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

• Send
• Print
• Add To

Weekly Forex Market Commentary

c2bb63bc-0d9c-48f9-927f-67d900003e03

0

0

The US markets are closed on Monday for the Labor Day holiday

Wed, Sep 3 2008, 07:12 GMT
by Cornelius Luca

GFT

Past Week's Data and Events

The US currency made little overall progress during the past week, but retained its previous gains. It was the last week of official vacation and few traders were looking to cut new paths. Commodities are at a crossroads and the logical direction for the oil remains up in the medium term, while the credit crunch is worsening by the day. It is more of a question of which economy is going to melt faster, the one in the US or that in the Eurozone economy, and until the answer to this question becomes more apparent, sideways trading is likely. But the dollar seems to be biased higher.

United States
The dollar held its own, but in a very unexciting fashion. It performed well only against the pound and otherwise it only consolidated. The US data was not that bad, thus encouraging some people to think we can skirt the recession. But this is overoptimistic.

The dollar made only a feeble and brief bounce in thin trading on Monday on news the exiting home sales rose a less than expected 3.1 percent in July to a 5.00 million rate, as prices contracted 7.1 percent on an annual basis.

Thus, that failed to help earlier losses triggered by the Chicago FED, whose national activity index worsened to -0.67 in July from -0.59 in June. The index has been negative since August 2007.

The Conference Board's confidence index rose more than expected to 56.9 in August from 51.9 in July.

New-home sales improved 2.4 percent to a 515,000 annual pace in July from a 17-year low that was downwardly revised to a 503,000 rate in June. The number of unsold homes on the market fell 5.2 percent to a 416,000 pace, the most since November 1963. On a yearly basis, new home sales contracted 35.3 percent.

But house prices declined 15.9 percent in June, according to the S&P/Case-Shiller index. This was the fourth straight month of declines, but the pace was slower than expected.

Durable goods orders unexpectedly increased 1.3 percent in July and the June’s reading was revised upward to 1.3 percent as well. Excluding transportation equipment, orders expanded 0.7 percent after a 2.4 percent increase a month earlier. Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, increased 2.6 percent, the most since April.

The dollar spiked up briefly on Thursday on news that the second quarter GDP was revised upward to 3.3 percent annual rate due to higher consumer spending and net exports from the initial 1.9 percent rate.

Initial jobless claims for unemployment benefits decreased by 10,000 to 425,000 in the week ended Aug. 23, from an upwardly revised 435,000 (432,000) the prior week.

The dollar benefited on Friday from strong data.

The Chicago PMI surged to 57.9 in August from 50.1 in July and the University of Michigan consumer sentiment came in at 63 in August from 61.2 in July.

But personal income fell by 0.7 percent, spending by 0.4 percent and disposable income by 1.7 percent in July.

Finally, the PCE deflator increased by 0.6 percent on the month and by 4.5 percent on the year.

The Eurozone
The euro only consolidated despite stacking data showing the accelerating weakness of the Eurozone economy.

The euro collapsed on Tuesday on news that German business climate index, fell to a three-year low in August, which suggest the German economy is very close to a recession. The Ifo institute's business climate index fell to 94.8 from 97.5 in July. The sub-index of business expectations fell to 87, the lowest since February 1993, while the sub-index of current conditions eased to 103.2 from 105.7.

Along the same lines, German consumer confidence fell to a fresh five-year low of 1.5 in September from a downwardly revised reading of 1.9 in August, according to GfK.

Italian consumer confidence bounced back to 99.5 in August from a 15-year low of 95.8 last month.

The final reading of the second quarter German GDP remained 0.5 percent after expanding 1.3 percent in the first quarter. The last time the German economy recorded a decrease was in the third quarter of 2004.

German unemployment fell by a more than expected 40,000 to 3.2 million in August, after falling 20,000 in July. The unemployment rate fell to 7.6 percent, the lowest since May 1992. While labor is a lagging indicator, the ECB is likely concerned about renewed inflation.

The Eurozone retail sales PMI increased to 47.7 in August from 46 in July, but remained for the third month below 50, the dividing line between growth and contraction. On an individual basis, the German retail sales index fell to 44.1 from 46.4 but the French index rose to 53.7 from 51.3.

French housing starts declined 11.8 percent in the three-month period to July, slower than -28.2 percent in the three-month to June. Housing permits fell 16.6 percent after a 15.3 percent decline seen during three-month period to June.

Elsewhere, Italian PPI fell to 0.5 percent in July from +0.8 percent in June, but edged up to 8.3 percent on a yearly basis from 8.2 percent in June.

Japan
The Japanese yen traded mostly below 110.00, which was well defended later in the week, and above 108.00 amid soft weakening data and a resigning PM. The next prime minister might lead to more government spending. Key is in the euro/yen.

The jobless rate fell to 4 percent in July, but the ratio of jobs available to each applicant fell for a sixth month to 0.89, the lowest since October 2004. And the household spending fell 0.5 percent in July from a year earlier, a fifth monthly decline.

Retail sales were flat again in July but rose 1.9 percent from a year earlier.

The industrial output, which fell in the first half of this year, rose 0.9 percent in July.

The Nomura/JMMA Japan PMI slipped to 46.9 in August from 47.0 in July. In June the index hit the lowest in more than six years at 46.5. A reading below 50 points point to a contraction, of course.

The CPI slipped to 0.4 percent in July from 0.7 percent in June, and the core CPI rose to 0.5 percent from 0.4 percent. It rose 2.3 percent in July on an annual basis from 2.0 percent in June, while core inflation rose to 2.4 percent from 1.9 percent.

The Tokyo CPI contracted 0.1 percent in August from +0.2 percent in July, with the core CPI at -0.1 percent from +0.3 percent. On an annual basis, it slipped to 1.5 percent from 1.6 percent.

The UK
The pound remains the weakest link of the European currencies. Expect no quick fix, as piling negative data suggest that the UK is nearing recession.

House prices declined 10.5 percent in August, the biggest drop since the final quarter of 1990, according to the Nationwide Building Society.

The number of mortgages approved in the UK for house purchases rose to 22,448 in July from 22,369 in June, according to the British Bankers' Association. However, mortgage approvals contracted 65 percent on an annual basis.

Meanwhile, the Confederation of British Industry said that a gauge of retail sales fell to –46, a 25-year low in August, from -36 the previous month.

Canada
The Canadian dollar did nothing despite fluctuating oil prices.

The GDP expanded only 0.3 percent in the second quarter after contracting 0.8 percent in the previous quarter.

Canada's current account surplus surged to C$6.76 billion in the second quarter due to high prices for energy exports from C$4.46 billion in the first quarter.

Switzerland
The dollar/Swiss franc struggled higher amid overall dollar strength.

The Swiss employment increased 2.4 percent in the second quarter from the previous year.

Australia
The Australian dollar remained under pressure as well.

This Week's Data and Events

United States
D Date GMT Event Period UBS Previous Market

The US markets are closed on Monday for the Labor Day holiday.

The economic calendar will start on Tuesday with the release of the ISM manufacturing index for August and of the construction report for July. Keep your eyes on the former.

Wednesday will see the release of the ADP employment report, which has only been able to create confusion ahead of the release of the government’s labor data, and the factory goods orders.

The Fed's Beige Book report is due on Wednesday as well.

The ISM non-manufacturing index for August is due on Thursday and this is another report you should watch carefully.

It’s the first Friday of the month and this means the release of the non-farm payrolls and of the jobless rate reports for August. Volatility is going to spike for a few minutes, as the market overreacts to the data. Good luck!

The Eurozone
The Eurozone economic calendar will begin on Monday with the release of the regional PMI Manufacturing report and of the German retail sales.

The regional PPI report is due on Tuesday.

The Eurozone PMI Services and retail sales reports will be released on Wednesday.

On Thursday, the ECB will leave its rates unchanged.

The same day, be on the lookout for the German industrial production report.

Japan
The Japanese economic calendar doesn’t have any significant reports scheduled this week.

The UK
The UK economic calendar will open on Tuesday with the release of the PMI Construction and of the Nationwide Consumer Confidence reports.

The PMI Services report is due on Wednesday.

On Thursday, the Bank of England will leave its rates unchanged.

Canada
On Wednesday, the Bank of Canada should leave its rate unchanged at 3 percent.

The unemployment rate and the Ivey Purchasing Managers Index reports are due on Friday.

Overview

Euro/dollar
Last week's range: 1.4572 – 1.4811 (Mixed)
Previous range: 1.4631 – 1.4910 (Up)

Euro/dollar closed the week little changed after trimming losses from a 6 ½-month low. My model went short. The decline should continue. Key level is at 1.4700 from the 50% retracement of the uptrend between August 2007 and July 2008.

Immediate support is at 1.4557. Further supports remain at 1.4505 and 1.4440. Distant support is at 1.4265.

Initial resistance is at 1.4616. Above 1.4725, resistance is at 1.4780 from the 0.786% retracement of the upmove between February and July. This is followed by 1.4845, 1.4902 and 1.4950. The next levels remain at 1.5015 and 1.5065. Distant resistance is at 1.5110.

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

Dollar/yen
Last week's range: 108.43 – 110.29 (Down)
Previous range: 108.14 – 110.57 (Mixed))

Dollar/yen consolidated in an inside range around the 50% retracement of the downtrend between June 2007 and March 2008 at 109.95. The medium-term outlook is mixed and my model is short.

Strong support is at 107.95 from a 50-point pivot, which targets 107.45 and 108.45. Distant support follows at 106.54.

Immediate resistance is at 109.15 from a 50-point pivot, which targets 109.65 and 108.65. Next strong resistance is at 110.35 from a 50-point pivot, which targets 109.85 and 110.85. Distant resistance is at 111.60 from another 50-point pivot, which targets 112.10 and 111.10.

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

Sterling/dollar
Last week's range: 1.8174 – 1.8589 (Down)
Previous range: 1.8505 – 1.8796 (Down)

Sterling/dollar fell for the sixth consecutive week and reached a new over two-year low last week. It is important to notice that it broke the 38.2% Fibonacci retracement level of the uptrend between June 2001 and November 2007 at 1.8306. The pound is on track for reaching the targets of a long-term bearish flag and of a head-and-shoulders pattern in the 1.7650 area.

Immediate support is at 1.7850. Further supports are at 1.7800 and 1.7717. Distant support is now pegged at 1.7563.

Initial resistance is at 1.7910 from the 0.786% retracement of the upmove between November 2005 and November 2007. The next level is 1.7965. Above 1.8100, further resistance looms at 1.8190. Distant resistance is in the 1.8320 area.

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

Dollar/Swiss franc
Last week's range: 1.0884 – 1.1086 (Mixed)
Previous range: 1.0844 – 1.1040 (Up)

Dollar/Swiss has been alternating up and down days for nearly two weeks but still managed to coin a 6 ½-month high. It is overbought in the medium term, but hold long positions until a bearish reversal is confirmed.

Initial resistance comes at 1.1046. Two pivot highs are pegged at 1.1086 and 1.1106. Next level is 1.1184. Distant resistance is at 1.1360.

Initial support is pegged at 1.0950. This is followed by 1.0885. Below 1.0844, support remains at 1.0725. Distant support is at 1.0620.

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

Dollar/Canada
Last week's range: 1.0412 – 1.0644 (Mixed)
Previous range: 1.0423 – 1.0669 (Down)

Dollar/Canada is lacking much direction and this is obvious from the relatively tight range last week, despite the aggressive swerves in the oil price.

Initial resistance is at 1.0700. Above 1.0730 from a pivot high, resistance looms at 1.0805. Distant resistance is at 1.0867 from another pivot high.

Support comes first at 1.0644. The next level is 1.0610. This is followed by 1.0530. Distant support is at 1.0412, but this level should not be seen anytime soon.

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

Euro/yen
Last week's range: 159.22 – 162.86 (Down)
Previous range: 160.19 – 163.09 (Up)

Euro/yen fell last week for the fifth of the past six weeks and reached a five-month low. The medium term outlook is negative.

Immediate support is now seen at 157.12. The next level is 155.65. Distant support is at 154.03.

Initial resistance level is at 158.26. This is followed by 158.70. The next level is 160.05. Distant resistance is seen at 162.00.

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

Euro/sterling
Last week's range: 0.7940 – 0.8060 (Up)
Previous range: 0.7871 - 0.7989 (Up)

Euro/sterling rallied for the third consecutive week. The close above the pivot at 0.8099 warrants more strength.

Above 0.8162, the cross has resistance at 0.8185. Further caps are perched at 0.8230 and 0.8262.

Initial support is at 0.8099. The next level is at 0.8033. Below 0.7970, distant support is seen at 0.7938.

NEAR-TERM: Mixed with upside bias
MEDIUM-TERM: Mixed
LONG-TERM: Bullish

Published on  Wed, Sep 3 2008, 07:21 GMT