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Weekly Forex Market Commentary
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On Wednesday, odds are split whether the FOMC meeting will result in another rate cut
Wed, Oct 29 2008, 06:27 GMT
by Cornelius Luca
Past Week's Data and Events
The excesses of this unfinished decade are being rectified aggressively, and the pendulum is swinging hard from high-flying over-leveraged free for all trading to the other pole. The VIX has soared to record highs while rumors fuel panic. The high volatility permeated the FX markets as well, but not the panic of a bleak future that affects stocks. As the US financial system is shrinking, the need for dollars remains high, and this demand reversed a long-term downtrend for the US currency. Our economy might be in a shambles and the carry-trade dead, but the dollar, ironically, should remain strong. Enjoy it, with extreme care!
United States
The measures suggested or taken by Messrs. Bernanke, Paulson and Bush to inject life into the economy have yet to show any result – including a calmer market. President Bush is consider a second stimulus measure following the stimulus measure in February and the rescue plan passed 2 1/2 weeks ago, as those two are not doing much and the credit market remains frozen. There is little trust to lend money, the housing prices’ return to reality continues, and there is risk some pension funds and hedge funds will suffocate under the pressure of meeting margin calls on commodity positions turned sour. And let’s not forget the woes of the comatose US car makers.
We are probably see lower borrowing costs in the G7 possibly as early as this week, bit there is little hope we can avoid a sharp recession. The question is: with no leading investment banks left and few banks of investing significance, how will we exit (eventually) from these times of financial horror? I don’t know, but I hope that will happen with help from the real economy. Until then we have to cross swords with whatever comes our way, such as rumors of a possible default by Russia or of collapse of big Japanese, US or European institutional investors.
Mind my parting words: Do not confuse this recession with those you have already experienced in life time or even with the one that you read about in books – the Great Depression. This recession was closer to the one in 1873. This recession was triggered by unparalleled greed, excessive leverage, lack of expertise, fraud and intolerable disregard to checks and balances. This recession will have significant social impact for years and probably decades, and the financial world that we have known will be relegated to the history books. A new page is turning, but when it comes to FX, let’s hope it will not include the following: French President Nicolas Sarkozy recently said that the monetary system should be re-thought within fixed exchange rates. A Bretton-Woods II accord sounds farfetched at this time; but, should the irrational behavior continue, this thought might grasp some traction.
The dollar surged versus both the European and the commodity currencies last week, while panicky deleveraging of carry trades obliterated the dollar/yen.
In the background there was data that was bad even when it looked good, and it only confirmed the trembling foundation of the economy.
The Conference Board's index of Leading Economic Indicators unexpectedly rose by 0.3 percent in September, its first increase in five months. However, that’s only playing the stats; the August report showed a 0.9 percent decline that was revised from -0.5 percent. This means, the September reading is really -0.1 percent…
Purchases of existing homes jumped 5.5 percent to a 5.18 million annual pace in September, according to the National Association of Realtors. Sales rose 1.4 percent compared with a year earlier, the first yearly increase since November 2005. Foreclosures pushed the median price down 9 percent and desperation selling pushed sales higher.
The weekly claims for benefits rose by 15,000 to 478,000 and the previous week’s number was vaulted by 2,000, so the current number doesn’t look all that bad. Oh, well, that’s the norm, not the exception.
The Eurozone
The euro/dollar collapsed to a two-year low last week. Its three-month trip from 1.60 to 1.25 has been fascinating. As it stands now, any rally should provide better levels to sell. Europe will suffer more and longer than the US, and its socialist system will be burdened excessively by its own recession.
Germany PPI rose 0.3 percent in September and 8.3 percent on the year from -0.6 percent in August and 8.1 percent. Rising inflation while the economy is decelerating cannot be good.
And the economy is really hitting the skids.
The Eurozone PMI Manufacturing sank to 41.3 in October from 45.0 in September, and PMI Services fell to 46.9 from 48.4. On an individual basis, Germany’s PMI Manufacturing fell to 43.3 from 47.4 and PMI Services to 49.7 from 50.2, while France’s PMI Manufacturing fell to 40.8 from 43.0 and PMI Services to 48.8 from 50.1.
The Eurozone current account worsened to -7.9 billion euros in August from -1.1 billion euros in July.
The Eurozone industrial new orders contracted 1.2 percent in August from 1.0 percent in July and by 6.6 percent on the year from +1.6 percent.
Understandably, the French business confidence indicator fell to 88 in October from 92 in August. However, the consumer spending rose 0.6 percent after falling 0.3 percent in the month before.
Not surprisingly, Italy’s Business Confidence fell to 77.7 in October from 82.7 in September, while its Consumer Confidence only slipped to 102.2 from 102.8.
Elsewhere, Italy’s retail sales contracted 0.5 percent in August after expanding 0.6 percent in July, and fell 1.3 percent on the year.
Japan
The yen is a counter cyclical currency and bad economic times will make it flourish. It’s already surged to a decade high amid unforgiving deleveraging of carry trades and yen crosses.
The trade balance showed a surplus of 95.1 billion yen in September after contracting 327.6 billion yen the month before. The report was neutral on the dolar/yen.
The UK
With the UK experiencing a worse (in relative terms) housing crisis than us and with its economy close to ours, the pound has only one way to go – and that’s not toward that ridiculous 2.0000 mark.
The Bank of England’s Monetary Policy Committee minutes showed an unanimous vote for a coordinated 50 bps cut in its official rate two weeks ago following on plans to recapitalize the banking system. The release followed Bank Governor King’s warning that the UK is entering a recession with its banking system in its most fragile state since before the first world war.
Retail sales contracted 0.4 percent in September after rising by an unrealistic 1.1 percent in August. Expect further declines in the months to come, as people’s confidence in their monetary power will decline. Still, sales expanded 1.8 percent on the year, even though were a far cry from +3.3 percent in August.
The Rightmove House Prices rose 1.0 percent in October and fell 4.9 percent on the year after falling -1.0 percent in September and -3.3 percent on an annual basis.
The CBI industrial trends quarterly survey showed a decline to –60 from -40 in the second quarter. This reading surpasses the low of -47 reached in the fourth quarter 1990.
The pound took another big hit early Friday on news that the GDP shrank 0.5 percent in the third quarter, the first contraction in 16 years, confirming that the UK economy is deep into recession after being flat in the second quarter. Surely you need two consecutive negative quarters to confirm recession, but that shouldn’t be a problem. On the year, GDP slowed to 0.3 percent from 1.5 percent.
The Index of Services fell 0.3 percent in August from flat in July.
Canada
The Canadian dollar is a commodity currency and Canada is sending about 85% of its exports to the US. With the commodity prices plunging, including the falsely safety provider gold, and the US economy contracting, is there a doubt which way the loonie will go?
Dollar/Canada made an explosive rally to an over 3-year high on Tuesday despite the fact that the Bank of Canada cut its main interest rate by only 25 bps to 2.25 percent, the lowest since October 2004. The BoC inferred it will cut again to help its economy. The pair surged further on Wednesday and Friday.
Retail sales fell 0.3 percent in August, the first decline in six months, led by gasoline prices and new cars sales, after a 0.1 percent gain the month before. Excluding the automotive sector, retail sales fell 0.3 percent.
Switzerland
The dollar/Swiss franc rally last week as all the European currencies sank.
Australia
The Australian dollar broke from a comfortable but unsustainable triangle to collapse in line with the commodities. And if this was not a triangle, put a pennant, forget about fastening your seatbelts and make sure you grab our parachute!
Australian PPI rose 2 percent in the third quarter by almost twice as much as economists forecast as costs for energy, water and construction climbed after rising 1 percent in the second quarter. It was the biggest increase since the series began in 1998. The index climbed 5.6 percent from a year earlier.
This Week's Data and Events
United States
The US economic agenda will open on Monday with the release of the New Home Sales report for September. It’s hard to expect anything positive here.
The Conference Board’s Consumer Confidence report for October is due on Tuesday. I’d have to say we don’t feel all that confident.
On Wednesday, odds are split whether the FOMC meeting will result in another rate cut.
Also on Wednesday, be on the look out for the volatile Durable Goods Orders report for September.
Thursday will see the revision of the second quarter GDP.
The Personal Income/Spending reports for September, the Chicago PMI report for October, the University of Michigan survey for November and the PCE deflator report for September are all due on Friday.
The Eurozone
The Eurozone economic calendar will start on Monday with the release Germany’s IFO Business Climate report for October. This is a widely watched report and should show deterioration.
Germany’s GfK Consumer Confidence report for November and France’s Consumer confidence report for October are due on Tuesday.
Thursday will see the release of the German Retail sales report for September and of the Unemployment Rate report for October.
Also on Thursday there will be a wealth of regional data for October: Retail PMI, Business Climate Indicator, Consumer Confidence, Economic Sentiment Indicator and Industrial Confidence October.
The Eurozone Unemployment Rate for September is due on Friday.
Japan
The Japanese economic agenda will start on Tuesday with the release of the Industrial Production report for September.
On Thursday, look for the Unemployment Rate and Household Living Expenditure reports for September, the National CPI report for September, and the Tokyo CPI report for October.
On Friday, the BoJ should leave intact its target rate.
The Housing Starts report for September is due on Friday as well.
The UK
The UK economic calendar will start on Tuesday with the CBI reported balance for October.
The Nationwide house prices report for October is due on Thursday.
Friday will see the release of the GfK consumer confidence report for October.
Canada
Canada’s economic agenda is very light this week. It only encompasses the monthly GDP report for August, which is due on Friday.
Overview
Euro/dollar
Last week's range: 1.2498 – 1.3529 (Down)
Previous range: 1.3349 – 1. 3767 (Mixed)
Euro/dollar fell for the fourth consecutive week and reached a two-year low. My model went short and the medium-term bias remains bearish.
Immediate support is between 1.2490 and 1.2500. The next level is 1.2375. Below 1.2245, support comes at 1.2185. Distant support is at 1.1855.
Above 1.2730, resistance is seen at 1.2935. Only a break above 1.3260 would signal a sustained recovery of euro/dollar. Distant resistance is pegged at 1.3885.
NEAR-TERM: Bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Dollar/yen
Last week's range: 90.94 – 102.41 (Down)
Previous range: 99.27 – 103.06 (Mixed)
Dollar/yen collapsed to a ten-year low. My model went short last Tuesday (see my Daily report). The medium-term outlook remains bearish even after the pair already reached the target of a head-and-shoulders formation.
Good support is at 92.25. The next level is Friday’s low of 90.94. Further support levels are 88.40 and 84.97.
Immediate resistance is at 94.40. The next level is 95.75. Above 98.13, resistance looms at 100.50. Distant resistance is at 103.00.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Sterling/dollar
Last week's range: 1.5269 – 1.7517 (Down)
Previous range: 1.6926 – 1.7630 (Mixed)
Immediate support is at 1.5590. The next level is at 1.5269. Below 1.5106, distant support is seen at 1.4555.
Initial resistance is at 1.6040. Above 1.6285, distant resistance is now seen at 1.6800.
NEAR-TERM: Bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Dollar/Swiss franc
Last week's range: 1.1327 – 1.1748 (Up)
Previous range: 1.1240 – 1.1490 (Mixed)
Dollar/Swiss climbed to a one-year high and my model went promptly long last Monday. Again, the risk remains on the upside.
Good resistance is pegged at 1.1767. Above 1.1865, the next level comes at 1.2065. Distant resistance is at 1.2240.
Immediate support is at 1.1585. The next level is 1.1500. Below 1.1390, support is seen at 1.1130. Distant support is now pegged at 1.0800.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Dollar/Canada
Last week's range: 1.1746 – 1.2842 (Up)
Previous range: 1.1307 – 1.1996 (Up)
Dollar/Canada surged to a four-year high last week and my model remains long. The outlook remains bullish, but a pause is due.
Above 1.2842, resistance comes at 1.2970. The next level is 1.3135. Above 1.3330, distant resistance is perched at 1.3465.
Below 1.2625, support is seen at 1.2435. This is followed by 1.2200. Distant support now comes at 1.1785.
NEAR-TERM: Bullish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Euro/yen
Last week's range: 113.84 – 138.55 (Down)
Previous range: 133.39 – 141.72 (Mixed)
Euro/yen remains weak after plunging to a 6 ½-year low in an unprecedented fashion. The medium-term outlook remains bearish, and my model went promptly short last Tuesday. The short term outlook is bearish.
Immediate support is now seen at 116.75. The next level is 113.84 from Friday’s low. Below 110.50, the next level is 106.40. Distant support is now seen at 99.16.
Initial resistance is at 122.20. Above 127.30 there is another cap at 129.70. The next level is 135.05. Distant resistance is now seen at 141.63.
NEAR-TERM: Bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Euro/sterling
Last week's range: 0.7694 – 0.8195 (Up)
Previous range: 0.7735 - 0.7965 (Down)
Euro/sterling closed only slightly higher after retreating in a dramatic fashion from a 12-year high. The initial outlook is slightly bullish, but the cross is in the advanced stages of an expanding triangle.
Above 0.8005, resistance now comes at 0.8069. Strong resistance follows at 0.8195. Further resistance is now seen is at 0.8220.
Initial support is at 0.7905. The next level is 0.7855. This is followed by 0.7800. Distant levels are at 0.7755 and 0.7694.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Mixed
LONG-TERM: Mixed
Published on Wed, Oct 29 2008, 06:27 GMT
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The US economic calendar is very light this week
Mon, Oct 20 2008, 08:01 GMT
by Cornelius Luca
Past Week's Data and Events
The financial crisis has only started and the wild gyrations in the stock markets may provide better levels to liquidate stocks. Hedge funds and pensions funds will probably face further distress. The outlook is extremely grim. But we focus on currencies, and this is and will remain the island of profitability for months and probably longer. The dollar should remain strong in the medium to long term, especially versus the European and the commodity currencies. But this week, the US currency could see some consolidation with a bearish tone.
United States
Dollar money-market rates fell after the European Central Bank, Bank of England and Swiss National Bank, plus the Bank of Japan, offered lenders unlimited dollars for the first time in a coordinated effort to thaw the frozen credit markets. Overnight money market conditions are improving slowly, but not in further out periods despite massive liquidity injections by central banks along with other steps to restore market conditions to a more normal state. After Lehman’s bankruptcy last month, no bank will rush to lend.
The dollar basically paused last week, as the FX market became a sideshow to the battered asset market. But EUR/CHF, which tracks pretty closely the US indices, got hurt. This lull is just a pause; the contraction of our life time is only gathering strength.
The US economic data is getting scarier by the day, and this means inflation will slow naturally. And I’m sure you’ve noticed the drop in energy prices, even though speculators keep gas pump prices still at ridiculously high prices.
Retail sales contracted 1.2 percent in September, nearly double the expectations, on top of a 0.4 percent decline the prior month. The weakness was accelerated by a 3.8 percent fall in auto sales. Ex-autos, sales fell 0.6 percent after falling 0.9 percent the prior month.
The producer price index fell 0.4 percent in September, as expected. The decline was helped by a 8.2 percent slide in natural gas prices, while gasoline prices fell by only 0.5 percent. The core PPI, however, surged by 0.4 percent, which confirms that food prices really surged again.
The consumer price index was unchanged in September after a 0.1 percent drop in August, while the core CPI rose 0.1 percent. CPI slowed to +4.9 percent on the year from 5.4 percent in August, and the core rate increased 2.5 percent, the same as in the prior month.
The TIC data showed a net overall capital outflow of $0.4 billion in August after a $33.6 billion outflow in July.
Initial jobless claims fell 16,000 to 461,000 in the week that ended Oct. 11 after the Gulf Coast hurricanes subsided.
Industrial production fell 2.8 percent in September, the most since December 1974, after a revised 1 percent decrease in August. Capacity utilization fell to 76.4 percent from 78.7 percent the prior month.
Confirming the deterioration in the factory sector, the Empire State Manufacturing Index collapsed to -24.6 in October from -7.4 in September.
Adding to the pile of bad news, the Philly Fed showed a manufacturing collapse to 37.5 in October from a +3.8 in September. This is the worst report since 1990.
Housing starts fell more than expected by 6.3 percent to 817,000 in September from August's downwardly revised 872,000. Building permits shrank 8.3 percent to 786,000 pace, the lowest level since November 1981, from 857,000.
The preliminary University of Michigan sentiment index tanked to 57.5 in October from 70.3 in September. The lowest level was registered in June at 56.4.Well, what can one expect?
Business inventories rose 0.3 percent in August from July’s +1.1 percent and sales fell 1.8 percent from +0.1 percent.
The budget deficit hit a record $455 billion in fiscal 2008 amid high war spending, bank failures and unemployment-related benefits.
As widely expected, economic activity weakened in September as businesses revised capital investments, consumers cut spending and the general outlook slowed, the Beige Book said.
The Eurozone
The euro/dollar consolidated last week, but the downtrend remains in place.
German investor confidence worsened to -63 in October, the second low ever, from -41.1 in September, according to the ZEW Center for European Economic Research. In the same vein, the Eurozone ZEW survey of economic sentiment fell to -62.7 in October from -40.9.
Eurozone industrial production expanded +1.1 percent in August after contracting 0.3 percent in July, but fell 0.7 percent on the year on top of the previous decline of -1.7 percent.
The French business sentiment worsened to 87 September from 94 in August.
The Eurozone CPI rose 0.2 percent in September after declining 0.1 percent in August. On an annual basis, it remained at +3.6 percent and the core CPI at +1.9 percent.
The German CPI fell 0.1 percent in September, the same as in August, and was unchanged at +2.9 percent on the year.
Also, the French CPI slipped 0.1 percent in September from flat in August. On a yearly basis, it slipped to +3.0 percent from +3.1 percent.
Moreover, Italy’s CPI fell 0.3 percent in September, the same as in August.
Finally, the Eurozone trade deficit came in at 6.1 billion euros in August from July’s revised to a record high of 6.7 billion euros. Exports fell 0.7 percent and imports by 1 percent.
Japan
Dollar/yen edged higher in an inside range as the liquidation of carry trades paused.
Producer prices slowed to 6.8 percent in September from a year earlier from a 7.2 percent increase in August.
The Japanese domestic CGPI fell 0.4 percent in September from -0.1 percent in August and slipped to +6.8 percent on the year from +7.2 percent y/y.
Surprisingly, the consumer confidence rose to 31.8 in September from 30.5 in August.
The current-account surplus narrowed 52.5 percent to 988.8 billion in August, as imports climbed 20.2 percent and exports rose only 0.9 percent.
The industrial production was confirmed at -3.5 percent in August from +1.4 percent in July, and remained at -6.9 percent on the year.
The final machine tool orders was revised to -20.1 percent in September from the initial -20.7 percent.
Elsewhere, the tertiary index fell 1.4 percent in August.
The UK
The pound consolidated in an inside range, but sits near the low of the downtrend.
PPI output fell 0.3 percent in September and expanded 8.5 percent on the year after contracting -0.6 percent in August and rising 9.7 percent y/y on the year. The core PPI output slipped to 5.4 percent from +5.6 percent on a yearly basis. Meanwhile, PPI input slipped to 24.5 percent from 28.8 percent on an annual basis.
The UK CPI slipped to 0.5 percent September from 0.6 percent in August, but rose to +5.2 percent on a yearly basis from +4.8 percent. Along these lines, the retail price index rose to 218.4 in September from 217.2.
As the UK housing sector remains under pressure, DCLG UK house prices declined 3.4 percent August on a yearly basis from -0.3 percent in July.
The claimant count rate edged up to 2.9 percent in September from 2.8 percent in August.
Canada
The Canadian dollar paused last week after collapsing a week earlier. With the Bank of Canada expected to cut rates on Tuesday, the selling pressure should continue. But more sideways trading is likely. Switzerland
The dollar/Swiss franc consolidated last week near the top of its recent uptrend.
Australia
The Australian dollar made a weak recovery within an inside range, but the specter of long liquidation of carry trades continues.
The leading index declined 0.1 percent to 259.2 points in August, according to Westpac Banking and the Melbourne Institute.
This Week's Data and Events
United States
D Date GMT Event Period UBS Previous Market
The US economic calendar is very light this week.
It will start on Monday with the release of the leading indicators report for September.
Friday will see the release of the existing home sales.
The Eurozone
The Eurozone economic agenda will start with the release of the German Producer Prices report for September.
Friday will see the release of the Eurozone PMI manufacturing and services reports for October, and also of the Italian consumer and business confidence indices for October.
Japan
The Japanese agenda will start on Tuesday with the release of the Industry Activity Index.
Thursday will see the release of the trade balance.
The UK
The UK economic agenda will open on Tuesday with the release of the CBI industrial trends for October
The Bank of England’s minutes are due on Wednesday.
The retail sales report for September is due on Thursday.
Friday will see the release of the third quarter GDP and of the index of services report for August.
Canada
On Tuesday, the Bank of Canada is expected to cut rates by a minimum of 25 basis points.
The retail sales report for August is due on Wednesday.
Friday will see the release of the CPI report for September.
Overview
Euro/dollar
Last week's range: 1.3349 – 1. 3767 (Mixed)
Previous range: 1.3261 – 1.3784 (Down)
Euro/dollar traded mostly sideways in an inside range after falling to a 1 ½-year low the previous week. My model went long but only the medium-term bias remains bearish. The short term is bullish.
Above 1.3515, resistance is seen at 1.3620. This is followed by 1.3705, 1.3785 and1.3845. Above 1.3935, resistance is pegged at 1.4200.
Immediate support is at 1.3400. The next level is 1.3350. Below 1.3261, support remains at 1.3040 and 1.2935. Distant support is at 1.2490.
NEAR-TERM:Mixed with upside risk
MEDIUM-TERM:Bearish
LONG-TERM: Bearish
Dollar/yen
Last week's range: 99.27 – 103.06 (Mixed)
Previous range: 97.92 – 105.39 (Down)
Dollar/yen made an inconclusive recovery after branding a seven-month low a week before. My model went long. The medium-term outlook is still bearish, as the pair remains in a head-and-shoulders formation. The short term is slightly bullish.
Immediate resistance is at 102.30 from a 50-point pivot, which targets 101.80 and 102.80. Above 103.00, distant resistance is at 103.40 from another 50-point pivot, which targets 102.90 and 103.90.
Good support is at 101.25 from another 50-point pivot, which targets 100.75 and 101.75. The next level is 100.25 from a 50-point pivot, which targets 99.75 and 100.75. This is followed by 99.25 from another 50-point pivot, which targets 98.75 and 99.75. The next level is 98.25 from a 50-point pivot, which targets 97.75 and 98.75. Distant support follows at 97.30 from another 50-point pivot, which targets 96.80 and 97.80.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Slightly bearish
LONG-TERM: Mixed
Sterling/dollar
Last week's range: 1.6926 – 1.7630 (Mixed)
Previous range: 1.6790 – 1.7719 (Down)
Initial resistance is at 1.7380. Above the strong level at 1.7500, distant resistance is now seen at 1.7765.
Immediate support is at 1.7230. The next levels are 1.7140, 1.7020, 1.6920 and 1.6790. Below 1.6710, support now comes at 1.6540 from a pivot low. Distant support is seen at 1.6075.
NEAR-TERM:Mixed
MEDIUM-TERM: Bearish
LONG-TERM:Bearish
Dollar/Swiss franc
Last week's range: 1.1240 – 1.1490 (Mixed)
Previous range: 1.1130 –1.1489 (Mixed)
Dollar/Swiss made little progress last week after climbing to an eight-month high the previous week but my model went short. Again, the risk remains on the upside, but a pause is due.
Immediate support is at 1.1283. The next level is 1.1220. Below 1.1140, support is seen at 1.1055. Distant support comes 1.0800.
Good resistance is pegged at 1.1445. Above 1.1490, the next level remains at 1.1605 from a pivot high. This is followed by 1.1767. Distant resistance is at 1.1865.
NEAR-TERM: Slightly bearish
MEDIUM-TERM:Bullish
LONG-TERM: Bullish
Dollar/Canada
Last week's range: 1.1307 – 1.1996 (Up)
Previous range: 1.0815 – 1.2119 (Up)
Dollar/Canada consolidated after surging to an over three-year high last week, and my model remains long. The outlook remains bullish, but a pause is due.
Below 1.1755, support is seen at 1.1700 and 1.1655. This is followed by 1.1520. Below 1.1440, distant support now comes at 1.1280.
Initial resistance remains at 1.1890. The next level is 1.2119. Above 1.2225, resistance follows at 1.2495.
NEAR-TERM: Mixed
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Euro/yen
Last week's range: 133.39 – 141.72 (Mixed)
Previous range: 132.25 – 145.28 (Down)
Euro/yen made a choppy consolidation last week after collapsing to an over three-year low the week before. The medium-term outlook remains bearish, but my model went long. The short term outlook is only slightly bullish.
Good resistance remains at 137.70. The next level is 139.70. This is followed by 141.85. Distant resistance is now seen at 147.30.
Immediate support is now seen at 135.15. The next levels are 134.10 and 132.25. Below 129.97, distant support is now at 124.20.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Euro/sterling
Last week's range: 0.7735 - 0.7965 (Down)
Previous range: 0.7702- 0.8069 (Up)
Euro/sterling fell in an inside range and remains under pressure. The initial outlook is slightly bullish.
Above 0.7795, resistance now comes at 0.7857. Strong resistance follows at 0.7945 and 0.7982. Distant resistance is now seen is at 0.8069.
Initial support is at 0.7735. The next level is 0.7700. This is followed by 0.7702. Distant levels are at 0.7640 and 0.7573.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Mixed
LONG-TERM: Mixed
Published on Mon, Oct 20 2008, 08:01 GMT
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Canada's agenda is light this week
Mon, Oct 13 2008, 12:19 GMT
by Cornelius Luca
Past Week's Data and Events
The crisis affecting the financial markets, especially in the US, is unprecedented. The house of cards built over many years on unreasonably cheep money, financial fraud, power abuse and lack of competent regulation has been blown away. The force of gravity always works, even if it takes longer than normal to assert itself. Those responsible for this historical disaster will remain largely unpunished and most of them will actually be rewarded. And so it goes. With the appetite for risk annihilated, the European and the commodity currencies were sold in panic against the Japanese yen. Baring a significant recovery of the battered stock markets, this pattern will continue in the medium term. But in the short term, the opposite should be true.
United States
Governments and central banks have attacked the financial monster threatening our livelihood from all sides, sometimes better and sometimes worse. But everyone that is able is now up in arms. The Main Street has been typically slow to catch on, but the tidal waves will be coming. Only the optimists now hope for a standard recession. The equity markets have nearly doubled the losses required to enter a bear phase and all during the past week.
On Tuesday, the Federal Reserve set up the Commercial Paper Facility Fund, a special-purpose facility to buy commercial paper, in another attempt to thaw the frozen credit markets. The minutes from the FOMC September 16 meeting hinted at the potential for an interest rate cut, consistent with remarks made by Fed Chairman Bernanke earlier in the day. A day later, six central banks cut rates by 50 basis points in a coordinated move, while the Bank of Japan kibitzed. The Fed cut the Fed Funds to 1.5 percent and the discount rate to 1.75 percent, the ECB to 3.75 percent, the BoE to 4.5 percent, the BoC to 2.50 percent, the SNB to Libor range 2-3 percent, and the Riksbank to 4.25 percent. Even China cut 27 basis points from the 1-year deposit rate to 3.87 percent and the Reserve requirement by 50 bps to 17 percent.
With the G7 coming with statements even more vague than those of the US presidential contestants, the European Central and the Governments of the Eurozone on Sunday pledged readiness to take proper action in a concerted and coordinated manner to improve liquidity in longer term maturities.
In the US, the Treasury Department is considering buying stock in banks in effect, partially nationalizing the industry.
But in the short term, all eyes will be the ability of Morgan Stanley to survive for two days to Tuesday. Mitsubishi was pressing for more favorable terms after the former top investment bank lost nearly half its market value last week.
The currency markets trade at exceptional levels of volatility, with ranges that would have been laughable only weeks ago, and there is no reason to expect a change. The carry trade is dead, and the liquidation of long-term positions has been aggressive.
What FX and all the other markets need is a catalyst to bring divergent interests together. But where do you find one when you need it?
On the plus side, while liquidity in FX remains sub-par, our industry doesn’t suffer from a bear market or silly regulation. In fact, currencies should emerge one of the asset victors from this crisis.
Based on contracts signed in June, the National Association of Realtors Pending Home Sales Index rose 7.4 percent in August to 93.4 from an upwardly revised index of 87.0 in July. On an annual basis, the August report rose 8.8 percent to the highest level since June 2007.
As I expected, the trade deficit narrowed 3.5 percent to $59.1 billion in August as oil prices fell from July’s revised deficit to $61.3 billion from an initially reported $62.2 billion. Imports decreased 2.4 percent and exports declined 2 percent
Initial jobless claims declined by 20,000 to 478,000 in the week that ended October 4, from a revised 498,000 the prior week.
The Eurozone
The euro/dollar collapsed to a 1 ½-year low last week amid general dollar strength and long liquidation.
Yet, the regional data were unexpectedly solid. But who cares about that in a crisis?
The volatile German factory orders surged 3.6 percent in August after contracting 1.7 percent in July, but fell -7.6 percent from -0.7 percent a month earlier.
The final Eurozone GDP for second quarter was confirmed at -0.2 percent on the quarter and to +1.4 percent on the year.
The German industrial production unexpectedly surged 3.4 percent in August after contracting 1.6 in July and this pushed the annual increase up by 1.7 percent from +0.1 percent.
The French industrial production contracted by a less than expected 0.4 percent in August and -2.6 percent on the year, from +1.4 percent in July and -2.0 percent, respectively.
Meanwhile, Italy’s industrial production rose 1.4 percent in August but fell 5.3 percent on the year after falling 1.1 percent in July and -3.2 percent on the year.
German trade balance declined to 10.6 billion euros in August from 13.8 billion euros in July, as imports fell 2.5 percent and exports 0.5 percent.
France trade deficit expanded to 5.4 billion euros in August from 4.8 billion euros in July.
Japan
Heavy sales of carry trades sent the dollar/Japanese yen reeling down to a seven-month low last week. A volatility reading as high as over 40% really surprised.
The Bank of Japan left policy rates unchanged at 0.5 percent, as expected.
The data didn’t carry much weight early in the week. The leading index fell to 89.3 in August from 91.4 and the coincident index to 100.7 from 103.5.
But the week orders for machinery hurt the yen on Thursday. They declined 14.5 percent in August.
The UK
The high-yielding pound sank aggressively for the second week and nailed a near-five year low, as the dollar took no prisoners. Long-term long cable positions were unceremoniously squeezed our last week.
The UK economic data highlighted the weakness of the pound.
Industrial production contracted by a more than expected 0.4 percent in August and -2.3 percent on the year from –0.4 percent in July and –1.9 percent. The overall industrial production fell by 0.6 percent and 2.3 percent from a year earlier, the biggest decline since 2005.
HBOS house prices contracted 1.3 percent in September on top of -1.8 percent in August, and -12.4 percent on the year from 10.9 percent.
The trade deficit was flat at 8.2 billion pounds in August after the July report was revised from -7.7 billion pounds.
Canada
The Canadian dollar was creamed last week, along with most commodities. Dollar/Canada surged to an over three-year high and if the trend continues, which it should, we will afford to go skiing in Canada once again!
Employment increased by 107,000 in September, but the unemployment rate was unchanged at 6.1 percent because the increase in employment was matched by a similar rise in labor force participation.
The trade surplus increased to $5.8 billion in August from $4.2 billion in July. The trade surplus with the United States expanded to $8.6 billion from $8.4 billion in July.
Switzerland
The dollar/Swiss franc climber to a new high for the uptrend, but lacked the drama of the other majors. Sales of euro/Swiss, in line with the stock markets, directed its traffic.
Switzerland’s unemployment rate remained unchanged at 2.4 percent in September.
Australia
The Australian dollar fell of bed and hit a near 5 ½-year low. The high yielding currency was tossed by both former carry trade and commodity owners. That economy will take longer to suffer because of the Chinese demand for commodities, but will suffer.
The Reserve Bank of Australia cut its benchmark interest rate by one percentage point, the most since a recession in 1992, to bring it down to 6 percent, the lowest since November 2006. Reserve Bank Governor Stevens said that the unusually large cut was appropriate in order to reduce in costs to borrowers. The Aussie has tumbled approximately 26 percent since hitting a 25-year high of 98.49 cents on July 16.
Not surprisingly, consumer confidence tumbled 11 points to 82 points in October, the most in more than two years, according to a Westpac Banking Corp. and Melbourne Institute survey.
This Week's Data and Events
United States
D Date GMT Event Period UBS Previous Market
The US economic agenda will open on Wednesday with the release of the PPI report and retail sales reports for September, and of the Empire State manufacturing Survey for October.
Thursday will see the release of the industrial production and capacity utilization reports for September, the CPI report for September, and of the Philly Fed Survey and Homebuilders' survey NAHB for October
The housing starts report for September and the University of Michigan survey for October are due on Friday.
The Eurozone
The Eurozone calendar will open on Tuesday with the release of Germany’s ZEW current situation report for October and the regional industrial production report for August.
Wednesday will see the release of Germany’s CPI report for October
Japan
The Japanese agenda will start on Wednesday with the release of the current account balance for August and of the industrial production report for September.
The tertiary industrial activity report for August is due on Thursday.
The UK
The UK economic agenda will stat on Monday with the release of the PPI input/output report for September.
Tuesday will see the release of the RICS House Price Balance for September, DCLG house prices report for August, and BRC retail sales and CPI reports for September.
The unemployment report for August is due on Wednesday.
Canada
Canada’s agenda is light this week. It only features the survey of manufacturing shipments report for August. This is due on Thursday.
Overview
Euro/dollar
Last week's range: 1.3261 – 1.3784 (Down)
Previous range: 1.3705 – 1.4565 (Down)
Euro/dollar fell to a 1 ½-year low last week amid general dollar strength despite struggling higher between Tuesday and Thursday. My model remains short, but only the medium-term bias remains bearish.
Initial resistance is seen at 1.3620. This is followed by 1.3705, 1.3785 and1.3845. Above 1.3935, resistance is pegged at 1.4200.
Immediate support is at 1.3550. The next level is 1.3460. Below 1.3261, support comes at 1.3040 and 1.2935. Distant support is at 1.2490.
NEAR-TERM:Mixed with upside risk
MEDIUM-TERM:Bearish
LONG-TERM: Bearish
Dollar/yen
Last week's range: 97.92 – 105.39 (Down)
Previous range: 103.54 – 106.96 (Down)
Dollar/yen succumbed to a seven-month low below parity under the weight of heavy sales of carry trades. My model remains short. The medium-term outlook is bearish after the pair confirmed a head-and-shoulders formation.
Good support is at 100.25 from a 50-point pivot, which targets 99.75 and 100.75. The next level is 99.25 from another 50-point pivot, which targets 98.75 and 99.75. The next level is 98.25 from a 50-point pivot, which targets 97.75 and 98.75. Distant support follows at 97.30 from another 50-point pivot, which targets 96.80 and 97.80.
Immediate resistance is at 101.25 from another 50-point pivot, which targets 100.75 and 101.75. The next level is 102.30 from a 50-point pivot, which targets 101.80 and 102.80. Above 103.00, distant resistance is at 103.40 from another 50-point pivot, which targets 102.90 and 103.90.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Slightly bearish
LONG-TERM: Mixed
Sterling/dollar
Last week's range: 1.6790 – 1.7719 (Down)
Previous range: 1.7551 – 1.8366 (Down)
Initial resistance is at 1.7180. Good resistance follows at 1.7230 from a Fibonacci retracement level. Above the strong level at 1.7500, distant resistance is now seen at 1.7765.
Immediate support is at 1.7095. The next levels are 1.7020, 1.6920 and 1.6790. Below 1.6710, support now comes at 1.6540 from a pivot low. Distant support is seen at 1.6075.
NEAR-TERM:Mixed
MEDIUM-TERM: Bearish
LONG-TERM:Bearish
Dollar/Swiss franc
Last week's range: 1.1130 –1.1489 (Mixed)
Previous range: 1.0818 – 1.1412 (Up)
Dollar/Swiss rallied to an eight-month high last week and my model remains long since the previous Tuesday. Once again, the risk remains on the upside, but a pause is due.
Immediate support is at 1.1240. The next level is 1.1220. Below 1.1140, support is seen at 1.1055. Distant support comes 1.0800.
Good resistance is pegged at 1.1360. The next levels are 1.1412 and 1.1605 from a pivot high. This is followed by 1.1767. Distant resistance is at 1.1865.
NEAR-TERM: Slightly bearish
MEDIUM-TERM:Bullish
LONG-TERM: Bullish
Dollar/Canada
Last week's range: 1.0815 – 1.2119 (Up)
Previous range: 1.0335 – 1.0843 (Up)
Dollar/Canada soared to an over three-year high last week, and my model remains long. The initial outlook is bullish, but a pause is due.
Immediate support is at 1.1655. This is followed by 1.1520. Below 1.1440, distant support now comes at 1.1280.
Initial resistance is at 1.1890. The next level is 1.2119. Above 1.2225, resistance follows at 1.2495.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Euro/yen
Last week's range: 132.25 – 145.28 (Down)
Previous range: 144.04 – 155.33 (Down)
Euro/yen collapsed to an over three-year low, and this weakness was expected. The medium-term outlook remains bearish, and my model remains short. The short term outlook is bullish.
Good resistance level is now at 137.70. The next level is 139.70. This is followed by 141.85. Distant resistance is now seen at 147.30.
Immediate support is now seen at 136.35. The next levels are 135.15, 134.10 and 132.25. Below 129.97, distant support is now at 124.20.
NEAR-TERM: Bullish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Euro/sterling
Last week's range: 0.7702- 0.8069 (Up)
Previous range: 0.7754 – 0.8024 (Down)
Euro/sterling reversed from a seven-month low to a one month high and then gave back half of these gains on Friday. The initial outlook is slightly bullish.
Above 0.7945, resistance now comes at 0.7980. Strong resistance follows at 0.8025 and 0.8083. Distant resistance is now perched is at 0.8187.
Initial support is at 0.7885. The next level is 0.7840. This is followed by 0.7780. Distant levels are at 0.7700 and 0.7640.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Bullish
LONG-TERM: Mixed
Published on Mon, Oct 13 2008, 12:19 GMT
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The US economic agenda is unusually thin this week
Mon, Oct 6 2008, 12:39 GMT
by Cornelius Luca
Past Week's Data and Events
The demand for funding out of Europe and ongoing liquidation of yen crosses pushed the dollar sharply higher versus the European currencies last week. While profit taking should be seen this week, the outlook for the currency remains strong. The risk to it is the equity markets, which have fallen sharply and should sink further, despite the no short-selling rule for financial stocks.
United States
All in not well on our financial body. The organs seem to be in satisfactory condition, but the blood is not really circulating. The rapid changes of fortunes among the top firms did not bring a solution to the crisis, but created a short-term period of grace. But it’s grace under fire. The Federal Reserve's lending surged by a record $285 billion last week, and discount window borrowings rose $10.2 billion to $49.5 billion, as the financial crisis has been worsening.
The dollar exploded higher against the European currencies, initially after the House of Representatives unexpectedly failed to ratify the Bush administration's $700 billion TARP to rescue banks, and then on expectations that the House will actually pass the TARP by the end of the week. But it edged slightly lower on Friday after the House of Representatives (finally) approved the $700 billion TARP in a 263-171 vote. The revised plan is expected to thaw the frozen credit markets, but the traders doubt it will fail to prevent an economic recession.
We are not alone in this historical crisis. The European banking system is also under fire.
The acceleration of the downturn in Europe and the lack of liquidity underpinned demand for dollars. French President Sarkozy said the France is basically in recession. The fallout from the failed initial $700 billion bailout for Wall Street accelerated the financial crisis, which spilled over Europe (B&B in the UK, Fortis in Benelux, and West LB in Germany). Germany struggled to rescue lender Hypo Real Estate, and Ireland promised to guarantee all bank deposits. But the 300 billion euros Euro-TARP proposed by France was promptly torpedoed by Germany. EU governments to breach deficit limits, saying the financial crisis was so severe they could waive their usual strict application of budget rules.
It was the first time the EU appeared ready to invoke a 2005 clause that allows countries to bend the rules laid down in the Stability and Growth Pact if they fall victim to exceptional events outside their control.
Another week, another big name gone from the US financial roster– this time, Wachovia was initially morphed into Citigroup, just to switch out on Friday and merge with Wells Fargo, outside the realm of the FDIC. But the high-stake drama continues; Citigroup won a court order late on Saturday blocking Wells Fargo from buying Wachovia Corp until the court rules otherwise.
Surprisingly, the US jobless data, horrible as it was, only mattered for about 60 pips of nervous trading. It’s gotten so bad that this key report was put on the back burner, as in “what did you expect?” While the number might have been skewed by the tropical storms down south, don’t hope for an improvement – the opposite will happen. Payrolls fell by a more than expected 159,000 in September after a, upwardly revised 73,000 decline (from –84,000) in August and downwardly revised –67,000 from –60,000 in July. The jobless rate remained at 6.1 percent but only because it surged 0.4 percent a month earlier.
Initial jobless claims increased 1,000 to 497,000 in the week that ended September 27 from an upwardly revised (as nearly 100% of the times) 496,000 (initially 493,000) the prior week. What happened to the “exceptionally” high number from the previous week? Haven’t the tropical storms passed already? Let’s not kid ourselves, the total number of people collecting benefits is the highest since 2003.
For all it’s worth, the ADP's decline of 8,000 in private employment in September from 37,000 the month before was modest.
Consumer spending was flat in August from a revised +0.1 percent in July. Personal income rose by 0.5 percent after a revised 0.6 percent drop, the personal savings rate fell to 1 percent from 1.9 percent in July, while the disposable income fell by 0.9 percent after -.8 percent.
The Conference Board's confidence index increased to 59.8 September, a third consecutive increase, from 58.5 in August. That’s nice but irrelevant, since the survey was taken before the most recent financial meltdown.
In the same vein, the Chicago Purchasing Management index fell to 56.7 in September from 57.9 the prior month.
The ISM manufacturing index collapsed to 43.5 in September from 49.9 in August. This is a recessionary level as the credit crunch is strangulating the economy. Looking into details, new orders fell to 38.8 from 48.3, production to 40.8 from 52.1, and employment to 41.8 from 49.7.
Construction spending was flat in August after falling 1.4 percent in July.
Factory goods orders contracted 4 percent in August, as orders for motor vehicles succumbed 10.6 percent, the most since December 2002.
Elsewhere, the S&P/Case-Shiller 20 city index fell 0.9 percent in July and 16.3 percent on the year.
The Eurozone
The euro suffered colossal losses, as long liquidation has been taking its toll. The money markets in the Eurozone remain basically frozen, and the 3-month euro interbank rates climbing to a record high. The financial crisis spread further in Europe last week, and Fortis was rescued by a 11.2 billion euros package from the governments of Belgium, the Netherlands and Luxembourg. The troubles are piling high and fast.
The Eurozone PPI contracted 0.5 percent in August after expanding 1.3 percent in July, and decreased to 8.5 percent on the year from 9.2 percent. On this milieu, ECB head Trichet sounded confusing (sort of standard for central banks heads): risks for future growth to the downside, but no cutting of borrowing costs. With the Eurozone economy weakening, this talk is euro bearish.
The Eurozone services confidence index was flat in September 0 from 3 in August, the consumer confidence was stable at –19, the industrial confidence worsened to -12 from –10, the business climate indicator to -0.79 from -0.33, and the economic confidence to 87.7 from 88.8.
Meanwhile, the Eurozone retail PMI fell to 46.2 in September from 47.7 in August.
But the Eurozone PMI services managed to edge up to 48.4 in September from 48.2 in August. On an individual basis, the German PMI rose to 50.2 from 49.3, while the French PMI slipped to 50.1 from 50.4.
The Eurozone retail sales rose 0.3 percent in August but contracted 1.8 percent on the year. That monthly strength won’t last, as the regional economy is going down the drain.
German unemployment fell by 29,000 to 3.18 million in September after falling 40,000 in August. The ILO jobless rate was 7.2 percent, down from 7.3 percent in July. It is 7.3 percent in France it and 4 percent in Japan.
German retail sales expanded 3.1 percent in August after contracting an upwardly revised -1.0 percent in July. That number is too exotic, so it should be reversed next month. On the year, sales sank 3.0 percent from 0.6 percent previously.
The Eurozone unemployment rate climbed up to 7.5 percent in August from 7.4 percent in July, economic slowdown is spreading.
The final Eurozone PMI came in at 45.0 in September from 45.3 previously. On an individual basis, the German report fell to 47.4 from 48.1 and the French PMI to 43.0 from 43.6.
The EurozoneCPI probably peaked in July at a record 4.1 percent annual basis, after the August and September preliminary reports came in at 3.8 percent and then 3.6 percent, respectively.
Along the same lines, French PPI fell 0.5 percent in August from 0.7 percent in July, and slipped to 6.9 percent from 7.7 percent on a yearly basis.
Also, Italian PPI fell 0.2 percent in August from 0.8 percent previously and to 8.2 percent from 8.7 percent on the year.
Japan
The dollar/Japanese yen remains the odd major pair out, and its lack of direction should continue. Yen crosses should help with direction.
Japanese retail trade rose to +0.7 percent in August from +0.1 percent in July, but slowed to 0.7 percent on a yearly basis from 2.0 percent.
That was the exception to the rule, as the rest of the economic data was atrocious.
Industrial production contracted 3.5 percent in August, the fastest pace in at least five years, after expanding 1.3 percent in July, while the unemployment rate rose to a two-year high of 4.2 percent from 4.0 percent previously and household spending contracted 4 percent, the most since September 2006, after -0.5 percent previously.
Housing starts for 53.6 percent in August on the year from 19.0 percent previously.
Construction orders contracted 0.3 percent in August on an annual basis from +42.3 percent in July.
The index of small business confidence slipped to 40.2 in September from 41.4 previously.
On this milieu, the Tankan index of confidence among big makers of cars and electronics fell to -3 in the third quarter from 5 in the second quarter. This is the first time that pessimists outnumbered optimists since 2003.
The UK
The pound sank as well under the weight of the credit crunch, housing problems and slowing economy. But it fared better than the euro.
The Bank of England’s measure of mortgage approvals fell to a new record low of 32,000 in August from 33,000 in July, and this is 75 percent below their peak. The crisis continues, as expected.
Not exactly unexpectedly, the net balance of lenders reporting a decline in the availability of secured credit to households was 39 percent in the three months to September. This was slightly better than the 47 percent fall reported in the three months to June.
Also, the Nationwide House prices contracted 1.7 percent in Septemberon top of -1.9 percent in August. On a yearly basis they fell 12.4 percent from -10.5 percent.
The current account deficit widened to 11 billion pounds, the largest in three quarters.
The manufacturing PMI fell to 41 in September from 45.3 the previous month, the lowest since the report began in January 1992, services PMI contacted to 46 in September, the lowest since the gauge began in 1996, from 49.2 in August, and the PMI construction fell to 38.8 in September from 40.5 in August.
The gross domestic product was unrevised at flat in the second quarter but was revised upward to 1.5 percent on a yearly basis from the previous estimate of 1.4 percent. In addition, services grew 0.2 percent from the first quarter, the weakest pace since 1995.
To make a long story short, the UK is probably already in its first recession since 1991, so the BoE must cut interest rates.
Canada
The Canadian dollar closed the week at a near 14-month low, amid widespread liquidation of both commodities and carry trades. Any recovery should be temporary.
Canada’s economy grew a mammoth 0.7 percent in July, due to a surge in crude oil and natural gas production from June’s + 0.1 percent.
Switzerland
The dollar/Swiss franc rallied sharply last week but not as much as dollar/euro.
The Swiss PMI fell to 47.8 in September from 52.5 in August.
Australia
The Australian dollar closed the week at a near 14-month low as well, as the liquidation of both commodities and carry trades continues. Any recovery should be only temporary.
Australian manufacturing improved 0.2 points to 47.2 in September from August, when it gained 0.1 points, according to the Australian Industry Group and PricewaterhouseCoopers. But it remains below the key 50 mark.
Surging exports of coal and iron ore boosted Australia's trade balance from a deficit of A$697 million in July to the second-biggest surplus on record A$1.36 billion in August.
This Week's Data and Events
United States
D Date GMT Event Period UBS Previous Market
The US economic agenda is unusually thin this week.
It will feature only the trade balance for August and this is due on Friday. The deficit will probably improve because of the decline in oil process during that period.
The Eurozone
The Eurozone economic agenda will start on Tuesday with the release of the German factory orders report for August.
Wednesday will see the revision of the Eurozone GDP for the second quarter and of the German industrial production report for August.
The German trade balance for August is due on Thursday.
Friday will see the release of the French and Italian industrial production reports for August.
Japan
The Bank of Japan will leave rates unchanged on Monday.
The economic agenda only features the machinery orders report for August on Thursday.
The UK
The UK economic agenda will open on Tuesday with the release of the industrial production report for August.
The UK economy is slipping fast, and on Thursday, the Bank of England is likely to cut rates by 25 basis points to 4.75 percent.
Also on Thursday there will be the trade balance for August.
Canada
The Canadian economic agenda will open on Monday with the release of the Ivey Purchasing Managers report for September.
The housing mortgage report for September is due on Wednesday.
On Friday, be on the lookout for the release of the unemployment report for September, and of the trade and new housing price reports for August.
Overview
Euro/dollar
Last week's range: 1.3705 – 1.4565 (Down)
Previous range: 1.4438 – 1.4865 (Up)
Euro/dollar collapsed to a 14-month low last week, falling every day of the week. My model turned short last Monday, and the bias remains downward.
Immediate support is at 1.3615. Below 1.3465, support is at 1.3350. Distant support is at 1.3250.
Initial resistance is seen at 1.3705. This is followed by 1.3845. The next level is 1.3935. Above 1.4200, resistance is still pegged at 1.4385. Distant resistance is at 1.4600.
NEAR-TERM:Slightly bearish
MEDIUM-TERM:Bearish
LONG-TERM: Bearish
Dollar/yen
Last week's range: 103.54 – 106.96 (Down)
Previous range: 105.04 – 107.46 (Down)
Dollar/yen edged fell to a 4 ½-month low. My model is now short, but it vacillates. The medium-term outlook is mixed, after the pair failed to trigger a head-and-shoulders formation below 103.50.
Good support is at 104.50 by a 50-point pivot, which targets 104.00 and 105.00. The next level is 103.40 from another 50-point pivot, which targets 102.90 and 103.90.
Immediate resistance is at 105.60 from a 50-point pivot that targets 105.10 and 106.10. The next level is 106.75 from another 50-point pivot, which targets 106.25 and 107.25. Distant resistance follows at 107.95 from a 50-point pivot, which targets 107.45 and 108.45.
NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Bullish
Sterling/dollar
Last week's range: 1.7551 – 1.8366 (Down)
Previous range: 1.8264 – 1.8668 (Up)
Immediate support is at 1.7600. Below 1.7550, strong support now comes at 1.7448 from a pivot low. Distant support comes at 1.7200.
Initial resistance is at 1.7840. Good resistance follows at 1.7950 from a Fibonacci retracement level. Above the strong level at 1.8060, further resistance is at 1.8200. Distant resistance is now seen at 1.8668.
NEAR-TERM:Mixed
MEDIUM-TERM: Bearish
LONG-TERM:Bearish
Dollar/Swiss franc
Last week's range: 1.0818 – 1.1412 (Up)
Previous range: 1.0698 – 1.1060 (Down)
Dollar/Swiss rallied to a three-week high and my model went long last Tuesday. The risk remains on the upside, but a pause is due.
Good resistance is pegged at 1.1412. The next level is 1.1605 from a pivot high. This is followed by 1.1767. Distant resistance is at 1.1865.
Immediate support is at 1.1290. The next level is 1.1220. Below 1.1140, support is seen at 1.1055. Distant support comes 1.0800.
NEAR-TERM: Slightly bullish
MEDIUM-TERM:Bullish
LONG-TERM: Bullish
Dollar/Canada
Last week's range: 1.0335 – 1.0843 (Up)
Previous range: 1.0299 – 1.0514 (Down)
Dollar/Canada exploded to an over 14-month high last week, and my model promptly went long early last Monday. The initial outlook is bullish, but a pause is due.
Initial resistance is at 1.0890. The next level is 1.1025. Above 1.1135, resistance follows at 1.1235.
Immediate support is at 1.0775. This is followed by 1.0635. Below 1.0570, distant support now comes at 1.0465.
NEAR-TERM: Mixed to slightly bullish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Euro/yen
Last week's range: 144.04 – 155.33 (Down)
Previous range: 153.49 – 156.83 (Mixed)
Euro/yen collapsed to a 28-month low. The medium-term outlook remains bearish, and my model turned short early last Monday.
Immediate support is now seen at 143.60. Below 141.43, distant support is now at 140.30.
Good resistance level is perched at 145.30. The next levels are 147.05 and 148.90. This is followed by 150.40. Distant resistance is now seen at 152.00.
NEAR-TERM: Bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Euro/sterling
Last week's range: 0.7754 – 0.8024 (Down)
Previous range: 0.7884 – 0.7980 (Mixed)
Euro/sterling collapsed to a 6 ½-month low last week and touched the bottom of a declining channel. My model went short last Tuesday. The initial outlook is bearish.
Initial support is at 0.7720. This is followed by 0.7680. Distant level remains at 0.7640.
Immediate resistance is at 0.7705. Above 0.7805, resistance now comes at 0.7850. Strong resistance follows at 0.7890, 0.7920 and 0.7965. Distant resistance is now perched is at 0.8024.
NEAR-TERM: Bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Published on Mon, Oct 6 2008, 12:39 GMT
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The dollar/Japanese yen slipped weakly amid cross trading
Mon, Sep 29 2008, 13:11 GMT
by Cornelius Luca
Past Week's Data and Events
With the US financial world topsy turvy and with its jewels up for sale at fire prices all eyes on Monday will be on the US Congress and its political games in ratifying the Treasury's Troubled Asset Relief Program (TARP). This is not the time for games and details are very important. The money market is broken and on this milieu, currencies took a back seat to other asset classes. The dollar is lacking much direction, but given the illiquid trading conditions and the ratification of the TARP, its bias is up.
United States
It's the worst of times, it's the best of times… Another week, another failure – last week that meant Wa Mu finally disappeared under the weight of its misguided investments in mortgages. It was seized by the Fed and sold to JP Morgan for $1.9 billion. While the doom continues for most of the US financial sector, JP Morgan is now the second-largest bank in the United States after Bank of America after also getting Bear Stearns at fire sale prices.
As evidence that the risk of financial meltdown was greater than we all had feared, Goldman Sachs and Morgan Stanley, the last big investment banks on Wall Street, were turned into regulated banks literally overnight, faster than you can press CTRL-ALT-DLT? This “commercialization” of the IBs means less risk taking, less profit, but does it bring more financial equality or less risk? Not really. And the liquidity in FX dried up in the past two weeks.
Weekends have become more frightening than horror movies, and we all just hope we’ve seen the last of it. But this is only human hope and doesn’t get too far. The Treasury’s plan to extricate the cancerous mortgage assets from banks’ books is still unclear and the Congress needs to decide and approve the vital details – as if it had expertise in doing that. The Treasury plan is inflationary and gold and oil were bought at an unprecedented pace early last week.
Recession, which at one point looked like it might skirt us, is now closer than ever, and looks deep and morbid. But enough with this unbridled optimism.
We need the TARP badly, but we need a good plan.
The US economic data provided little reason for optimism and the Federal Reserve will have to cut rates soon and probably by 50 basis points.
Durable goods orders 2008 fell 4.5 percent in August after rising 0.8 percent in July and 1.4 percent in June. Ex-transportation, orders fell 3.0 percent from +0.1 percent, while ex-defense they sank 5.0 percent after +1.9 percent.
New home sales collapsed 11.5 percent to 460,000 rate in August after a revised 520,000 in July and 500,000 in June.
And existing home sales fell 2.2 percent to 4.91 million rate in August from July's 5.02 million rate. The median price fell 9.5 percent to $203,100 on the year.
OFHEO home prices contracted 0.6 percent in July and 5.3 percent on the year.
The GDP was revised down to an annual rate of 2.8 percent in the second quarter from a preliminary estimate of 3.3 percent. Let's worry about the next three quarters, I'd say.
It came to no surprise that that the University of Michigan final index of household sentiment declined to 70.3 in September from an initial reading of 73.1.
The initial claims for unemployment benefits rose 32,000 to 493,000 in the week ending September 20 from the previous week's revised figure of 461,000. The reading was worsened by the tropical storms.
The Eurozone
The euro made little progress as the market got confused.
Business confidence dropped in Germany, France and Italy in September, adding to concern the Eurozone economy is sinking into recession.
The Ifo institute survey of German business confidence fell in September to its lowest level since May 2005. The business climate index fell to 92.9 from 94.8 in August; the expectations sub-index fell to 86.5, its worst reading since February 1993, from 87.0, and the current situation to 99.8 from 103.2.
Also, French business confidence indicator fell to 92 in September from 97 in August and Italian business confidence to 82.7 in September from 83.5 previously.
In addition, the Eurozone composite index of manufacturing and service PMI contracted to 47, the lowest since November 2001, from 48.2 in August.
On the plus side, Italian retail sales expanded 0.6 percent in July after contracting 0.4 percent previously.
The German import price index fell 0.8 percent in August after rising 0.6 percent in July, but remained at +9.3 percent on the year.
The French consumer confidence indicator improved to -44 in September from -47 in July and -46 in June.
The French GDP was confirmed to have contracted 0.3 percent in the second quarter, reversing the 0.4 percent growth in the previous two quarters.
Household consumption expenditure fell 0.1 percent, same as in the first quarter.
Japan
The dollar/Japanese yen slipped weakly amid cross trading.
The trade balance fell into deficit of f 324 billion yen in September on an annual basis amid high commodity prices. Imports grew 17.3 percent and exports edged up 0.3 percent. Exports to the United States fell by a record 21.8 percent in August.
Japan's CPI slipped 0.1 percent in August after rising 0.4 percent in July and 0.7 percent in June. The core rose 0.1 percent. On the year, the CPI slowed to 2.1 percent from 2.3 percent and the core slowed to 2.1 percent from 2.3 percent. The Tokyo CPI was flat in September, with the core up 0.2 percent. On the year, it rose 1.4 percent and the core to 1.7 percent.
The UK
The pound ended higher, but well off its highs. More information is needed.
The UK housing sector remains in dire straits and there is little reason to expect an expeditious solution. In the latest report, prices fell 1 percent in September, for a fourth consecutive month, and 3.3 percent on the year, according to a report by Rightmove.
The CBI retail sales survey improved to -27 in September.
Canada
The Canadian dollar strengthened last Monday and then it stalled. More information is needed here.
Retail sales rose a less-than-anticipated 0.1 percent in July after an upwardly revised 0.6 percent gain the month before.
CPI came in at -0.2 percent in August after rising +0.3 percent in July. But the core CPI rose 0.3 percent from 0.1 percent.
Switzerland
The dollar/Swiss franc trimmed its losses last week and the market needs new impetus.
The Swiss KOF Swiss Leading Indicator slipped to 0.62 in September from a downwardly revised 0.68.
Australia
The Australian dollar closed the week little changed and the cross was surprisingly quiet, given the rise in adversity for risk.
This Week's Data and Events
United States
D Date GMT Event Period UBS Previous Market
The US economic agenda will open on Monday with the release of the personal income and spending reports for August.
The Chicago PMI and the Conference Board's consumer confidence reports for September are due on Tuesday.
Wednesday will see the release of the construction spending report for August and the ISM manufacturing report for September.
The factory goods orders for August are due on Thursday.
The first Friday of the month means the release of the nonfarm payrolls and of the unemployment rate for September. Given the current situation expect a bad number and an extra volatile day of trading.
The Eurozone
The Eurozone agenda will start on Monday with the release of the regional retail PMI report, business climate indicator, consumer confidence, economic sentiment indicator and industrial confidence reports for September.
Germany's retail sales report for August and of the unemployment rate report for September are due on Tuesday.
The Eurozone PMI Manufacturing report for October and the unemployment rate for August are due on Wednesday.
On Thursday, the ECB will leave rates unchanged at 4.25 percent. The Eurozone PPI report for August is due on Thursday as well.
Friday will see the release of the Eurozone PMI Services report for September and of the retail sales report for August.
Japan
Japan's agenda will start on Monday with the retail trade report for August.
Tuesday will see the release of significant batch of Japanese data for August: unemployment rate, household living expenditure, industrial production and housing starts.
The Tankan large manufacturing Index for the third quarter is due on Wednesday.
The UK
The UK economic agenda will begin on Tuesday with the release of the GfK consumer confidence report for September, and of the revision of the second quarter GDP report and of the business investment for the second quarter.
The PMI Manufacturing for September is due on Wednesday.
The Nationwide house prices report for September is due on Thursday and the PMI Services report for September on Friday.
Canada
Canada's calendar is very light this week. It only included the monthly GDP report for July.
Overview
Euro/dollar
Last week's range: 1.4438 – 1.4865 (Up)
Previous range: 1.4075 – 1.4539 (Up)
Euro/dollar hit a five-week high last Monday before returning most of the gains. It’s basically stuck and needs more information before the next move. My model remains long, but the bias is down.
Immediate support is at 1.4486. The next level is 1.4438. Below 1.4370, support is at 1.4255. Distant support is at 1.4153.
Initial resistance is seen at 1.4600. The next level is 1.4685. Above 1.4735, resistance is still seen at 1.4810. This is followed by 1.4910. Distant resistance is at 1.5015.
NEAR-TERM:Slightly bearish
MEDIUM-TERM:Bearish
LONG-TERM: Mixed
Dollar/yen
Last week's range: 105.04 – 107.46 (Down)
Previous range: 103.56 – 108.01 (Up)
Dollar/yen edged lower in an inside range, as the yen was a passive ingredient for cross trading. My model remains long. The medium-term outlook is mixed.
Immediate resistance is at 106.75 from another 50-point pivot, which targets 106.25 and 107.25. The next level is 107.95 from a 50-point pivot, which targets 107.45 and 108.45. Above 108.80, look for a test of the 50-point pivot at 109.15, which targets 109.65 and 108.65.
Good support is at 105.60 from a 50-point pivot that targets 105.10 and 106.10. This is followed at 104.50 by a 50-point pivot, which targets 104.00 and 105.00. The next level is 103.40 from another 50-point pivot, which targets 102.90 and 103.90.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Mixed
LONG-TERM: Bullish
Sterling/dollar
Last week's range: 1.8264 – 1.8668 (Up)
Previous range: 1.7733 – 1.8386 (Up)
Just like the euro/dollar, cable reached a five-week high, as expected, before surrendering most of the gains. It remains in a downtrend after failing to stay above the median of that channel. My model remains long but the downside is favored first.
Initial support is at 1.8250. Below this level, strong support now comes at 1.8110. This is followed by 1.7917. Distant support comes at 1.7776.
Initial resistance is at 1.8355. Good resistance follows at 1.8475 and 1.8515. Above the strong level at 1.8668, further resistance is at 1.8750. Distant resistance is now seen at 1.8865.
NEAR-TERM:Mixed to slightly bearish
MEDIUM-TERM: Bearish
LONG-TERM:Bearish
Dollar/Swiss franc
Last week's range: 1.0698 – 1.1060 (Down)
Previous range: 1.0901 – 1.1305 (Down)
Dollar/Swiss recovered most of its losses after sinking to a seven-week low last Monday. My model is short, but the risk is on the upside.
Initial resistance now comes at 1.0973. The next level is 1.1055. This is followed by 1.1185 and 1.1279. Above 1.1417 there is a pivot high at 1.1605.
Immediate support is at 1.0890. Below 1.0790, support is now pegged at 1.0698. Distant support moved down to 1.0555.
NEAR-TERM: Slightly bullish
MEDIUM-TERM:Bullish
LONG-TERM: Mixed
Dollar/Canada
Last week's range: 1.0299 – 1.0514 (Down)
Previous range: 1.0570 – 1.0782 (Down)
Dollar/Canada remained soft after falling to a seven-month low, but the support at 1.0299 was incredibly strong. My model remains short, but the initial outlook is slightly bullish.
Initial resistance is at 1.0400. The next levels are 1.0470 and 1.0550. Above 1.0645, resistance is at 1.0821 from a new pivot high.
Immediate support is at 1.0299. This is followed by 1.0265. Below 1.0180, distant support remains at 0.9974.
NEAR-TERM: Mixed to slightly bullish
MEDIUM-TERM: Bullish
LONG-TERM: Mixed
Euro/yen
Last week's range: 153.49 – 156.83 (Mixed)
Previous range: 147.07 – 155.54 (Up)
Euro/yen had an uncharacteristically quiet behavior and closed the week unchanged. The medium-term outlook is mixed, and my model remains long.
Good resistance level remains at 156.80. The next level is 158.50. This is followed by 159.90. Distant resistance is still seen at 161.15.
Immediate support is now seen at 153.50. Below 152.30, distant support is now at 147.07.
NEAR-TERM: Mixed
MEDIUM-TERM: Bearish
LONG-TERM: Mixed
Euro/sterling
Last week's range: 0.7884 – 0.7980 (Mixed)
Previous range: 0.7848 – 0.8009 (Down)
Euro/sterling traded in a tight range and closed little changed, as its components traded in sync last week. The initial outlook is mixed.
Initial support is at 0.7900. This is followed by 0.7848, 0.7814 and 0.7794. Below 0.7766, distant level is at 0.7640.
Above 0.7960, resistance remains at 0.8010. Strong resistance is still seen at 0.8038. The cross then sees resistance at 0.8093 and at 0.8077 from a pivot high. Distant resistance remains is at 0.8262.
NEAR-TERM: Mixed
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Published on Mon, Sep 29 2008, 13:11 GMT
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The euro reversed early losses to close the week higher in aggressive trading
Tue, Sep 23 2008, 12:23 GMT
by Cornelius Luca
Past Week's Data and Events
The dollar encountered unprecedented lack of liquidity last week (as only cable was affected in 1992/1993 and dollar/yen in 1998) as FX took a secondary position behind classic assets. The government didn’t save the day, but the year and probably the decade with an unprecedented operation to remove toxic assets from banks’ books and allow them to live and fight another day. There were other complex measures, but the bottom line is that we can re-start living our lives and FX will return to normality in early October. The dollar is facing divergent trading, probably strong against the yen and slightly weak versus the European currencies. The worst may probably truly be behind us. Hat tip to Mr. Paulson and Mr. Bernanke!
United States
Twenty years from now you will remember where you were on the week of September 15, 2008. The data were mostly bad last week, but the market was looking at the Lehman bankruptcy, the BoA’s swift scoop of Merrill Lynch, and the AIG’s woes. AIG was saved in the eleventh hour by a special government loan and this smart move stave off a colossal financial disaster.
The European Central Bank and the Bank of England joined the Fed in providing liquidity, with the ECB pumping $100 billion and the BoE $36 billion. Then on Thursday, the Federal Reserve added liquidity to central banks around the world. But, commercial banks still don’t lend money to each other on fear that the other one will go under.
The Federal Reserve left interest rates unchanged at 2.0 percent before bailing out AIG and its accompanying statement showed it was in no hurry to cut rates in the near-term despite the recent turmoil in financial markets.
But starting late on Thursday there was talk of unprecedented government intervention and the stocks flew higher into the end of the week. What the government intends to do and the Congress should quickly approve, is move quickly to shore up toxic assets from banks’ books and reassure big (and normal) investors that they can still keep capital in money markets accounts. This is the biggest expansion of federal power over the financial system since the Great Depression. Is it a perfect plan? Probably not and it will us cost nearly a trillion dollars; but it’s the best damn plan this country has come up in a really long time (maybe ever?) to stop the US financial world melt down. The banks should soon have room to breathe and the government will probably make a pretty buck on the current toxic positions in the long run.
Industrial production fell by a worse than expected 1.1percent in August after (somehow) rising a downwardly revised 0.1 percent in July. Capacity utilization fell 78.7 from 79.7.
Moreover, the New York Empire State manufacturing index fell -7.41 in September from +2.77 in August.The recovery didn’t last long, did it?
The CPI inflation remained high, despite edging lower on the month. Consumer prices slipped 0.1 percent in August thanks toa 4.2 percent decline in gasoline prices, but a 0.5 percent increase in clothing prices pushed core prices up 0.2 percent, still below July’s +0.3 percent. On a yearly basis, the CPI came in at 5.4 percent, down from the 17-year high of 5.6 percent in July; the core CPI was unchanged at 2.5 percent. Given the burst of the commodity bubble and lower consumption, inflation will decline significantly this year and beyond.
Housing starts fell 6.2 percent to an annual rate of 895,000 in August from the downwardly revised July estimate of 954,000 (from the originally reported 965,000). Interestingly, in the Northeast and the Midwest, housing starts fell by 14.5 percent and 13.6 percent, respectively while starts in the West increased by 10.8 percent. Building permits dropped 8.9 percent to an 854,000 pace.
The TIC net overall capital outflow came in at $74.8 billion July; net long-term inflow came in $6.1 billion from $53.4 billion in June and the net outflow was $8.2 billion from $36.6 billion inflow.
The Philly Fed survey was not bad at all, bouncing to +3.8 in September from –12.7 in August (and expectations for a reading of –10). This was the first positive report since November 2007! But the market was focusing on other bigger things on Thursday.
The weekly claims for unemployment benefits rose 10,000 to 455,000 last week. That’s nothing; it will get gruesome by early next year.
The Eurozone
The euro reversed early losses to close the week higher in aggressive trading. The regional data were not bad, but that’s not the reason why the currency gained.
The key German ZEW index came in a better than expected at -41.1 in September from -55.5 in August. It’s still bad.
Eurozone labor costs declined to +2.7 percent in the second quarter from an upwardly revised +3.5 percent in the previous quarter.
The Eurozone CPI fell by 0.1 percent in August, while core CPI rose to 1.9 percent from 1.7 percent, while Germany’s CPI came in at -0.3 percent on the month and 3.1 on the year, the same as in July.
The Eurozone trade balance worsened to -2.3 billion euros in July from -0.1 billion euros the previous month.
The Eurozone construction output rose 0.1 percent in July from -0.6 percent in June.
Elsewhere, Italy’s CPI came in flat August and +4.2 percent on a yearly basis, the same as the previous month.
The French current account deficit improved to -3.8 billion euros in July from -4.3 billion euros.
Japan
The dollar/Japanese yen recovered from a four-month low to close this crazy week higher. This may continue this week.
Japanese consumer confidence fell to a new record low of 30.1in August from 31.4 in July.
Machine tools orders sank 13.9 percent in August on the year on top of –14.2 percent in July.
The UK
The pound reversed early losses to close higher last week. This recovery may continue this week.
UK CPI edged up to 4.7 percent in August from 4.4 percent the previous month.
Meanwhile, the DCLG house prices fell 0.3 percent in July on a yearly basis, after expanding 0.6 percent the previous month.
The claimant count rate rose to 2.8 percent in August from 2.7 percent previously, with the ILO unemployment rate up 5.5 percent in July from 5.4 percent previously.
Retail sales expanded 1.2 percent in August and 3.3 percent on the year. That’s nice, but who cares? It should be reversed next month.
Canada
The Canadian dollar reversed early losses to close the week on a strong note. Additional strength is likely this week.
Looking to avoid contagion from the US, Canadian Prime Minister Harper said that his economy remains solid despite global troubles because of a strong household sector, government sector, and financial institutions.
However, foreign investors reduced their holdings in Canadian securities in July for the first time since November 2007 for a net divestment of C$5.59 billion.
Manufacturing sales rose 2.7 percent in July, a fourth consecutive monthly increase, from 2.1 percent in June.
Switzerland
The dollar/Swiss franc failed on the upside and turned sharply lower. But it ended the week off its lows. We need more direction.
Australia
The Australian dollar reversed from a 13-month low to close the week higher. More strength is likely.
This Week's Data and Events
United States
D Date GMT Event Period UBS Previous Market
The US economy will start on Wednesday with the release of the existing home sales for August. Well, it’s too early for a bottom.
Thursday will see the release of the new home sales report for August and of the durable goods orders report for August.
The revision of the second quarter GDP is due on Friday.
The University of Michigan report for September is due as well.
The Eurozone
The Eurozone economic agenda will start on Tuesday with the release of the Eurozone PMI services and manufacturing, the French consumer spending report for July and of the Italian consumer confidence index for September.
On Wednesday, be on the lookout for the crucial IFO survey of German Business Climate for September.
The French business survey for August is due on Wednesday as well.
The German GfK consumer confidence report for October follows on Thursday.
Friday will see the release of the French consumer confidence report for August and of the revision of the second quarter GDP.
Japan
The Japanese economic agenda will begin on Monday with the release of the all industry activity report for July.
Thursday will see the release of the trade balance report for August.
Inflation reports are due on Friday.
The UK
The UK economic calendar will start on Monday with the release of the Rightmove house price survey for September.
Thursday will see the release of the Nationwide House Prices report for September.
Canada
The Canadian economic agenda will start on Monday with the retail sales report for July.
Tuesday will see the release of the inflation report for August.
Overview
Euro/dollar
Last week's range: 1.4075 – 1.4539 (Up)
Previous range: 1.3882 – 1.4428 (Down)
Euro/dollar reversed aggressive losses to close higher last week after coining a near 2 ½-year low the week before. My model is long on profit taking and more sustained recovery should be under way, as I mentioned in the previous report.
Initial resistance is seen at 1.4545. Above 1.4625, resistance is still seen at 1.4810. This is followed by 1.4910. Distant resistance is at 1.5015.
Immediate support is at 1.4375. The next level is 1.4290. Below 1.4180, support is at 1.4075. Further support still comes at 1.4010. Distant support is at 1.3883.
NEAR-TERM:Slightly bullish
MEDIUM-TERM:Mixed
LONG-TERM: Mixed
Dollar/yen
Last week's range: 103.56 – 108.01 (Up)
Previous range: 106.07 – 109.07 (Down)
Dollar/yen surged from a near four-month low to close higher, as the yen remains an ingredient for crosses. My model went long. The medium-term outlook is mixed, but the short-term outlook is bullish.
Immediate resistance is at 107.95 from a 50-point pivot, which targets 107.45 and 108.45. Above 108.80, look for a test of the 50-point pivot at 109.15, which targets 109.65 and 108.65. Distant resistance is at 110.35 from a 50-point pivot, which targets 109.85 and 110.85.
Initial support is at 106.75 from another 50-point pivot, which targets 106.25 and 107.25. The next level is 105.60 from a 50-point pivot that targets 105.10 and 106.10. This is followed at 104.50 by a 50-point pivot, which targets 104.00 and 105.00. The next level is 103.40 from another 50-point pivot, which targets 102.90 and 103.90.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Mixed
LONG-TERM: Bullish
Sterling/dollar
Last week's range: 1.7733 – 1.8386 (Up)
Previous range: 1.7448 – 1.7975 (Up)
Sterling/dollar recovered aggressively late last week from sharp losses. My model remains long and the upside is again favored in the short term.
NEAR-TERM:Bullish
MEDIUM-TERM: Bearish
LONG-TERM:Bearish
Dollar/Swiss franc
Last week's range: 1.0901 – 1.1305 (Down)
Previous range: 1.1129 – 1.1417 (Up
NEAR-TERM: Slightly bearish
MEDIUM-TERM:Bullish
LONG-TERM: Mixed
Dollar/Canada
Last week's range: 1.0570 – 1.0782 (Down)
Previous range: 1.0551 – 1.0821 (Mixed)
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Bullish
LONG-TERM: Mixed
Euro/yen
Last week's range: 147.07 – 155.54 (Up)
Previous range: 147.55 – 156.99 (Down)
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Bearish
LONG-TERM: Mixed
Euro/sterling
Last week's range: 0.7848 – 0.8009 (Down)
Previous range: 0.7921 – 0.8077 (Down)
NEAR-TERM: Mixed with downside bias
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Published on Tue, Sep 23 2008, 12:23 GMT
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The US economic calendar will open on Monday with the release of the industrial production
Mon, Sep 15 2008, 06:23 GMT
by Cornelius Luca
Past Week's Data and Events
Volatility increased last week amid waves of financial turmoil. The problems of Fannie Mae and Freddie Mac seem to be in a distant past, even though it’s been only days since they were bailed out by the government, as the world shifted its focus in the sinking fortunes of Lehman Brothers, Merrill Lynch and AIG. And other big names are being mentioned more and more frequently in the same vein. With commodities under pressure, the oil probed the psychological $100/barrel barrier despite tropical storms threatening the Gulf Coast oil business. But the dollar rallied too much, too fast, and this week should see it on the losing side of the game.
United States
The dollar seemed to have no break in its rally for most last week, and sliding commodities accelerated its rally. Neither hurricanes in the Gulf of Mexico, nor trash talk from Iran could help the oil prices, as margin calls took most of the spec out of it. But the currency recovered too much too fast, and on Friday it sank aggressively. That continued in the Far East today. With the oil prices bouncing from $100/barrel, commodities should bounce here as well. The uptrend of the dollar is clearly threatened after plans to rescue Lehman failed, the Bank of America is about to buy Merrill Lynch, and AIG is facing a forced restructuring.
The knee jerk reaction to sell dollars after the Treasury announced details of how it would utilize the powers recently granted by Congress to take over Fannie Mae and Freddie Mac the previous weekend was short lived. If you remember, after Bear Stearns collapsed and the Fed and the Treasury stepped in, the dollar bottomed.
But its recovery from record low prices (versus some currencies) cannot continue without a pause. Starting late Thursday the US currency started and aggressive decline and this downmove should persist, at least against the European and the commodity currencies.
The economic data was mixed at best, with the key elements of weakness unchanged.
The trade deficit widened a much more than expected $62.2 billion in July, the largest since March 2007, because of oil prices, from an upwardly revised estimate of $58.84 billion in June (initially $56.8 billion). Imports surged 3.9 percent and exports increased 3.3 percent. The worsening in the trade deficit was due to the higher cost of imported oil, as the non-oil trade deficit actually shrank to an 8-year low. Looking forward, the deficit will improve.
Not surprisingly, the trade gap with China widened 16.1 percent to $24.9 billion, ahead of last year's record pace.
First-time jobless claims “fell” to 445,000 in the week ended September 6 from an upwardly (as almost always) revised 451,000 the prior week from the initial reading of 444,000. Perhaps one could say the claims fell upwards???
Retail sales fell 0.3 percent in August and sales in July were revised down to -0.5 percent (from -0.1 percent), the worst in five months. These were horrible reports, reflecting the rising unemployment and the declining consumer confidence in this country. On a yearly basis they expanded 1.6 percent. Excluding autos, retail sales fell 0.7 percent from the prior month but rose 5.5 percent on the year.
The dollar benefited only briefly on Friday from news that the preliminary Reuters/University of Michigan Survey of consumer sentiment index rose to 73.1 in September from August's final reading of 63.0. The market had priced in a reading of only 64.0. The index bottomed back in June.
The PPI contracted by a bigger-than-expected 0.9 percent in August, the most since October 2006, because a big decline in energy costs, after expanding a 1.2 percent in July. A bit of a wash on a month-to-month basis, but the increases in May and June remain well in place at +1.4 percent and 1.8 percent). The core PPI rose 0.2 percent after burgeoning 0.7 percent in July.
Business inventories rose 1.1 percent in July and 6.4 percent on the year, while sales rose 0.5 percent and 8.8 percent from the prior year.
Pending home sales fell by a more than expected 3.2 percent in July after an upwardly revised 5.8 percent increase in June, according to the National Association of Realtors.
Along the same lines, foreclosure filings rose to a record in August, as one in 416 households got a default notice, were warned of a pending auction or foreclosed on last month, according to RealtyTrac.
The Eurozone
The euro just bottomed at a near 2 ½-year low early Thursday after falling aggressively for most of the past seven weeks and its surge on Friday should continue this week. Concern about inflation in the region should fuel this recovery.
The regional data was not that exciting – not that it was expected to be.
Germany's manufacturing turnover in real terms declined a working-day adjusted fell 2.1 percent in July compared with the revised 0.3 percent fall in June, and 0.8 percent on a yearly basis after a revised 1.4 percent rise in June.
Germany’s trade surplus narrowed more than expected in July to 13.9 billion euros from the record 19.9 billion euros in June. Exports fell 1.7 percent, while imports rose 7.4 percent due to energy prices, the largest increase in six years. No biggie, oil came down after that, and so did the euro. The surplus will increase in the months to come.
The euro attempted to bounce on Tuesday in part on talk of Pfizer’s takeover of Bayer, which could translate in substantial flow, but that didn’t go far.
France's trade deficit narrowed to 4.83 billion euros in July from a record 5.36 billion euros in June.
The European Commission cut its growth estimate for the euro area to 1.3 percent this year from 1.7 percent and predicted a recession for the German economy.
But the French industrial production rose by a more than expected 1.2 percent in July to reverse June’s revised 0.6 percent contraction.
The Bank of France business sentiment increased to 94 in August from 92 in July, while the French CPI was flat in August after contracting 0.2 percent a month earlier.
The Eurozone industrial production contracted 0.3 percent in July on top of -0.2 percent in June, while the regional employment for came in at 0.2 percent in the second quarter from 0.3 percent in the previous quarter.
Italian industrial production contracted 1.1 percent in July on top of -0.2 percent in June.
Japan
The Japanese yen remained only an ingredient for crosses and last week it generally alternated up and down days. Dollar/yen is lacking much direction hard is hard to imagine a change this week.
The current-account surplus narrowed 17.3 percent to 1.53 trillion yen in July from a year earlier for a fifth month of declines.
Machine tool orders contracted 14.2 percent in August on a yearly basis on top of -8.9 percent in July. Meanwhile, machinery orders fell 3.9 percent in July from June, when they contracted 2.6 percent.
The second quarter GDP was revised down but less than expected to 0.7 percent from the preliminary figure of a 0.6 percent decrease. On an annualized basis, the GDP contracted 3.0 percent.
Still, the industrial output was revised upward to +1.3 percent in July from +0.9 percent.
The preliminary leading index rose to 91.6 in July from 91.3 and the coincident index to 103.3 from 101.6.
The UK
The pound finally started to show signs of life late last week and being so oversold it should see more recovery this week.
The economic data was not all that encouraging.
Producer prices unexpectedly dropped 0.6 percent in August (2% on a seasonally adjusted basis), the first decline since October 2006, because oil and raw material costs fell and economic growth stalled. Core producer prices fell 0.1 percent. On an annual basis, the output price index slowed to 9.7 percent from 10.3 percent in July.
The industrial production contracted 0.4 percent in July and 1.9 percent on the year from -0.2 percent and -1.6 percent in June. Meanwhile manufacturing production fell 0.2 percent and -1.4 percent on a yearly basis from -0.5 percent and -1.3 percent. It’s a little worse than these numbers show it – production rose only in February this year, and that was the only expansion since October 2007! As a reminder, cable peaked in November of last year.
The GDP is expected to have contracted 0.2 percent in the June to August period and 0.1 percent in the three months through July, according to the National Institute for Economic and Social Research. This was the first decline since Niesr started its calculation in April 1996.
Trade deficit narrowed to 7.7 billion pounds in July from a revised 8.0 billion pounds (initially -7.7 billion pounds) in June. The deficit would have narrowed more if not for the 2.2 percent rise in exports because of high oil prices at the time.
On the plus side (gingerly said) housing market improved slightly -81.0 percent in August from -83.1 in July, according to t the Royal Institute of Chartered Surveyors. The index has been edging higher each month since hitting a record low of -94.9 in April.
Also, overall retail sales in Great Britain expanded 1.4 percent in August on a yearly basis following contracting 1.7 percent in July, according to the British Retail Consortium.
Canada
The Canadian dollar reversed Thursday’s losses in a big way. It is likely to recover more this week.
Canada's trade surplus for July weakened to C$4.9 billion from a downwardly revised C$5.6 billion (initially C$5.76) in June.
Housing starts rose by a more than expected 13 percent to a seasonally adjusted annualized rate of 211,000 units in August from 186,500 units in July.
But prices for new homes advanced just 0.1 percent in July for the sixth straight month, and 2.7 percent on the year, down from 3.5 percent in June.
There was no reaction to news that building permits unexpectedly rose 1.8 percent in July on projects to build multi-family dwellings after falling 5.3 percent the month before.
Switzerland
The dollar/Swiss franc struggled higher for most of last week, but the decline on Friday puts any new strength in doubt. In fact, more weakness is likely here.
Swiss unemployment rate edged up to 2.4 percent in August from 2.3 percent in July.
Australia
The Australian dollar apparently bottomed with the crude oil just above the $100/brl mark. The local economy is not facing the predicament of the New Zealand economy and should recover more this week.
Business confidence index rose 2 points to -7 in August, while home-loan approvals declined 0.2 percent in July from June, when they contracted a revised 3.7 percent.
Also, consumer confidence rose 7 percent to 92.2 points in September, according to a Westpac Banking Corp. and Melbourne Institute survey.
The number of people employed rose 14,600 in August, and the jobless rate fell to 4.1 percent from 4.3 percent.
This Week's Data and Events
United States
D Date GMT Event Period UBS Previous Market
The US economic calendar will open on Monday with the release of the industrial production and capacity utilization report for August and the Empire State Manufacturing Survey September. Pay attention to the first one.
On Tuesday, the FOMC will leave rates unchanged – there is nothing it can be done with the Fed Funds rate at this point.
The CPI for August is due on Tuesday as well.
The housing starts report for August and current account report for the first quarter are due on Wednesday.
Beside the weekly jobless report, Thursday will see the release of the leading indicators report for August and of the Philly Fed survey for September. These two reports could be interesting.
The Eurozone
The Eurozone economic calendar will start on Tuesday with the important German ZEW Current Situation report for September.
The Eurozone trade balance for July is due on Wednesday
The German producer prices for August are due on Friday.
Japan
On Wednesday, the Bank of Japan will leave intact its target rate, as there is little reason to shake the waters this year.
The Tertiary industry activity report for July is due on Thursday.
The UK
The UK economic calendar is opening on Tuesday with the inflation report for August and the DCLG house prices report for July; the first should be up and the second down, as it’s been the case for quite some time.
The unemployment report for August is due on Wednesday.
The CBI industrial trends for September are due on Wednesday as well.
Thursday will see the release of the retail sales report for August, and this is a really important number to gauge consumer confidence.
Canada
The Canadian economic calendar is light this week. It only features the manufacturing shipments for July on Tuesday and the leading indicators report for August, and this is due on Thursday.
Overview
Euro/dollar
Last week's range: 1.3882 – 1.4428 (Down)
Previous range: 1.4198 – 1.4722 (Down)
Euro/dollar recovered part of last week’s losses after sinking to a near 2 ½-year low, and my model is long on profit taking. A more sustained recovery should be under way.
Above 1.4480, resistance is seen at 1.4545. Above 1.4625, resistance is at 1.4810. This is followed by 1.4910. Distant resistance is at 1.5015.
Immediate support is at 1.4330. Below 1.4180, support is at 1.4110. Further support comes at 1.4010. Distant support is at 1.3883.
NEAR-TERM:Bullish
MEDIUM-TERM:Bearish
LONG-TERM: Mixed
Dollar/yen
Last week's range: 106.07 – 109.07 (Down)
Previous range: 105.53 – 108.41 (Mixed)
Dollar/yen made little progress last week, as the yen was only a cross ingredient. This translated into very choppy trading, with the pair alternating up and down days. My model is short again. The medium-term outlook is mixed.
Initial support is at 105.10. This followed at 104.50 by a 50-point pivot, which targets 104.00 and 105.00. The next level is 103.40 from another 50-point pivot, which targets 102.90 and 103.90. Distant support is at 102.30 from another 50-point pivot, which targets 101.80 and 102.80.
Immediate resistance is at 105.60 from a 50-point pivot that targets 105.10 and 106.10. The next resistance moved down to 106.75 from a 50-point pivot, which targets 106.25 and 107.25. Distant resistance is at 107.95 from a 50-point pivot, which targets 107.45 and 108.45.
NEAR-TERM: Bearish
MEDIUM-TERM: Mixed
LONG-TERM: Bullish
Sterling/dollar
Last week's range: 1.7448 – 1.7975 (Up)
Previous range: 1.7538 – 1.8153 (Down)