• Home ::
• Fundamental ::
• Market View ::
• Weekly Forex Market Commentary

• Send
• Print
• Add To

Weekly Forex Market Commentary

842d4719-080a-47fe-adc4-82ab9c6c0109

0

0

The US economic calendar will begin on Monday with the release of the Chicago PMI report for June

Tue, Jul 1 2008, 05:56 GMT
by Cornelius Luca

GFT (Global Forex Trading)

Past Week's Data and Events

The US currency looks to be in new trouble, as the equity indices plummet into recession and energy costs are out of control. The downside is favored this week, with the ECB expected to hike rates during a week shortened by the Independence Day on Friday, and the Fed may need to cut rates before hiking them.

United States
The Federal Reserve removed the odds of a rate hike to fight inflation, as the credit conditions worsen, unemployment rises and the DJIA spells it out that the economy is in recession. With the oil surging out of control, stocks crashing and consumer confidence dissipating, the dollar has no way to go but down. Surely, we can’t expect a one-way slide, but if the weakness seen late Thursday and Friday is any indication, the market likes the US currency down. Keep an eye on the carry trade – as of now, it’s toast!

The dollar plummeted on Tuesday on news the Conference Board's consumer confidence index collapsed to a 16-year low of 50.4 in June from un upwardly revised 58.1 (initially 57.2) in May. The expectations index fell to 41.0, from 47.3, the current conditions index to 64,5 from 74.2, and the gap between the number of respondents saying that jobs are hard to get relative to plentiful widened to 16.4 from 12.2.

Durable goods orders were unchanged in May, following a 1.0 percent decline the month before, which confirms that the economy remains on the brink of recession. Orders would have contracted 0.6 percent last month without a 14.9 percent increase in orders for defense aircraft, after shrinking another 0.8 percent. Ex-transportation, orders fell 0.9 percent after expanding 1.9 percent.

New homes sales fell 2.5 percent in May to an annual rate of 512,000 units from 525,000 in April, which was revised down from 526,000.

Sales of existing homes edged up 2 percent to 4.99 million units in May, as median home prices continued to fall, according to the National Association of Realtors. This is only the second increase in sales in the past 10 months, but this is not the start of a sustained recovery.

The market exploded on Wednesday after the FOMC meeting; the combination of worries about inflation but no rate hike proved to be a hot mix for volatility, which surged for a few minutes. The dollar spiked wildly both ways, and when the dust settled, the US currency was lower. Its weakness accelerated on Thursday and Friday.

There was no reaction to news that the GDP was revised upward to 1.0 percent annual rate in the first quarter from 0.9 percent rate. Surely, officially there is no recession, but tell this to folks in street.

Initial claims for state unemployment insurance benefits were a seasonally adjusted 384,000 in the week ended June 21, matching the revised level in the prior week. As the Labor Department nearly always does, it jacked up the previous week’s reading from 381,000. Thus, the worsening figures in this country are not obvious!

Spending expanded 0.8 percent in May, the most since November, from 0.4 percent (originally reported 0.2 percent increase), while incomes grew 1.9 percent, the most since September 2005, from 0.3 percent. Disposable income surged 5.7 percent, the largest increase since May 1975, from 0.4 percent in April. Beautiful, but these good numbers are only a temporary boost, as credit indicators have deteriorated more than expected and the worm fuzzy feeling from the tax rebates will go away faster that the Northeast heat wave.

The dollar showed little reaction to news that the final University of Michigan Consumer Sentiment fell to 56.4 in June, the lowest level since may 1980, from 59.8 in May.

The Eurozone
The euro/dollar rallied broadly last week, but remained in an inside range. The upside is favored, with the ECB expected to hike rates.

Ifo institute’s German business climate index fell to 101.3 in June, the lowest since January 2006, from 103.5 in May. The sub-index of the current situation dropped to 108.3 from 110.1 while a measure of expectations fell to 94.7 from 97.2.

GfK’s measure of consumer confidence in Germany fell to 3.9 for July from a downwardly revised 4.7 (initially 4.9) reading for June.

French consumer sentiment fell to -46, the lowest since the Insee statistics office introduced the index in 1987. Meanwhile, Italian business confidence index fell to 87.1, the lowest since July 2005, and consumer confidence dropped to 87.1 June from 89.4 in May.

German import prices rose 2.4 percent in May, the most since September 1990, from April, when they climbed 0.9 percent.

The Eurozone services PMI unexpectedly contracted fell to 49.5 in June from May's 51.1, while the Eurozone manufacturing PMI fell to 49.1 from 50.6, its lowest level since May 2005.

The wealth of poor data will probably culminate in an economic contraction in Germany in the second quarter after expanding 1.5 percent in the first quarter, according to Deputy Economy Minister Otremba.

But the ECB forecasted that the regional economy will expand 1.8 percent this year and 1.5 percent in 2009 and inflation will average 3.4 percent this year and 2.4 percent next year.

On the plus side, French household consumption rose 2.0 percent in May, nearly three times stronger than the consensus expectations, from April’s revised -0.9 percent.

French manufacturers confidence was unchanged at 102 in June, the weakest level the weakest since December 2005. But household spending expanded 2 percent in May.

Italian consumer confidence slipped to 100 in June from 103.2 in May.

European Central Bank President Jean- Claude Trichet said he didn't signal a series of interest- rate increases, but rather one tightening.

The Eurozone industrial orders rose 2.5 percent in April and 11.7 percent on a yearly basis.

The Eurozone confidence index fell to 94.9 in June, the lowest since May 2005, from 97.6 the previous month.

Japan
Dollar/yen made a collapsing decline late last week as the carry trade got trashed. The weakness should continue.

The business survey index (BSI) of sentiment at large manufacturers fell to -15.1 in the second quarter from -12.9 in the first quarter. The sentiment index at large non-manufacturers fell to -15.3 from - 7.2 in the previous quarter, while that at big firms overall fell to -15.2 from -9.3 in the first quarter.

The trade surplus narrowed by 7.6 percent to 365.6 billion yen in May from a year earlier, as exports rose 3.7 percent and imports advanced 4.4 percent.

Japan's unemployment rate stayed at 4 percent in May, while the ratio of jobs for each applicant slid to 0.92.

Household spending slumped 3.2 percent in May, the most since September 2006.

Retail sales fell 0.2 percent in May on top of -0.1 percent in April. On an annual basis, sales rose 0.2 percent in May from 0.1 percent in April.

Japan CPI rose 0.8 percent in May and 1.3 percent on the year. Core consumer prices rose 1.5 percent from a year earlier after climbing 0.9 percent in April.

Tokyo CPI was up 0.3 percent in May and 1.5 percent on the year. Core inflation for Tokyo in June was up 1.3 percent on year from 0.9 percent in the previous month.

Industrial production rose 2.9 percent in May, following a 0.2 percent decline in April and a 3.4 percent fall in March.

The UK
The sterling/dollar surged aggressively last week and this strength should continue, albeit at a reduced pace.

But the UK housing horror story continued unabated – sort of the same as in the US.

House prices declined 1.2 percent in June, rose 0.1 percent on a yearly basis, according to Rightmove Plc.

Meanwhile, mortgage approvals fell 20 percent in May 56 percent from a year earlier, to the lowest since at least 1997, according to the British Bankers' Association.

The CBI's Distributive Trades Survey showed the reported sales balance improve to -9 in June from -14 in May.

The pound rose surged on Thursday following hawkish comments by Bank of England’s Monetary Policy Committee which kept open the possibility that interest rates may rise this year. Comments that the CPI letter was not intended to be dovish caught the attention.

The gross domestic product was revised downward to 0.3 percent in the first quarter, the least in three years, from 0.4 percent.

Canada
Dollar/Canada closed lower, but not much lower, as the support from surging energy prices was balanced by concern about slower exports to the recessionary US market.

The sharp rise in energy prices pushed up Canadian industrial product prices by 0.6 percent in May and raw materials by 3.1 percent. Excluding energy, both price indexes would have fallen.

Switzerland
Dollar/Swiss franc reversed early gains, but its subsequent weakness has yet to break new ground.

Australia
The Australian dollar ended the week higher, but not that much, as carry trades were hurt by the decline in appetite for risk. But AUD/USD closed down only twice in the past eleven days.

This Week's Data and Events

United States
The US economic calendar will begin on Monday with the release of the Chicago PMI report for June.

Tuesday will see the release of the ISM manufacturing PMI report for June and of the construction spending report for May.

The factory goods orders report for May is due on Wednesday.

The non-farm payrolls and the unemployment rate reports for June, key for FX, will be released on Thursday, as Friday is off for the Independence Day.

The non-manufacturing ISM report for June is due on Thursday as well.

The Eurozone
The Eurozone economic agenda will start on Monday with the release of Germany’s retail sales report for May.

Tuesday will see another important release from Germany, this time the unemployment rate report for June.

The Eurozone PMI Manufacturing report for June and the Eurozone unemployment rate report for May are due on Tuesday as well.

The Eurozone PPI report for May is due on Wednesday.

On Thursday, the ECB is widely expected to hike rates by 25 basis points to 4.25 percent.

The Eurozone services PMI for July and the retail sales report for May are due on Thursday as well.

The German factory orders for May will be released on Friday.

Japan
The Japanese economic calendar will start on Monday with the release of the housing starts report for May.

It will end on Tuesday with the release of the Tankan Large manufacturers’ index for the second quarter.

The UK
The UK economic calendar will begin on Monday with the release of the GfK consumer confidence report for June and of the Index of services report for April.

Tuesday will see the release of the Nationwide house prices and of the PMI manufacturing report for June.

The Halifax house price report for June is due on Thursday,

Canada
The Canadian economic calendar is light this week, featuring only the monthly GDP report for April on Monday.

Canada is closed on Tuesday for a holiday.

Overview

Euro/dollar
Last week's range: 1.5469 – 1.5793 (Up)
Previous range: 1.5347 – 1.5651 (Up)

The euro/dollar has been alternating up and down weeks for the past several weeks, but last week it bucked the trend. Only that these two bullish weeks remained in an inside range. The obvious thing would be to call it up, only that we are not any smarter now.

Immediate resistance is at 1.5842. Above 1.5930, euro/dollar sees additional resistance at 1.6020. Distant resistance moved up to at 1.6250.

Initial support is at 1.5720. The next good level is at 1.5685. Below 1.5630, further supports remain at 1.5575 and 1.5470. Distant support is at 1.5305.

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

Dollar/yen
Last week's range: 105.86 – 108.42 (Down)
Previous range: 107.13 – 108.58 (Down)

Dollar/yen finally got unglued from the 107.95 Gann pivot and sank aggressively since Thursday, closing below the trendline rising since March 17. My model remains short, which is good, as a double top targeting 105.75 unfolded.

Initial support is at 105.60 from a 50-point pivot that targets 105.10 and 106.10. Distant support is at 104.50 from another 50-point pivot, which targets 104.00 and 105.00.

Immediate resistance is seen at 106.75 from another 50-point pivot, which targets 106.25 and 107.25. Distant resistance now comes at 107.95 from a 50-point pivot, which targets 107.45 and 108.45.

NEAR-TERM: Slightly bearish
MEDIUM-TERM: Slightly bullish
LONG-TERM: Mixed

Sterling/dollar
Last week's range: 1.9587 – 1.9952 (Up)
Previous range: 1.9460 – 1.9790 (Up)

Sterling/dollar rallied to a two-month high, rising the last four days of last week. My model remains long, which is good as the pair triggered a double bottom, which targets 2.0375.

Initial resistance now comes at 2.0010. Above 2.0040, further resistance comes at 2.0145. Distant resistance comes at 2.0395.

Immediate support is now seen at 1.9885. The next level is 1.9800. This is followed by 1.9710. Distant support now comes at 1.9560.

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

Dollar/Swiss franc
Last week's range: 1.0166 – 1.0493 (Down)
Previous range: 1.0306 – 1.0520 (Down)

Dollar/Swiss also chucked its pattern of alternating up and down weeks after eight long weeks, but the past two weeks were stuck in an inside range. The close below the trending line rising since March 17 encourages further sales, but only a weekly close below 1.0149 would give me bear comfort.

So, below 1.0149, support is now seen at .9996. The next big level is .9825. Distant support is at .9642.

Initial resistance now comes at 1.0230. Above 1.0295, resistance is at 1.0345 and 1.0390. This is followed by 1.0540. Distant resistance is now stacked at 1.0622.

NEAR-TERM: Slightly bearish
MEDIUM-TERM: Slightly bearish
LONG-TERM: Bearish

Dollar/Canada
Last week's range: 1.0049 – 1.0195 (Down)

Previous range: 1.0103 – 1.0301 (Down)
Dollar/Canada fell last week and reached an over three-week low. My model remains short, and the risk remains on the downside. But the sharp recovery on Friday doesn’t leave this bearish outlook clean.

Initial support comes at 1.0050. Below it, support is seen at 1.0015. The next floor is at .9980. Distant support is now pegged at 0.9910.

Immediate resistance is now seen at 1.0145. The next levels are 1.0210 and 1.0285. Above 1.0301 there is resistance at 1.0380. Distant resistance remains between 1.0470 and 1.0485.

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

Euro/yen
Last week's range: 166.80 – 169.45 (Mixed)
Previous range: 165.72 – 168.12 (Up)

Euro/yen slipped from a near 26-year high (shall we say a record high in lieu) early Thursday m but then posted two consecutive down days for the first time since early May. The cross remains heavily overbought and the risk is on the downside is in increasing, but sell it only on a confirmation.

Immediate support remains at 166.80. This is followed by 165.55. The next level is at 164.95. Below 163.25, distant support remains at 161.45.

Initial resistance comes at 168.12. Above 168.86, there is resistance at 168.45 and 170.00. Distant resistance is seen at 171.55.

NEAR-TERM: Mixed to slightly bearish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Euro/sterling
Last week's range: 0.7891 – 0.7951 (Mixed)
Previous range: 0.7849 – 0.7955 (Mixed)

Euro/sterling traded in a very tight range in an inside range and closed virtually unchanged. More information is needed.

Initial support remains at 0.7870. Below the strong 0.7330 level, support remains at 0.7817. Distant support is at 0.7766.

Immediate resistance is still seen at 0.7933. The next level is 0.7955. Above 0.7970, there are pivot highs at 0.8033 and 0.8100. Distant resistance remains at 0.8155.

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

Published on  Tue, Jul 1 2008, 06:28 GMT