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European and US summary

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FX Consolidates ahead of Key Data Week

Mon, Jul 28 2008, 23:18 GMT
by Korman Tam

Forexnews.com

7/28/2008 2:30 PM: EUR/$..1.5744 $/JPY..107.54 GBP/$..1.9948 $/CHF..1.0338 AUD/$..0.9573 $/CAD..1.0228

FX Consolidates ahead of Key Data Week

The foreign exchange market consolidated at the start of the week amid little fresh economic data for traders to digest. The dollar was mixed early in the New York session, edging up slightly toward 1.5735 against the euro while easing off its overnight high versus the yen just above the 108-level to 107.56. A barrage of key US economic reports are due out this week , providing markets with further insight on the state of the economy as well as enable traders to better assess the prospects for a Fed rate hike over the coming months.

In an interview with the Financial Times, Minneapolis Fed President Stern offered a somber assessment for the US economic outlook, expressing his view that the fallout from the credit crunch would continue to weigh on the economy “over the next year or more”. He said the worst has yet to pass, adding that “the headwinds” may be gaining impetus. Stern also highlighted the quandary facing the Fed in deliberating policy as he stressed increased uncertainty over inflation, describing headline inflation as “rapid”.

The Fed meets to deliberate monetary policy next Tuesday with no change in rates expected. The Fed’s outlook for the economy has deteriorated somewhat since the June meeting, highlighted by Chairman Bernanke’s Congressional testimony two weeks ago in which he expressed concern over the “significant downside risks to the outlook for growth”, which also marked a shift from the previous policy statement. While it remains clear the Fed is stuck between a rock and a hard place, the recent sharp declines in oil and commodities have provided some respite in burgeoning inflationary fears but persistently soft economic figures continue to point toward further deterioration in economic fundamentals – which downplays the likelihood for the FOMC to tighten policy in the near-term.

 
US data in focus

Traders will closely scrutinize the data releases this week, which pick up tomorrow with the Conference Board’s consumer confidence survey and is expected to drift to 50 in July, down from 50.4 in June. On Wednesday, the July ADP private sector payrolls are seen improving to reveal a loss of 55k jobs versus a loss of 79k jobs in June.

The key pieces of data are slated for release in the latter half of the week, with Q2 GDP and Chicago PMI due out on Thursday. Friday will see the July labor report and manufacturing ISM. The advanced reading for Q2 GDP is expected to improve to 2.0% from 1.0% in the previous quarter while the employment cost index is seen unchanged at 0.7%. Meanwhile, Chicago PMI is seen remaining beneath the key 50-level for the sixth consecutive month at 49.0 in July from 49.6 a month earlier. Friday’s manufacturing ISM will also reflect similar contraction, with the July figure at 49.6 versus 50.2 from June.

Consensus estimates for the July labor report bode poorly for the greenback with calls for the unemployment rate to creep up to 5.6% from 5.5% a month earlier. The data is also seen revealing a loss of 65k in jobs, extending June’s loss of 62k jobs.

Published on  Mon, Jul 28 2008, 23:19 GMT