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Weekly Forex Market Commentary

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Construction spending for February

Mon, Mar 31 2008, 06:10 GMT
by Cornelius Luca

GFT

Unclear – this is the message to take with you going into the second quarter. The shock of Bear Stearns disappearance into JP Morgan Chase is gone (unless you worked for Bear) and all eyes are now on Lehman and Oppenheimer. Foreign exchange is mixed in very choppy trading and anything except intraday jabbing could prove dangerous to your health. The dollar should remain under pressure, but it’s already so weak that its decline is not so easy to melt further.

United States
The dollar was all over the place last week but ended basically lower. It’s so weak that the downside seems sort of limited. Bear Stearns is gone, but we need to wonder: who’s next?

Treasury Secretary Henry Paulson sounded upbeat on Friday in saying that an economic stimulus program that will put $168 billion going to consumers will help adding 500,000 to 600,000 additional jobs this year.

There was limited selling of the dollar on news that the Conference Board's confidence index sank to 64.5 in March, a five-year low, from an upwardly revised 76.4 (from 75.0) in February.

Sales of new homes fell 1.8 percent to an annual pace of 590,000 in February, the least since February 1995, from January’s upwardly revised 601,000. On an annual basis, sales contracted 29.8 percent.

Existing home sales in the United States rose 2.9 percent to 5.03 million-unit in February from the 4.89 million-unit rate for January, but contracted 8.2 percent on an annual basis. However, prices suffered a record fall.

The Standard & Poor's/Case-Shiller index showed home prices decline 11.4 percent in January, its steepest slide since S&P started collecting data in 1987.

The Chicago Fed’s National Activity Index came in at -1.04 in February from a downwardly revised -0.68 in January (from -0.58).

Durable goods orders unexpectedly fell 1.7 percent in February on top of January's revised fall of 4.7 percent (from -5.1 percent). Nondefense capital goods orders ex-aircraft declined 2.6 percent after falling a downwardly revised 1.8 percent in January. Machinery orders contracted 13.3 percent, the steepest decline since records began in 1992.

Personal income rose more than expected by 0.5 percent in February. Personal spending slowed to 0.1 percent from +0.4 percent, the personal consumption expenditure price index slipped to 0.1 percent from a downwardly revised increase of 0.3 percent, while the personal savings rate rose 0.3 percent in February after falling 0.1 percent in January.

The University of Michigan Survey of Consumers’ final index of confidence was revised downward to 69.5 in March from 70.5 originally, its lowest since February 1992, from the previous month's reading of 70.8.

The number of workers filing new claims for jobless benefits fell by 9,000 to 366,000 in the week ended March from a downwardly revised 375,000 for the prior week (initially at 378,000.)

Meanwhile, a final government report showed the economy grew 0.6 percent in the fourth quarter of 2007 (unrevised), as expected.

The Eurozone
The euro/dollar closed the week higher, even though it did nothing late in the week. The medium term outlook remains positive.

German business confidence unexpectedly rose to 104.8 in March from 104.1 in February, according to the Ifo institute. The sub-index of expectations rose to 98.4 from 98.2, while the index of sentiment on current conditions advanced to 111.5 from 110.3.

Along the same lines, French business confidence unexpectedly rose to 109 in March from last month's 107, according to Insee.

But French consumer confidence fell to a record low of -36 in March, while the budget deficit widened to 2.7 percent of gross domestic product last year from 2.4 percent in 2006.

Also, Italian business confidence fell to 89 in March, its lowest level since August 2005, from a revised 89.6 in February.

The euro was also supported by European Central Bank President Jean-Claude Trichet, who said the regional interest rates at a six-year high will help slow local inflation, thus suggesting he sees no immediate need to cut borrowing costs.

However, the European Commission warned that the Eurozone economy is struggling to keep its pace of economic growth while the U.S.'s is slowing and oil prices and the euro advance to record levels.

Japan
Dollar/yen had a rollercoaster performance last week, but when the dust settled it closed little changed but below 100.

Japanese annual inflation rose to a decade-high 1.0 percent in February, but with the economy slow, the Bank of Japan will leave interest rates.

The seasonally adjusted unemployment rate rose to 3.9 percent in February from 3.8 percent in January, but household spending stalled last month.

The UK
The sterling/dollar encountered very choppy conditions but closed the week with forgettable gains.

The pound went south late Tuesday and early Wednesday and the slide was accelerated by BoE’s MPC member David Blanchflower, who expressed a gloomy outlook for the UK economy and a downward bias on rates.

House prices house prices fell 0.6 percent in March but rose 1.1 percent from a year earlier, while consumer confidence declined 2 points to minus 19, the lowest since 1993, according to GfK NOP Ltd.

The GDP grew 0.6 percent in the fourth quarter and expanded 2.8 percent from a year earlier.

Canada
Dollar/Canada failed to hold on to gains and closed the week little changed.

Retail sales surged 1.5 percent in January from an upwardly revised 0.8 percent gain in December. Excluding the auto sector, retail sales grew 1.3 percent. Unusually heavy snowfalls in January lifted sales by building and outdoor home supplies stores by the 3.2 percent.

Switzerland
Dollar/Swiss franc ended the week modestly lower.

Australia
The Aussie/dollar struggled higher last week.

This Week's Data and Events

United States
The US economic calendar will start on Monday with the release of the Chicago Purchasing Managers' Index for March.

Construction spending for February and the ISM Index Manufacturing for March are due on Tuesday.

Wednesday will see the Factory goods orders for February.

The ISM Services Non-Manufacturing is due on Thursday.

Friday is the first Friday of the month, so prepare for another wave of volatility because of the release of the non-farm payrolls and of the Unemployment rate for March.

The Eurozone
The Eurozone economic agenda will open on Monday with the release of the Eurozone Business Climate Indicator, Consumer Confidence report, Economic Sentiment Indicator report and Industrial Confidence for March

The German Retail sales report for February and the Unemployment report for March are due on Tuesday.

The Eurozone Unemployment Rate report for February and the regional PMI Manufacturing report for March are due on Tuesday as well.

The regional PPI report for February is due on Wednesday.

Thursday will see the release of the Eurozone retail sales report for February and of the PMI services for March.

The German Factory Orders for February will be released on Friday.

Japan
Japan’s economic agenda will start on Monday with the release of the Housing Starts report for February.

The Tankan Large manufacturing Index for the first quarter is due on Tuesday.

The UK
The UK economic agenda will start on Tuesday with the release of the UK PMI Manufacturing report for March.

The PMI Services and the Halifax house price reports for March are due on Thursday.

Canada
Canada’s economic agenda will be released on Friday. It will contain the Unemployment rate and the Ivey Purchasing Managers reports for March.

Overview

Euro/dollar
Last week's range: 1.5342 – 1.5858 (Up)
Previous range: 1.5399 – 1.5904 (Down)

The overbought euro/dollar closed the week at a new record high. The market mode (up) only Tuesday and Wednesday, but this was sufficient to turn my model long. Be careful, this very overbought should see only choppy trading.

Initial resistance is at 1.5585. Above 1.5904, resistance now comes at 1.5985. Distant resistance is now seen at 1.6040.

Immediate support is at 1.5740. Below 1.5660, euro/dollar has support at 1.5540. This is followed by 1.5340. Distant support comes at 1.5150.

NEAR-TERM:Mixed
MEDIUM-TERM:Bullish
LONG-TERM: Bullish

Dollar/yen
Last week's range: 98.57 – 101.03 (Mixed)
Previous range: 95.75 – 100.44 (Mixed)

Dollar/yen traded all over but closed little changed last week. My system remains long, but only a close above 101.30 will help confidence on the upside.

Immediate resistance is at 100.25 from a 50-point pivot, which targets 99.75 and 100.75. Then, there is the 50-point pivot at 101.25, which targets 100.75 and 101.75. Distant resistance is at 102.30 from another 50-point pivot, which targets 101.80 and 102.80.

Initial support is at 99.25 from a 50-point pivot, which targets 98.75 and 99.75. This is followed by 98.15. The next support comes from a 50-point pivot at 97.30, and this targets 96.80 and 97.80. Below it, distant support is at 96.60.

NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Bearish

Sterling/dollar
Last week's range: 1.9759 – 2.0192 (Mixed)
Previous range: 1.9738 – 2.0273 (Down)

Sterling/dollar made strong moves to end with modest gains last week and to approach the end of a triangle. My model went long on Tuesday and short on Friday. Only a close below 1.9765 is needed to add confidence to the bearish outlook.

Immediate support is now seen at 1.9885. This is followed by 1.9800. Below 1.9740, distant support is 1.9625.

Initial resistance now comes at 2.0010. This is followed by 2.0190. Distant resistance looms at 2.0275.

NEAR-TERM:Mixed
MEDIUM-TERM:Mixed
LONG-TERM:Mixed

Dollar/Swiss franc
Last week's range: 0.9883 – 1.0251 (Down)
Previous range: 0.9642 – 1.0167 (Up)

Dollar/Swiss failed to hold on to its early gains and closed lower last week. My model went short and then long again on Thursday. The pair remains oversold. A further brief bounce is likely, but more proof is needed for a medium-term rally.

Initial resistance now comes at 1.0020. This is followed by 1.0167 and 1.0251. The next level is 1.0375. Distant resistance now comes at 1.06450.

Immediate support is now seen at 0.9875. Support is then pegged at 0.9790. Distant support is at 0.9642.

NEAR-TERM: Mixed
MEDIUM-TERM:Bearish
LONG-TERM: Bearish

Dollar/Canada
Last week's range: 1.0095 – 1.0309 (Mixed)
Previous range: 0.9860 – 1.0295 (Up)

Dollar/Canada reversed gain last Monday and then just acted silly. My model remains long, but a close above 1.0360 is needed for a new burst of confidence.

So, immediate resistance remains at 1.0295. Above 1.0360, strong resistance is at 1.0465. There is a pivot high at 1.0867.

Initial support is still seen at 1.0175. This is followed by 1.0100 and 1.0040. Below 0.9965, distant support is pegged at 0.9745.

NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Bearish

Euro/yen
Last week's range: 153.08 – 158.34 (Up)
Previous range: 151.75 – 157.03 (Down)

Euro/yen reversed the previous week’s losses and my model went long. Again, trading has been and will remain choppy.

Resistance is at 158.34. This is followed by 159.10. Above 159.65, resistance is at 160.70. The euro/yen has distant resistance at 161.35.

Immediate support is at 157.20. This is followed by 156.10 and 155.80. The next level is at 154.60. Below 152.95, distant support is at 151.75.

NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Bullish

Euro/sterling
Last week's range: 0.7740 – 0.7930 (Up)
Previous range: 0.7760 – 0.7911 (Mixed)

Euro/sterling resumed its major uptrend last week, when it nailed a new multi-year high. My model is long, so stay with it. There is short term downside risk.

Immediate resistance is now seen at 0.7947. Above 0.7970, the next level now comes at 0.8000. Distant resistance is then seen at 0.8080.

Initial support is at 0.7860. This is followed by 0.7830. A break below 0.7780 would signal a further decline to 0.7745. Distant supports come at 0.7605.

NEAR-TERM: Slightly bullish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Published on  Mon, Mar 31 2008, 10:13 GMT