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Traders traveling assets to safer, devalue surrender currencies seem to be performing a figure in the redaction of the statesman crosses. The USD and JPY, which are seen as a safer bet than others currencies in present of market stress, will credible maintain draftsmanship claim as investors slip absent from riskier assets.
USD - Clam Extends its Gains against the EUR and Quid
The U.S. Note spread its gains against the EUR and Enclosure yesterday. The Bill Forefinger, which tracks the USD vs. its 6 most traded currencies, specified as the EUR, Blow and Yen, showed a 0.4% increment to 79.31 on Mon. This superimposed to conclusion hebdomad's move of 0.8% in the finger. Mon's USD trading doings was due to high period's surpass than expectable unemployment, manufacturing, and consumer certainty figures. Adding to the USD's gains yesterday was the hyperbolic investment that in the longitudinal run, the U.S. frugality is probable to produce at a faster stride than the Euro-Zone, Kingdom and Archipelago.
The piece that the USD is overmuch undervalued against the EUR was one of the primary reasons for the prolongation of the USD's bullishness vs. the EUR yesterday. The couplet vanish by 70 pips to 1.4130 at yesterday. The greenback also prefabricated major inroads into the Land Poke yesterday, as Island banking woes reemerged, and deflation fears kicked in. This led to a massive transparency in the GBP/USD dyad by 235 pips to 1.6475. The USD also rosaceous against the River Clam, as the CAD slid on the more weaker metals and spirit sectors yesterday, which Canada's frugalness is highly qualified upon.
Sensing heavenward to today, we can wait untold irresolution in the forex mart masses yesterday's bullish way in the USD. Today, unlike yesterday, the U.S. gift be verbalize when it comes to economic news. The leading info events to intend USD trading today are the transport of Athletics Nonfarm Fecundity and Examination Object Drudge Costs aggregation both at 12:30 GMT, and Wholesale Inventories at 14:00 GMT.
EUR - Poet Slides on Fears of Worsening Nation Frugality
The Poke slid dramatically against it outstanding acceptance pairs yesterday, as fears hyperbolic over the upbeat of the Land scheme. The Ridge of England's (BoE) decision to amount quantifiable modification penultimate hebdomad, and the break of Brits banking and push stocks on Monday raised fears that the Brits system may yet again transgress into the chasm. With regards the Euro-Zone, the EUR vanish on the supposal that Europe's frugality instrument grow at a slower pace than the U.S. This resulted in higher duty for the USD yesterday, adding to the EUR's losing colourize.
The EUR/USD couple plummeted to the 1.4170 story yesterday. This came nigh as the current fate for the EUR against the USD maybe signals that the unexcelled is over for the Dweller nowness. This comes virtually as Teutonic banks grappling the danger of joint downgrades. The GBP/USD brace lapse by a monolithic 235 pips yesterday, as the Nation scheme is fairing worsened than the U.S. at the ongoing abstraction. It seems that the doings that we see now in the forex market signals that conditions may be pro a mathematical Bill recuperate in the business word against the GBP and EUR.
Today we may see a far bearish suggest for both the EUR and GBP against the most traded currencies. This is provided that economic conditions act to reckon the USD. There are teemingness of efficient intelligence events today that may influence this. These include the Swop Arrangement and the DCLG HPI figures from Britain at 08:30 GMT. Forthcoming out of the Euro-Zone are the Germanic Inalterable CPI and Germanic WPI at 06:00 GMT, and the Gallic Gov Budget Arrangement at 06:45 GMT. These figures are potential to resolve the EUR and GBP crosses in todays trading.
JPY - JPY Soars against the Student Currencies
On Mon, Nippon recorded a outstrip than likely gain in Machinery Orders in June, the position gain in 4 months. Yet, another collection showed that the Nipponese system was still in dire straits. Despite this, the Yen gained against its most traded currencies yesterday. For example, the GBP/JPY cover seam by 280 pips to the 159.74 direct. This occurred as a declination in circular equity markets led to a respond in riskier currencies, such as the GBP. Also, yesterday's gains characterize a reprehension from the bullishness we soul seen in the GBP/JPY and USD/JPY crosses in the once few weeks.
Today, there is yet other opportunity for the Yen to build on its recent gains as the globose frugality destabilizes yet again. This is despite the fact that development is foreseen to reverse to the U.S. economy in the 3rd person. There are 3 essential information events forthcoming out of Nihon that are foretold to propulsion JPY trading for often of the day. These let the Monetary Insurance Evidence, Long Say Grade and the BOJ Press Word. The results of these publications may see the JPY go bullish yet again today against the greenback, Land Hold and EUR.
Early Oil - Indecent Oil Slips Beneath $71
Unanalyzed Oil slipped 40 cents to $70.70 a barrel yesterday, as the Greenback rebounded against the EUR, which in release reduced the poverty for commodities as an disjunctive assets. Rude's fortunes were promote dampened yesterday, as there was a break in equities in both the U.S. and Continent. Additionally, commodities also suffered in yesterday's trading. One of the primary reasons for this was the fresh USD, which is highly fundamental, as Earthy Oil itself is priced in Dollars.
The dishonourable yellow may be helped today, if we see a break in the valuate of the USD. Playacting on Early Oil's downside too is the fact that demand can't have up with prices. Moreover, it seems that the toll of Oil may someone been overvalued as of ripe, and a lean fall in the industry may cross
German wholesale prices are expected to have contracted by a sharp amount in July after labor data came in significantly weaker-than-expected. Asia saw the Bank of Japan state that conditions in the country had improved after a resurgence in exports and industrial production, but failed to give any hints as to whether the bank would raise its policy rate at any time in the coming months.
Key Overnight Developments
• Australian Business Confidence Rises to Two-Year High
• Bank of Japan Says Conditions Are Improving
• China Exports Surge on Rise in U.S. Demand
Critical Levels
Euro price action remained mostly calm throughout the day after five consecutive sessions in which the currency lost value against the U.S. Dollar. Losses on the pair may be coming to an end after inching closer toward upward sloping support dating back to the lows on 06/16, 07/08, and 07/30. At the time of this publishing the British Pound
Asia Session Highlights
New Zealand purchases made with either credit or debit cards rose by 0.8% in July after a month in which they fell by 1.0%. When adjust for seasonality effects, such transactions rose by 1.2%. Most of the activity came from the non-retail and consumables industries. This marks the fifth time in six months that the metric rises. As such, the trend for purchasing goods with electronic cards has been upward. A closer look reveals that New Zealanders have actually been reducing their reliance on credit. July marked the 10th straight month in which the annualized percentage of card purchases were based on credit declined.
Australian Business Confidence rose to a two-year high as global activity saw demand for Australian-made goods unexpectedly jump. Indeed a National Australian Bank survey of business confidence rose to an index level of 10 from a level of 4 in July. Marked by an impressive June, which saw the trade deficit shrink on a 1.5% gain in exports, businesses may be feeling a bit more optimistic about their future state. Reserve Bank of Australia seems to be sharing some of the sentiment. At their latest meeting on July 04, the bank stated that "economic conditions in Australia have to date not been as weak as expected a few months ago." Indeed, they also revised their growth estimate significantly upward by 0.5% after initially expecting the economy to contract by 1.0%.
China’s Exports surged ahead 10.5% in July from the month prior. The yearly figure, however, continued to decline from that of June. Overall, the trade balance actually improved to $10.63 billion from $8.25 billion. Business with the United States continued to improve for a second straight month as exports to the country jumped 14.21%.Despite the resurgence in export activity Consumer Prices in the nation declined more than expected by 1.8% vs 1.6%, marking the seventh straight month in which deflation gripped the economy.
Not surprisingly, the Bank of Japan left its policy rate at 0.10% by unanimous vote.The statement accompanying the release made it a clear point that “Japan’s economic conditions have stopped worsening.” They cited improvements in exports and production after Machine Orders rose 9.7% with such orders from abroad surging 43.8%.Overall exports had risen 6.3% as well. Despite the initially positive tone in the statement, the bank noted that there would likely be an acceleration in the rate at which prices decline.They did, however, state that a significant reason for the year-over-year decline in prices was due to the historically high cost of oil last summer compared to the price of the commodity at the present time. The Bank of Japan offered no new insights as to any possibly redirection in the manner that they conduct their monetary policy.
Euro Session: What to Expect
Germany will be releasing the final revision of July’s Consumer Price Index. Preliminary data showed that such prices declined 0.1% in the period, but had contracted 0.6% in the 12 months leading up. Wholesale Prices, however, will be more closely watched. The consensus forecast expects the price of raw goods to have declined by 9.7% in the year through July. A sharp move down is very likely after Retail Sales plummeted in the month prior. Expectations for the figure had called for an increase in such spending of 0.5%, but in reality, consumers reduced their expenditures by 1.8%. Decreases in the amount of inventory sold would lead store owners to also decrease the demand for the consumer goods they wish to sell. As such, one might expect production of these items to decline as well. Such a dynamic might then lead the sellers of wholesale goods to decrease their prices in an effort to induce manufacturers to purchase such materials while they’re still affordable. Furthermore, July saw employers within Germany shed 6,000 jobs after expectations had called for an increase of 43,000 of such positions. The downward pressure exerted on the broader price scheme by a country with dwindling working population will likely be seen in tomorrow’s data release.
The Visible Trade Balance for June is expected to have slightly improved from its current deficit into one that is not as wide. A move to a £6200 million deficit would be the best of such cases since May 2006. UK House Prices, according to the Department of Communities and Local Government (DCLG) are expected to have slowed the pace of deterioration in the year through June. We might, however, see the mentioned pace decline by even more than that which is expected by a survey of economists. During the Asian session we saw the RICS House Price Balance beat expectations by a significant amount. While forecasts called for this figure to decline by 10.0% (which still would have been better than the previous decline of 17.6%), the realized figure was published at -8.1%. This surprisingly optimistic result may spill into the DCLG figure.
The movements we saw during Friday's trading session may have been exaggerated and may be reversed. Today is a quiet news day for the U.S. as there are no major economic data releases on the calendar today. However, Britain and Euro-zone appear to be releasing the bulk of today's news, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.
USD - USD's Bullish Spike at an End?
Last Friday's release of the US Non-Farm Payroll figures drastically altered the forex market with a sharp uptrend for the US Dollar. Ending the week at 1.4181 against the EUR, down from the weekly high of 1.4447, and dropping the GBP/USD rate back towards the 1.6600 level, the greenback is beginning to benefit from positive economic news. Should forex traders go long on the USD? Not necessarily.
As was anticipated by many analysts, when economic recovery comes online, the first result will inevitably be a weakening of the USD versus its currency counterparts. As the world's number one safe-haven investment, the USD must by this definition suffer a significant loss as banks and investors dump their Dollar reserves for riskier assets and portfolio diversification. The immediate effect of the NFP report was a strong bullish movement priced in for the greenback, but the long-term trend will likely be a continuation of the bearishness experienced over the previous two weeks.
While some analysts claim that the recovery began prior to last week, and thus the USD may be reacting positively to favorable economic news, this is less likely to be the case. It may be more likely that global investors saw the sudden decrease in American unemployment as a sign that the US may be a calmer market to invest in, and not just as a safe-haven.
After the hectic news week experienced for the first week of August, this week may appear mild in comparison. With hardly any significant news being released from the United States until at least Wednesday, forex traders are advised to follow the British Pound as it may end up being this week's focal currency.
EUR - EUR Reaches near 2009 High against JPY
The EUR was one of the primary victims of Friday's Non-Farm Payroll release from the United States. After the release, which showed employment shrinking much slower than expected, and witnessing the first drop in the Unemployment Rate since May of 2008, the EUR saw a sharp sell-off with investors' protective strategies adding downward pressure on the EUR as the price fell below significant resistance levels, triggering massive Stop Orders.
Good news for the EUR is that it was not the biggest loser on the day last Friday. It managed to cling to a few of the gains made Thursday against the Pound, and reached a year high of 138.69 against the JPY. While the bearish move experienced against the USD appeared to be a reversal to the EUR's bullishness, many analysts actually claim that this spike merely represents values which had been priced in before the NFP release. Now that the market is on the path to recovery, the safe-haven USD should enter a sell-off phase of its own and push its rival currencies to new highs in the near future.
For the days ahead, forex traders should focus their attention away from the Euro-Zone for their economic news, primarily as there will be very little news coming from Europe this week. Most attention will be placed on Great Britain following its announcement of the increase in quantitative easing from 125B Pounds to 175B. This week's announcements from the UK will no doubt assist traders in determining the direction of the GBP for this week and next.
JPY - JPY Drops from Surging Risk Appetite and Dollar Strength
What most analysts are now calling Friday's biggest loser, the Japanese yen suffered more than any other currency following the release of America's Non-Farm Payroll data. The JPY indeed plummeted to price levels near 2009 lows against the EUR and GBP, prices of 138.69 and 163.08, respectively. Against the USD, the JPY dropped to 97.76, a price level unseen since mid-June.
The surge in risk appetite, and the sudden spike of the USD combined to put insurmountable pressure on the island currency last Friday, causing major breakouts to occur in the moments after the release of the NFP report. With a surprisingly heavy news week for the Japanese currency ahead of forex traders, there is the possibility for this bearishness to continue, since many are expecting positive results which may likely boost the appetite for risk in the market and thus put additional selling pressure on the traditional safe-havens like the JPY and USD.
Crude Oil - Crude Oil Hits 10-Month High, then Tumbles
The price of Crude Oil spiked on Friday, following the sudden surge in market volatility after the release of US Non-Farm Payrolls. Prices climaxed at a 10-month high of $72.81 before tumbling back towards the $70 price level. Much of the market pressure and volatility was correlated with the strength of the US Dollar.
The sell-off of the USD following the report pushed oil prices higher, however, the sudden rapid sell-off of all other currencies directly thereafter led to a surprising surge in the value of the Dollar. Considering the greenback's relationship to commodities, the price of Crude Oil mirrored the movements of the EUR/USD almost perfectly, with a strong upward surge followed by an even more rapid decline. Now that the market appears to have stabilized, the growth pattern forecast by many economists may very well be underway. If predictions are correct, the USD should drop in the coming weeks and oil prices should climb as a result.
Japan dominated Asian headlines after its Current Account Balance surged to a 13-month high and its Machine Orders jumped by the most since April of 2008. A 6.3% rise in exports sent the Nikkei rallying 1.21% by 00:00 EST. Price action on the Japanese Yen initially reacted favorably, but ultimately lost its footing.
Key Overnight Developments
• Japanese Machine Orders Rise by Most in 14 Months
• Current Account Balance in Japan Surges on Exports
Critical Levels
Euro and Pound action against the U.S. Dollar opened the week similarly to each other after labor figures came in stronger than expected for the American country at the end of trading on Friday. Both pairs found themselves trading tangent to the 200-hour moving average with the slow stochastic oscillator suggesting both EUR/USD and GBP/USD rising from “oversold” conditions.
Asia Session Highlights
Japanese Machine Orders, when excluding ships and utilities, June rose by 9.7% in June, beating expectations of a 2.6% increase in the figure. The latest release is the highest of such since April of 2008. Last month’s release saw orders for such industrial needs contract by 3.0%. Most of the increase in demand in June came from abroad, growing 43.8% on the month. The domestic public sector weighed in only slightly. Overall, when including when including orders for ships and utilities, total orders rose only 2.3% with private demand actually slipping by 15.9%. But it is important to strip the metric of boat orders because such expenditures are generally used for military or freighters. Still, it may somewhat worrisome to see such a substantial gap between the headline figure and the figure with the two excluded items. Such a great magnitude in difference may indicate that orders for the two products are generally quite large.
Japan's Current Account Balance, when adjusted for fluctuations in the Yen exchange rate, surged to it's highest level since May 2008 to 1798.8 billion Yen. The news comes as demand for Japanese industrial products from abroad jumped ahead. In fact, the demand for machinery from other countries made a leap of 43.8% in the month alone. In it's third rise in four months, the Trade Balance made a sizable move ahead to 602.2 billion Yen. With a 6.3% increase in its exports, the Asian country may soon be moving out of recession. But much of this good news comes on the back of conditions abroad. The risk here, then, is that if other countries experience a downturn then Japan will surely go down just as quickly.
Home Loans in Australia got a boost in June as well, rising 1.1% after the sharp upward revision of 6.2% in the month prior. Despite posting a 9th straight month of growth, the economy still remains weak. Estimates for the latest figure had called for a much stronger 1.8% increase in the metric. It is thus no wonder that Investment Lending in the same month declined for the first time since February. Perhaps the Australian economy isn’t as resilient as many had originally hoped. May’s such lending was also weaker than initially thought after it was revised down 0.6 percentage points to 1.8%.
Euro Session: What to Expect
The light European calendar offers some insight into the current direction of the region’s economic environment. French Industrial Production, expected to rise 0.2% in July, will be coming off of the largest monthly gain in the figure since November of 2005. This current estimate may be substantially conservative; afterall, the previous month’s expectations called for a 0.2% contraction. Clearly such estimates proved to be poor. Previously released data may also show that French production may be on a spree. The Purchasing Manufacturer’s Index of Manufacturing rose to its highest level since June of 2008. Manufacturing Orders in the country are also expected to rise on the month. Like the industrial production figure, manufacturing orders performed unusually strong in the previous month.
The Euro and the British Pound may see volatility in European trading hours with pivotal interest rate decisions on tap from the European Central Bank and the Bank of England. While neither central bank is likely to change benchmark lending rates, the commentary surrounding the releases is of utmost interest.
Key Overnight Developments
• New Zealand’s Jobless Rate Surges to Highest in Nearly a Decade
• Australian Unemployment Rate Holds Steady on Part-Time Job Gains
Critical Levels
The Euro and the British Pound oscillated near familiar levels in overnight session to stand effectively unchanged ahead of the opening bell in Europe as traders braced for volatility ahead of interest rate announcements from the Bank of England and the European Central Bank.
Asia Session Highlights
New Zealand’s Unemployment Rate surged more than economists expected, rising a full percentage point through the second quarter to register at 6.0%, the highest in nearly 10 years. On balance, the report in and of itself does not introduce a significant change to the near-term outlook for the smaller antipodean nation. Indeed, the central bank noted in June and reaffirmed last week that the labor market is projected to continue deteriorating “well into 2010”. The release is significant in terms of its implications for wage growth and thereby the overall trajectory of inflation. Private wages rose at the slowest pace in 9 years in the second quarter and outsized gains in the jobless rate point to more of the same ahead, creating a supportive environment for the central bank to lower benchmark interest rates. As we noted in this week’s New Zealand Dollar weekly forecast, a rate cut is the next logical step to help decouple the domestic currency from risk trends and check its recent appreciation, which has weighed on exports and thereby “derailed” the economy according to Prime Minister John Key as well as “complicated” the necessary adjustments to New Zealand’s public and current account deficits according to Fitch, a ratings agency.
Turning to Australia, headline labor market figures surprised to the upside: the Unemployment Rate held steady at 5.8% in July, marking only the second time that the figure did not rise since August of last year. The details of the report are not nearly as rosy as the headline outcome seems, however. Part-time hiring accounted for all of the 32.2K net jobs gain in July; indeed, full-time employment fell by 16K. Looking at the longer-term picture of employment trends, full time positions have fallen -189.4K in the 12 months from July 2008 while part time jobs have gained a nearly equivalent 190.7K over the same period. Simply put, this means that over the past year, around 190,000 Australians were transferred from full-time to part-time employment and thereby from higher to lower wages. Needless to say, this does not bode well for consumer spending and by extension for overall economic growth.
Euro Session: What to Expect
Interest rate decisions from the European Central Bank and the Bank of England headline the economic calendar in European hours. For the ECB, the name of the game is deflation. Consumer prices have now registered in negative for two months straight and are likely to continue along the same trajectory with producer prices shrinking at a record annual rate of -6.6%. Downward price pressure born of overall economic weakness is being compounded by a buoyant currency, which has boosted the Euro’s purchasing power and thereby helped to drive costs downward. Needless to say, entrenching expectations of lower prices in the future threaten to commit the Euro Zone to prolonged stagnation as consumers and businesses wait for the best possible bargain and perpetually delay spending and investment. Up to this point, Jean-Claude Trichet and company have focused primarily on offering banks unlimited borrowing ability, including an unprecedented 442 billion euro in 12-month bank loans, in the hopes that this would be passed on to the overall economy to both stimulate growth and put a floor on prices by making money cheaper. So far, this has not worked: although interbank borrowing costs have stayed well below 0.5% for over two months, this has not filtered through into the economy at large. Indeed, loans to Euro Zone businesses and households grew just 1.5% in June, the lowest since records began in 1991. European banks have yet to come to terms with an estimated $1.1 trillion in unrealized sub-prime related losses (courtesy of the IMF), a hit that could be compounded by losses from default or devaluation in some of the newly-minted EU member states, and so may be perfectly content to sit on the money they have borrowed for the time being. The ECB has also flirted with the direct approach, putting in place a 60 billion euro bond-buying scheme. Although it is too early to tell for certain, this seems too small of a program to have any meaningful impact. Bottom line, greater monetary easing is clearly needed if deflation is to be averted. A rate cut is probably too much to ask for and would be largely a moot point considering the bank has clearly allowed real overnight lending rates to drift much lower than the 1% target level. Rather, traders will be watching Jean-Claude Trichet’s post-announcement Q&A session for any clues that policymakers are open to expanding upon the current asset-buying program. The likelihood of such an outcome hinges entirely on the ECB’s perception of the moderate stabilization in leading economic indicators over recent months: if the bank believes that current trends could lead to a sustainable recovery, a wait-and-see approach is likely; conversely, if the bank sees the current environment as a temporary reprieve courtesy of government spending and (overly) optimistic financial markets, additional measures will be taken. Given the ECB’s perennially slow-moving approach to monetary policy, we tend to lead towards the former outcome, although the latter surely seems more prudent.
Turning to the BOE, an actual change in benchmark borrowing costs is effectively off the table, but traders will be closely watching to see if policymakers choose to ramp up quantitative easing measures after promising to “review the scale” of the program for the August rate decision in conjunction with the release of their quarterly inflation report. Despite the BOE’s apparent optimism and signs of stabilization in some leading indicators, economic growth disappointed in the second quarter, bolstering dovish arguments from the likes of the British Chamber of Commerce and the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). Further, as has been aptly noted by DailyFX Strategist Terri Belkas, the BOE has not done a whole lot better than the ECB having largely failed to affect lending to the real economy. Indeed, loans to non-financial firms fell by a record 14.7 billion pounds while the pace of money supply growth fell for the first time in close to a decade in the second quarter. The question facing the central bank now is whether they believe expanding the QE program by 25 billion pounds will make much of a difference to the program’s success considering 125 billion pounds have already been put in use (a total of 150 billion was authorized by the government). On balance, policymakers could make use of the recent upswing in sentiment as cover to retire the program and wait for the positive vibes now swirling around the world economy to become a self-fulfilling prophecy. Unfortunately, we are of the view that this will prove to be wishful thinking in the coming months as the flow of government cash dries up while equity markets are shown to be grossly overvalued and begin to retreat. Indeed, stocks finished July trading at the highest level relative to earnings since October 2003, which seems more than a little overdone considering the kind of revenue growth that can be expected in a year when real global output is set to shrink for the first time in the postwar period. How the BOE will deal with such an outcome remains a mystery for the time being.
The U.S dollar drifted sideways against a basket of currencies on Wednesday, hovering not far from the lowest level of the year, as investors continue to assess the real economy by looking at economic data in the U.S. Nonetheless, the U.S. dollar had found modest support against the EUR and trimmed a loss against the Japanese yen after some positive news about the U.S. economy. With signs that the U.S. housing market may be stabilizing, traders will also be examining U.S. consumption and employment conditions in coming data.
USD - Weak Consumer Confidence Boosts the U.S Dollar
The Dollar rose from the lowest level this year against most of its major currency counterparts on revived demand for the safety of the world's main reserve currency.
The resurgence in risk aversion came after the Conference Board's U.S. Consumer Confidence Index dropped to 46.6 from 49.3 in June; a worse result than the expected 49, reinforcing concerns that higher unemployment will hurt consumer sentiment. Contributing further to the demand for the safety of the American currency were the declines in stock markets.
The market also awaits more U.S. Treasury auctions this week and the effect on yield moves. A record $42 billion two-year Treasury auction on Tuesday had little impact on the currency market, although details of the outcome were not encouraging for the dollar.
Looking ahead to today, traders should follow the release of the Core Durable Goods Orders due at 12:30 GMT. After the disappointing results of the Consumer Confidence Index and the recent weak second quarter earning results, any worse than expected result will further dampen risk appetite and likely push the Dollar further up.
EUR - EUR fails to Breach the $1.43 Level
The EUR rose above $1.43 Tuesday morning, its highest level in about 8 weeks. However, by early afternoon Tuesday it was at $1.4155, down from $1.424 late Monday. The EUR also fell 1.1% against the Yen to 134.04 from 135.48 Monday. The decline came as equities dropped and investors turned to the safety of the Japanese and American currencies.
While mostly appreciating, the EUR is having difficulties pushing past important resistance levels, failing to stay above the significant $1.43 level. This is do to milder gains on the European Stock markets combined with investor's caution ahead of the release of the U.S second quarter GDP this coming Friday and the Non Farm Employment report due next Friday.
Along with movements in equities, the release of the German Prelim CPI throughout the day is also expected to cause market volatility, possibly pushing the EUR back to the $1.43 level.
JPY - Yen Gains on Return of Risk Aversion
The Yen rose yesterday against most of its 16 major counterparts advancing versus the EUR for the first time in 4 days as a bigger than forecasted drop in U.S. Consumer Confidence this month discouraged investors from buying higher-yielding assets.
Furthermore, as the Yen is highly correlated with movements in equities, yesterday's disappointing second quarter earnings and the consequent drop in global stock markets further assisted the Yen's rise. With no major news releases from Japan, risk sentiment will likely continue being the driving force behind the JPY's movements.
Crude Oil - Crude Prices Tumble after an 11 Day Rally
Crude oil for September delivery fell $1.15, or 1.7%, to $67.23 a barrel Tuesday; hitting an intraday low of $66.60. Crude Oil tumbled as U.S Consumer Confidence fell, boosting concerns over recovery in demand. Lower than estimated second quarter earning also put pressure on Oil Prices. With a negative Oil forecast from British Petroleum (BP) and a continuing climb in U.S Oil inventories, the sentiment turned bearish on Oil prices.
Movements in equities as well as Dollar sentiment will likely be the driving force behind Oil trading today, as a strong Dollar tends to put downward pressure on Oil prices. Furthermore, traders should follow the release of the U.S Crude Oil Inventories at 14:30 GMT today as this release tends to create great volatility in Oil Prices.
The U.S dollar remained weak against its major currencies in range-bound trade on Monday as U.S. equity markets remained in negative territory, indicating waning desire among investors for riskier assets. Also Monday, U.S. and Chinese officials began meeting for two days of economic talks, though many analysts questioned whether anything substantial would emerge. Nevertheless, traders will be on alert for any commentary regarding the U.S. dollar's status as a reserve currency. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.
USD - Dollar Goes Volatile on Optimistic Homes Sales Data
The U.S. Dollar experienced an extremely volatile trading day on Monday, as the New Home Sales data was released from the U.S. economy. The result was a better-than-forecast 384,000 homes versus the previous release of 346,000 homes. This is a whopping 11% increase, the biggest monthly increase since December 2000. This led to many analysts stating that this is the end of the U.S. housing slump. The result led to volatile USD trading. Moreover, the Dollar closed lower against some of its main currency pairs, due to optimistic data from regions such as the Euro-Zone.
At one point in trading the USD actually reached a 7-week low vs. the EUR at 1.4299. This was following the extremely optimistic German consumer confidence figures. However, the pair finally closed 33 pips higher at the 1.4246 level. The USD recorded its second daily loss in a row of 30 pips against the British Pound, as the GBP/USD finished trading at the 1.6484 level. This comes about as optimistic data from Britain continues to drive up the British currency. The USD/JPY pair finished higher, to close at the 95.17 rate. This comes about as the Yen falls from higher risk appetite.
Looking ahead to today, forex traders can expect plenty of news coming out of the U.S. The most important of this being the CB Consumer Confidence figures at 14:00 GMT, the speech by Federal Reserve Chairman Ben Bernanke at 22:00 GMT, and the speech by Treasury Secretary Timothy Geithner from 23:00 GMT. These 3 events are set to determine the level of the Dollar as Tuesday's trading takes off. The big 3 pairs to watch today are the EUR/USD, GBP/USD, and USD/JPY, as traders anticipate a weaker U.S. currency as the U.S. economy continues to recover.
EUR - EUR Boosted by German Consumer Confidence Figures
The EUR hit a 7-week high versus the USD in Monday's trading, following the Gfk German Consumer Climate figures. The result showed a 14 month high 3.5, significantly higher than the forecasted 2.9. This helped the EUR strengthen throughout Monday's trading. The reason why this data is so significant is due to Germany being the largest economy in the Euro-Zone. The EUR also was helped as U.S. New Home Sales jumped 11%. The EUR is likely to continue benefiting from the optimistic economic news.
The EUR/USD cross hit 1.4299, before closing 33 pips higher at the 1.4246 level. However, the European currency fell by 15 pips vs. the British Pound to 0.8635. This may be due to investors buying-up Pounds as risk appetite increases with more and more signs of global economic recovery. The EUR/JPY pair climbed by over 35 pips to the 1.3532 level, as traders continued to ditch the JPY due to preferring riskier assets, such as the EUR and GBP. Therefore, overall, the EUR did make some reasonable gains in Monday's trading.
Today, we won't be expecting much economic news coming out of the Euro-Zone. However, Britain and Switzerland are likely to be the key drivers of the European currencies later today. Britain is set to release the CBI Realized Sales figures at 10:00 GMT. Switzerland is scheduled to publish the UBS Consumption Indicator at 06:00 GMT. The results of both of these are set to drive both the GBP and CHF in today's trading. Additionally, the EUR will go volatile on both of these publications, and on key data coming out of the U.S. throughout today's trading.
JPY - Yen Falls to 3-Week Low vs. Dollar
The Yen fell to a 3-week low against the Dollar yesterday, in response to the rise in new U.S. home sales. The Yen also weakened on speculation that declines in currency volatility will spur carry trades. In carry trades, investors borrow at a low rate in one country and invest in another country with higher returns. This behavior is likely to continue as the main economies improve, and traders sell-off the safe-haven JPY. Thus the Japanese currency fell over 30 pips against the USD, EUR and GBP.
It is likely that the Yen will continue to decline today, as forex traders continue to take into account the optimistic economic data that was published from the U.S. and the Euro-Zone. The JPY will go very volatile in late trading, as Japanese Retail Sales are published at 23:50 GMT. It would be a wise choice for forex traders to open their JPY positions now in order to have the opportunity to profit from volatile market behavior as Tuesday's trading commences.
Crude Oil - Crude Oil Hits 3-Week High
Crude Oil hit a 3-week high of $68.94 a barrel on Monday, as the USD declined in response to positive housing data from the U.S. However, weaker earnings figures in some instances pushed Oil down from its peak, as the commodity finished trading at about $68.06 a barrel. Crude was also helped by a weaker Dollar in earlier trading due to positive economic news from Germany. However, it seems that in this instance, risk appetite wasn't strong enough to hold-up the value of Crude Oil on Monday.
As for today, Crude prices may rise if the USD weakens considerably, and there is increasingly optimistic economic news led by the U.S. Additionally, traders need to feel that there is enough demand to support Crude Oil at its current price level. In order to take advantage of the current trends, it is advisable for forex traders to begin opening their positions in Crude Oil and other commodities prior to volatile market conditions.
The Australian Dollar pushed higher to challenge the 0.83 level against its US counterpart in overnight trading after a speech by RBA Governor Glenn Stevens struck a hawkish tone, hinting that the central bank is now actively trying to time a return to higher interest rates.
Key Overnight Developments
• Australian Leading Index Fell for First in Four Months, Says Conference Board
• National Australia Bank Says Business Confidence Rose to 15-Month High in Q2
• Australian Dollar Surges as RBA’s Stevens Talks Up Economy, Hints at Rate Hikes
Critical Levels
The Euro advanced in overnight trading, testing 1.4270 ahead of the opening bell in Europe. The British Pound followed suit, adding 0.2% against the greenback.
Asia Session Highlights
New Zealand’s Trade Balance sank into deficit in June, revealing a monthly shortfall of –NZ$417 million. In annual terms, the deficit widened to –NZ$3.2 billion. The discouraging result came as exports fell 11% from a year before, the largest annualized decline since July 2007. We had forecast the outcome in our New Zealand Dollar Weekly Outlook, noting that outbound shipments were likely to take a beating after the local currency gained nearly 1% in June after jumping 8% in the previous month, making New Zealand’s goods comparatively more expensive for overseas buyers while boosting domestic purchasing power of foreign products. The release may weigh on the currency in the days ahead as it reminds the markets of New Zealand’s credit outlook downgrade by Fitch, which cited the “persistently large current account deficit” as a reason for concern about the country’s medium-term growth outlook.
In Australia, Conference Board’s Leading Index fell for the first in four months in May, dropping -0.1%. April’s reading was also revised downward to 0.3% from the originally reported 0.7% result. The metric tracks a number of leading indicators including rural goods exports, building approvals and stock prices to gauge the short- to medium-term trajectory of the overall economy. Perhaps the most important takeaway from the report is that the sales-to-inventory ratio, the largest component of the index, fell for the sixth consecutive month to reveal companies continue to suffer from lackluster demand. This underscores an increasing disparity between market sentiment and the underlying fundamentals of the economy. Buoyant stock markets and money supply growth had catalyzed the most recent run-up in the index, a dynamic that may be repeated in the forthcoming release considering Australia’s S&P/ASX 200 benchmark equity index added 3.6% in June. However, the equity rally seems hardly sustainable if sales growth remains lifeless, robbing firms of the kind of earnings that will not disappear once cost-cutting invariably reaches its natural limits.
Separately, National Australia Bank’s measure of Business Confidence printed at -4 in the second quarter, the highest reading since the three months ending March 2008. The forward-looking component of the report points to continued improvement in overall business conditions in the third quarter, albeit at a much slower pace than this time around. Employment and orders are both expected to improve, though firms’ profitability is forecast to decline.
Reserve Bank of Australia Governor Glenn Stevens struck a decidedly hawkish tone at a speech in Sydney, driving home the point that going forward the central bank is now actively trying to time a return to higher interest rates. Stevens said Australia is faring better through the global downturn than other developed economies, noting that “confidence has recovered ground” and boasting that “unemployment is rising slower than expected”. He went on to stress that central banks should not relax their commitment to keep inflation anchored through the recession, a clear hint that global tightening of monetary policy should now be on the table. That said, Stevens conceded that some stimulus needs to remain in place for now and conceded that the timing of unwinding expansionary policy presents a challenge. The market greeted the RBA chief’s comments, with the Australian Dollar surging 50 pips in a mere 30 minutes.
Euro Session: What to Expect
The UK CBI Distributive Trades report will offer insight on short-term trends in the retail and distribution sector. Retail Sales surged in June but the metric have exhibited extraordinary volatility since the beginning of this year so traders will be eager to look for any signs that a discernable trajectory is being established. On balance, cues from the labor market seem to point to subdued retail activity for the time being, with the jobless rate to approach 9% by the end of next year for the first time since 1994, trimming disposable incomes and weighing on spending.
In Switzerland, the UBS Consumption Indicator that aims to forecast the trend in private spending in the coming 3-4 months is likely to fall to a fresh 5-year low in June as the pace of unemployment continues to push higher, ticking up to a seasonally-adjusted rate of 3.8% in the same period for the first time since September 2005.
