchasing managers’ index, which came in slightly worse than expected at 51.8, just below the 52.1 forecast. This just goes to show that manufacturing industries are still chillin’ right now, as business activity is quite slow.

In other news, Bernanke didn’t drop any clues in his speech about early childhood education yesterday.

For today, we’ve got new homes sales figures headed our way at 2:00 pm GMT. Expectations are that the annualized pace of new home purchases rose to 372,000, up from the 369,000 we saw last month. Keep in mind that housing figures have been on a roll lately, so it’s quite possible that we could be in for an upside surprise later today.

We also have Treasury Secretary Timothy Geithner speaking tonight in front of the House Financial Services Committee today at 2:00 pm GMT. As the top gun of the Treasury, his words can sometimes weigh heavily on the markets, especially if he begins commenting on the state of the economy and the dollar.

821

As risk appetite picked up in yesterday’s trading, the dollar had to let go of some of its gains to the euro and the comdolls. But don’t fret! Market analysts say that the dollar’s break from the bulls yesterday is nowhere as serious as the R. Pats-Kristen Stewart break up.

EUR/USD ended the day 85 pips higher at 1.2156. The dollar also gave up 61 pips to the Aussie as AUD/USD finished at 1.0312 and 21 pips to the Kiwi when NZD/USD closed at .7887.

Sure, aside from the improvement in market sentiment stemming from comments from ECB officials, we can’t deny that the disappointing housing report from the U.S. might have also weighed down on the dollar’s performance. New home sales sold in June were lower than expected at 350,000 while the forecast was up at 372,000.

However, I doubt that the report will be a crucial factor in the Fed’s decision whether or not to pull the trigger on QE3. And so, I don’t think that the figure will have a long-term effect on the dollar.

For today, a few reports are on tap for the dollar and they could once again affect the dollar’s price action in the short-term. So make sure you’re on your toes for 'em!

Data on durable goods and unemployment claims are due to be released at 12:30 pm GMT. It is expected that purchase orders received by manufacturers grew by 0.4% in June. Excluding big-ticket items, core durable goods are anticipated to print a 0.1% uptick. Meanwhile, unemployment claims are seen to come in at 381,000.

Then at 2:00 pm GMT, pending home sales for June is eyed to come in at 0.6%.

822

Play time’s over, folks! Dollar bears mean business! They took EUR/USD up 131 pips to 1.2287, while pushing GBP/USD 192 higher to end the day at 1.5691. The reason? Improved risk appetite! Are we witnessing a change in trend here?

Thanks to some surprisingly supportive comments from the ECB, the markets staged an incredible risk rally. But the dollar found itself on the wrong end of the anti-safe haven flows as it was dumped in favor of higher-yielding currencies.

On the domestic front, the U.S. published a few reports of its own, but none of them were able to provide support for the dollar.

Durable goods orders were up 1.6% last month, which is 4 times the increase that had been forecasted. But apparently, the bulk of the growth is owed to transportation items, as core durable orders (which excludes transportation items) actually fell 1.1% in June, registering well below the expected 0.1% uptick.

Meanwhile, initial jobless claims of 353,000 (versus 381,000) took the four-week moving average down to its lowest level since April 2012. With numbers like that, one can’t help but wonder whether the labor market is getting ready to stage a comeback!

Finally, the latest pending home sales report showed that sales dropped 1.4% in June after rising 5.4% the in May.

Today, the action picks up with the release of the U.S. advance Q2 2012 GDP report, which most believe will register a growth of 1.5% growth. But be on the lookout for a downside surprise, fellas! Recent reports from the U.S. have been anything but impressive. As a matter of fact, if you’ll recall, we saw negative retail sales growth for every month of Q2! That’s not exactly good news considering consumer spending makes up about 70% of the U.S. economy! In any case, be ready for some crazy moves when the report is released at 12:30 pm GMT.

823

Pip-party? What party? Dollar bulls missed out on the pip-filled action on Friday as risk appetite kicked in. EUR/USD ended the week with a 13-pip gain for the day at 1.2300. Meanwhile, GBP/USD rallied to finish Friday 32 pips above its opening price at 1.5724.

Risk appetite was sustained thanks to some EU leaders promising that they too (ECB President Mario Draghi also made the commitment earlier on in the week) would do everything to ensure the euro’s survival. Aside from that, the U.S. GDP report might have also helped improve market sentiment.

According to our trusty forex calendar, the consensus was for economic growth to come in at an annualized rate of 1.4% in Q2 2012. The actual figure showed that the economy actually expanded by 1.5% compared to a year ago.

Sure, the discrepancy between the forecast and the actual figure is small. However, that was enough for most traders to hope that the Fed wouldn’t be too excited about announcing its plans for QE3.

For today, we don’t have any economic reports on tap from the U.S. But we do have a couple of top-tier events for the euro. It would do you well to keep tabs on them as they could affect market sentiment in today’s trading. Head on over to my EUR commentary to find out all about them!

824

Due to the absence of market-moving events yesterday, selling pressure on the Greenback eased. We saw the Greenback recover across the board as closed the U.S. trading session 41 pips higher versus the euro and 17 higher pips against the pound.

Yesterday’s price action seems to reflect some of the uncertainty surrounding the upcoming European Central Bank (ECB) interest rate decision on Thursday. Market participants suspect it will disappoint and that the ECB will simply demand more action from governments before making a move.

For today, there are a couple of important economic reports on deck that could affect the Greenback’s direction. Specifically, we’ll see the Core PCE Price Index (12:30 pm GMT), the Chicago PMI (1:45 pm GMT), and the CB Consumer Confidence Survey (2:00 pm GMT).

The Core PCE Price Index is expected to show that there was a 0.2% increase in the price of goods and services, excluding food and energy, bought by consumers for the month of June.

Meanwhile, the Chicago PMI is slated to print a reading of 52.6, slightly worse than the reading seen the previous month.

Lastly, the CB Consumer Confidence survey is anticipated to show a 61.5 figure, half a point lower than last month.

If the reports come in worse-than-expected, risk aversion could intensify and lead to another dollar rally.

825

Mixed results for the scrila yesterday, as it edged ahead of the pound and the comdolls, but struggled against the euro and franc. Could we see more convincing moves today as the FOMC makes its interest rate decision?

Speaking of interest rates, the core PCE index came in yesterday just as expected, indicating that monthly inflation remains subdued at 0.2%. Now, inflation and interest rates aren’t exactly 100% positively correlated, but as long as inflation remains subdued, it gives the Fed a lot more leeway to keep interest rates low or even to introduce additional quantitative easing measures into the market.

In other news, we did get two other bits of good results in the form of the Chicago PMI and CB consumer confidence index. The Chicago PMI printed a better-than-expected score of 53.7, after it was projected to come in at 52.6. Meanwhile, the confidence index rose from 62.7 to 65.9, after it was anticipated to drop to 61.5.

These results were a breath of fresh air for the U.S. economy, which hasn’t exactly been lighting of the economic board with good data recently.

We could be in for some crazy moves tonight, as we’ve three red flags going up today.

First, we’ve got the ADP employment report at 12:15 pm GMT. Word on the street is that an additional 121,000 jobs were added to the economy last month. Keep in mind that last month’s release came in much better than expected, so lets see if we can see a repeat today.

Next, the ISM manufacturing PMI will hit the airwaves at 2:00 pm GMT. My sources tell me that we’ll see a minor improvement as the index is projected to climb up to 50.3. If the index prints much higher than that, it could give the dollar a boost.

But of course, we could see nothing happen until 6:15 pm GMT, which is when the FOMC statement is due. Will FOMC members drop some clues about the central bank’s future plans? Who knows! Just know that this is a major market mover, so be careful if you have any positions open at that time!

826

Light the fireworks! Pop the Champagne! The Greenback has rebounded! Thanks to the Fed’s interest rate statement, the Greenback was able to rally versus other major currencies. The U.S. dollar index rose convincingly above the 83.00 handle and is currently trading at 83.56.

The Fed offered nothing new in its statement, which caused traders to price out their QE3 expectations. According to the central bank, economic activity during the first half of the year decelerated. Employment growth slowed while inflation has declined. The Fed expects growth to remain moderate but the strains they also believe that there are a lot of downside risks to the outlook due to the strains in the global financial market.

On the economic front, results were mixed. The ADP non-farm employment change came in better than expected at 163,000. On the other hand, the ISM Manufacturing PMI printed a 48.8 reading, below the 50.3 reading the market had initially predicted.

No tier 1 data on the docket today but we will see the U.S. unemployment claims and factory orders report. The unemployment claims is slated to show that the number of people who claimed for jobless insurance rose to 375,000 last week from 353,000 the week prior. Meanwhile, factory orders are expected to have increased by 0.4%.

827

Though the Greenback wasn’t the life of the party yesterday, it came out victorious against its counterparts. EUR/USD capped the day below 1.2200 after tipping a high at 1.2400 while USD/CHF made a 170-pip recovery from its intraday low. Now that’s my kind of price action!

All eyes were on Mario Draghi yesterday as he tried to fulfill expectations for more ECB intervention in markets. I wrote the details of the ECB decision in my EUR piece today, but all you really gotta know is that traders were disappointed with Draghi’s speech. Heck, EUR/USD dropped by 200 pips in less than 2 hours!

Today the scrilla will be back on the investors’ radar today sas the granddaddy of economic reports, the NFP, is released at 12:30 pm GMT. The better-than-expected ADP report last Wednesday and stronger-than-expected Challenger job cuts data (-44.5% vs. -9.4%) and initial jobless claims (365K vs. 375K) might be the reasons why investors are expecting the figure to come in at 100,000 in July. My man Forex Gump even wrote a piece on it!

In other news, the U.S. factory orders slipped by 0.5% in June thanks to a decline in demand for business equipment and demand for non-durable goods.

Will today’s NFP report complete a trio of disappointment that the Fed and the ECB started this week? The data will be released along with the unemployment rate (expected to remain at 8.2%) and the ISM non-manufacturing PMI at 2:00 pm GMT so you better keep your eyes peeled!

828

The dollar got sent to the bear lair of its higher-yielding counterparts on Friday following the mixed employment report from the U.S. EUR/USD finished the day at 1.2381 after opening at 1.2180 while GBP/USD ended Friday 133 pips above its opening price at 1.5644.

Data for July showed that 163,000 jobs were created during the month. Not only was the figure more than twice June’s NFP reading of 64,000, it also topped forecasts for a 100,000 growth in jobs! On top of that, the rise translates to the biggest job growth since February when we saw 240,000 payrolls.

The ISM non-manufacturing PMI also beat forecasts when it came in better than expected for July at 52.6. Many were just expecting it to match it’s previous reading of 52.1.

On the not-so-bright side of things though, the unemployment rate rose to 8.3% for the month, disappointing the consensus which was for it to remain steady at 8.2%.

To help understand the mixed figures, you must know that the government conducts two surveys to collect data. The business survey revealed an increase in jobs which explains the positive NFP number. The household survey, on the other hand, showed a decline in jobs which is reflected by the uptick in the unemployment rate.

Although market junkies say that the business survey is more reliable, most are still not that impressed with the rise in jobs for July. A few analysts say that they’re still expecting the Fed to announce some stimulus measures in its FOMC meeting in September.

Today our forex calendar is blank for reports from the U.S. With that said, don’t be surprised to see the effect of Friday’s NFP report linger a little longer on the dollar. Good luck!

829

The Greenback ended the day almost unchanged against its counterparts yesterday as traders took a breather from the huge moves that we saw last week. Heck EUR/USD capped the day just 7 pips lower than its open price! Can you guess the currency that gained 27 pips on the scrilla?

If you guessed the yen, then you better give yourself a pat on the back! Uncle Sam didn’t release any major economic data yesterday, but speculations that the BOJ would maintain its interest rates and bond purchases steady dragged USD/JPY to close at 78.21.

Only Big Ben’s speech at 6:30 am GMT and the consumer credit data at 7:00 am GMT are scheduled for release today, so you might want to pay attention to the euro zone in case there are news reports that might impact risk sentiment.

830

The Greenback’s performance was as mixed as a bag of nuts yesterday as the U.S. currency gained against most of its major counterparts but lost ground to the Canadian dollar and Swiss franc. Will the Greenback be able to find a clearer direction today?

The lack of hard-hitting reports from the U.S. may be to blame for the Greenback’s mixed performance yesterday and we just might see the same scenario today. A couple of medium-tier reports, namely the preliminary non-farm productivity and unit labor costs, are set for release at 12:30 pm GMT but these aren’t likely to have a huge impact on the Greenback’s price action nor on risk sentiment.

With that, better keep your eyes and ears peeled for any other events that might influence risk appetite today. Good luck!