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

• Send
• Print
• Add To
• Rss

Weekly Forex Market Commentary

81fe9983-319f-407f-8ade-7b216da5c052

0

0

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

GFT

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)

Sterling/dollar recovered aggressively on Friday from a new near 2 ½-year low a day earlier to close higher last week after seven straight weeks of losses. My model went long and the upside is favored in the short term. 

Good resistance is at 1.8120. Above the strong level at 1.8190, further resistance looms at 1.8280. Distant resistance is at 1.8470 and 1.8505.

Below 1.7965, strong support is at 1.7780. This is followed by 1.7672. A pivot low is at 1.7448.

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

Dollar/Swiss franc
Last week's range: 1.1129 – 1.1417 (Up)
Previous range: 1.0950 – 1.1189 (Up)

Dollar/Swiss advanced for nine consecutive weeks to reach a near nine-month high. It fell, however, sharply enough on Friday to turn my model short, and early Monday saw furious sales. The initial bias is lower.

Immediate support is at 1.1060. Below 1.1010, support is pegged at 1.0885. This is followed by 1.0844. Distant support is at 1.0715.

Initial resistance comes at 1.1200. This is followed by 1.1360. Above 1.1417 there is a pivot high at 1.1605.

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

Dollar/Canada
Last week's range: 1.0551 – 1.0821 (Mixed)
Previous range: 1.0544 – 1.0778 (Mixed)

Dollar/Canada coined a new 13-month high before giving up all of its gains on Friday. My model went short, but the outlook remains mixed.

Support now comes first at 1.0550. This is followed by 1.0515 and 1.0470. Below 1.0412, distant support is at 1.0300, but this level should not be seen anytime soon.

Initial resistance moved up to the area between 1.0695 and 1.0705. Above 1.0821 from a new pivot high, distant resistance is at 1.0867 from another pivot high.

NEAR-TERM: Mixed
MEDIUM-TERM: Bullish L
ONG-TERM: Mixed

Euro/yen
Last week's range: 147.55 – 156.99 (Down)
Previous range: 150.64 – 159.34 (Down)

Euro/yen fell last week to an over two-year low, but then rallied sharply since last Thursday to recover 38.2% of the losses encountered since late August. The medium-term outlook is negative, but the short term looks positive on profit taking and my model is long.

Initial resistance level is at 153.40. The next level is 154.20. This is followed by 155.55 and 155.95. The next level is 158.50. Distant, but very important, resistance is seen at 161.15.

Immediate support is now seen at 152.20. The next level is 151.25. Below 150.64, distant support is at 147.55.

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

Euro/sterling
Last week's range: 0.7921 – 0.8077 (Down)
Previous range: 0.8055- 0.8187 (Mixed)

Euro/sterling fell sharply last week after forming a bearish reversal the previous week. The initial bias is mixed.

Above 0.8017, strong resistance is 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.

Initial support is at 0.7945. The next levels are 0.7894 and 0.7878. Below 0.7814, distant support is seen at 0.7794.

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

Published on  Mon, Sep 15 2008, 11:29 GMT