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Daily Forex Strategy Briefing

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USD Rally Continues

Sun, Aug 17 2008, 21:32 GMT
by Hans Nilsson

CMS Forex

USD Rally Continues

• The dollar continued rallying versus its rivals Friday. The GBP/USD dropped for an 11th day, the longest losing streak in at least 37 years, on speculation a UK recession will force the Bank of England to lower interest rates. The Australian dollar fell as commodity prices declined and traders bet on lower interest rates. However, the Canadian dollar gained as Canada’s trade surplus increased in June and manufacturing shipments exceeded expectation.


• The EUR/USD fell for a fifth week and traded at the lowest level since February 20. After failing to break resistance at 1.60, the pair was down over 13 cents. Slumping European economic growth has evaporated the European growth advantage, making it likely that the European interest rate advantage will diminish. The EUR/USD will possibly test the significant 1.45-support. If this long-term uptrend is broken, the pair will fall to the 1.35 area.

Financial and Economic News and Comments

US & Canada

• US industrial production was up for a second consecutive month in July increasing 0.2% m/m, boosted by the end of auto strikes, following a downwardly revised 0.4% m/m gain in June, the Federal Reserve said. Industrial production fell 0.1% y/y. Capacity utilization increased to 79.9% in July after June’s downwardly revised 79.8%. The 1972-2007 average is 81.0%. Manufacturing production was up 0.4% m/m in July, the largest monthly gain in the past year, after increasing 0.1% m/m in June. Manufacturing capacity utilization increased to 77.7%. Overall, today’s data showed some improvement, giving the Federal Reserve more room to address inflation by starting to raise short-term interest rates.

• The Reuters/University of Michigan preliminary index of consumer sentiment increased to 61.7, indicating confidence among US consumers rose in August, from 61.2 in July. The current conditions index, which reflects Americans’ perceptions of their financial situation, fell to 69.3 in August from 73.1 in July. The consumer expectations index, which projects the direction of consumer spending, rose to 56.8, the highest since March, from July’s 53.5. Consumers in the August survey said they expect a 4.8% inflation rate over the next 12 months, down from a 5.1% forecast in the July survey.

• The Federal Reserve Bank of New York’s general economic index unexpectedly rose to 2.8 in August, indicating manufacturing in New York grew the most since January, from -4.9 in July. A reading of zero is the dividing line between growth and contraction. The prices paid index fell to 65.2 in August, the biggest drop since March 2006, from 77.9 in July. The prices received index was unchanged at an all-time high of 32.6. Companies in New York were more optimistic about their prospects. The index measuring the outlook for six months from now rose to 34.6 in August, the highest level this year, from July’s 15.6. Other measures showed factories continue to struggle. The new orders measure declined to -2.2 from July’s 8.3. The unfilled orders gauge fell to -9 from -8.4. The employment measure improved to -4.5 from -6.3, signaling fewer firings.


• International buying of US financial assets fell to $53.4 billion in June, posting the smallest gain in nine months, from a revised $83.2 billion in May, the Treasury Department said.


• Federal Reserve Bank of Atlanta President Dennis Lockhart said the 20% decline in oil prices from their peak should help slow inflation, while economic weakness may continue into 2009. “Certainly, it helps a great deal….The outlook for the second half of the year and going into 2009 is we’ll see some alleviation of inflation pressures. Having oil and other commodities come down so strongly helps,” Lockhart said in a Bloomberg Television interview when asked about the decline in energy prices.


• Canada’s factory shipments gained 2.1% m/m in June, doubling forecasts and capping the first 3-month gain since 2005. Shipments advanced to C$52.5 billion ($49.4 billion) in June, the fifth gain in six months, from C$51.4 billion in May, Statistics Canada reported. Excluding price changes, sales rose 0.6% m/m.

Europe

• Optimism about Germany’s economic outlook fell to a 5-year low, a Forschungsgruppe Wahlen poll for ZDF television showed.

Asia-Pacific

• The Australian affordability index rose 0.4 points to 105.3, indicating Australian housing affordability held close to a 24-year low in Q2, from 104.9 in Q1, the Housing Industry Association and Commonwealth Bank of Australia reported. A lower reading means properties are less affordable.


• New Zealand’s retail sales fell 1.5% q/q, the most in at least 13 years in Q2, when adjusted for inflation, after dropping 1.2% q/q in Q1, Statistics New Zealand said.


• The yuan fell 0.2% to 6.8700 against the dollar today for a fourth weekly loss, the longest stretch since a peg to the dollar was scrapped in 2005. The yuan gained 6.6% in the first half, double the pace of a year earlier.

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Published on  Sun, Aug 17 2008, 21:39 GMT