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Daily U.S. Forex Summary

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The US dollar pushed higher after the release of strong core retail sales

Wed, May 14 2008, 05:54 GMT
by Union Bank of California Team

Union Bank of California

The US dollar pushed higher after the release of strong core retail sales for the month of April. Retail sales (excluding the auto industry) rose 0.5 percent, considerably higher than the 0.2 percent sales increase expected. Look for interest rate fundamentals to continue to drive the market as investors speculate as to whether the Fed. can hold overnight rates at 2 percent or whether they will need to continue to further ease due to concerns regarding the credit crunch.

Look for the greenback to remain range bound against its major counterparts ahead of key releases later this week, with CPI tomorrow, Philly Fed. on Thursday and consumer sentiment on Friday.

The euro remained under pressure against the dollar after the release of strong retail sales figures out of the U.S. The market will turn its focus to Thursday’s CPI release out of the Euro Zone, where it is expected to come in at 3.3 percent on the headline and 2.0 percent on core inflation. Ahead of the release look for EUR/USD to remain range bound trading between 1.53 and 1.58.

Sterling remained weaker despite the release of strong CPI figures out of the UK. CPI jumped to 3.0 percent well above market expectations for a rise of 2.6 percent. The core release also rose from 1.2 percent in March to 1.4 percent in April. Look for the pound to hold its ground as market participants digest the fact that the Bank of England may need to continue to hold rates steady with inflationary concerns coming into focus.

The Japanese yen initially strengthened against its U.S. counterpart as markets digested large EURJPY sell orders, but then quickly gave up most of its gains as market participants resumed the carry trade pushing USD/JPY lower.

The Canadian dollar remained supported despite oil prices retreating from record highs. Even with oil dropping below $124 a barrel the loonie remained underpinned against the greenback. The market will look towards Canada’s survey of manufacturing due out on Thursday for further direction into the USD/CAD currency pair. Ahead of that release look for the commodity linked currency to continue to be driven by oil prices.

The Australian dollar pushed lower on the back of a broadly stronger dollar, but rose to its highest level against the New Zealand dollar in almost 2 years on speculation that New Zealand may need to lower rates later this year. Despite signs the Australian economy is slowing, inflation remains a concern prompting the Reserve Bank of Australia (RBA) to hold rates steady at 7.25 percent. Look for the Aussie to remain supported as risk appetite returns to the market.

The Mexican peso held its ground on interest rate fundamentals between the U.S. and Mexico as speculation grew that Mexico's central bank could hike interest rates later this year. Look for the peso to remain well supported ahead of Friday’s monthly policy meeting where analysts expect rates to remain on hold for the time being.

Published on  Wed, May 14 2008, 05:57 GMT