Greenback sliding against the EUR and the Yen

Thursday, February 25, 2010

In reaction to the news that the FOMC would be keeping its benchmark interest rates exceptionally low for some time, the greenback slide against both the Euro and the Yen.

In addition, despite signs that the U.S housing market was beginning to recover, sales of New Homes fell to its lowest level on record- further fueling the dollar’s decline against its major currency counterparts.

Purchases of new homes within the U.S tumbled below expectations to an annual pace of 309,000, signaling that the added extension of the government tax credit may not be enough to revive demand.

This report further highlights Fed. Chairman Bernanke’s prior comments that even though the economic situation of the U.S is making a promising recovery, homebuilders continue to face intense competition from foreclosed properties that are continually driving down the prices in the market, while at the same time robbing the demand for new homes.

The result of which causes a chain reaction –decrease sales of new homes leads to a decrease in demand for construction, thus a decreased amount of employees in that field – directly effecting the level of employment for the country.

Following the release of Bernanke’s testimony to the House Financial Services Committee, and pessimistic U.S. Home Sales data - the U.S dollar plunged against its major counterparts. The EUR/USD broke a session high at 1.36250, and closed at 1.35371, up 0.18% from the day’s opening price at the Forex online market.

Today is the second half of Bernanke’s testimony of Congress; in addition, the U.S will release the Unemployment claims for last week, expected to drop to 461K, from the previous week’s 473K joblessness claims. Also out today (1330GMT), the monthly Core Durable Goods Order.

Orders have been revised to the upside in the past month, from 0.3% to 1%; while, Core orders have been revised to 1.4%. The positive trend is expected to continue, with a rise a rise of 1.6% in orders and 1.2% in core orders. This figure doesn’t touch the consumers, but has a long term impact on the economy.

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Greenback sustains its bearish trend

Wednesday, February 24, 2010

Consumer confidence in the U.S fell sharply in February, plugging to its lowest level since April 2009. After reaching a 16-month high, of an upwardly revised of 56.6 this past January, the CB Consumer Confidence index sank a record 11 points to 56.0, as Americans turned more pessimistic about job prospects and the U.S economy.

For the seventh consecutive month, home prices in 20 U.S cities rose in December, signaling that the housing prices, concerned to be at the center of the worse economic recession since the Great Depression, are begin to stabilize.

Yesterday’s S&P/Case-Shiller Indexes showed that home prices increased 0.3% from the previous month on a seasonally adjusted basis- increasing more than expected, and matching gains seen in last November. While the index reports that housing prices were down 3.1% from December 2008, this decrease is has been the smallest yearly change seen since May of 2007. The S&P/Case-Shiller indicator came one day ahead of New Homes report.

Two months ago, this leading indicator took a dive, plugging to a new low showing everybody that the housing sector is heavily depended on government aid- since then, it has not been able to return to its previous levels. Last month’s low number of new homes sales is predicted to be followed by a slight increase this month, analyst predict sales to edge up to 354K. While the New Homes sales indicator generally has a big impact on the market, the report will most likely be overshadowed by Bernanke’s testimony.

Despite a drastic fall in consumer confidence yesterday, the greenback was able to maintain its bearish trend against its European counterpart, hitting as low as 1.34952. Although throughout the course of the day, the highly traded currency pair managed to bounce back slightly, the closing at 1.35118, down 0.65% from its opening daily price of 1.36001. Conversely, the greenback dropped a total of 1.09% against the Yen as investors flocked to the safe haven status of the Japanese currency in trading sessions yesterday. The USD/JPY plugged a drastic 1.4% before leveling out and closing at 90.194.

With the most significant economic indicators being released today revolving around the U.S. economy; the Dollar is likely to see some heavy volatility against its major currency counterparts, especially against the Euro and Yen.

Today, forex online investors will want to pay careful attention as US Federal Reserve Chairman Ben Bernanke is set to begin his two will begin his two day annual Humphrey-Hawkins testimony on monetary policy before Congress. In anticipation of the speech, the dollar index, which measure the US unite against a trade-weighted basket of six major currencies, fell to 80.788 in today’s Asian afternoon session from 80.874 in late North American trading Tuesday.

Following last Thursday’s unexpected rate hike for emergency bank loans, anticipation is high for any new news regarding the state of the U.S. economy. Positive sentiment will likely lead to major gains for the greenback, while If Bernanke’s statement “discourage an early monetary tightening policy” the dollar may likely be forced to forfeit some of last week’s heavy gains.



EUR/USD Unable to erase all its weekly losses

Monday, February 22, 2010

The USD soared across the board on Friday, as the dollar index reached an eight-month high of 81.342 in the forex online market.

The greenback rallied against its most traded peers, following release of the FED’s announcement, late last Thursday night - to boost the benchmark interest rate from 0.50% to 0.75%.

The Fed’ also announced that “the typical maximum maturity for primary credit loans will be shortened to overnight from March 18. These changes are intended as a further normalization of the Federal Reserve’s lending facilities.”

The Fed policy makers went on to state that “The moves do not signal any change in the outlook for the economy or for monetary policy.”

However, despite the Fed’s statement, the currency markets interpreted this unexpected move as a signal that the US is ready to exit its currency Easy (lose) Monetary Policy used to combat the financial crisis.

Following the Fed’s decision of a rate hike, the US core CPI came out below expectations, and even ventured into negative territory with readings showing a fall of 0.1% from the previous month. The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is showing few signs of inflation.

For the fifth straight month, the consumer-price index increased 0.2%, led by higher fuel costs. However, excluding energy and food, the core CPI unexpectedly fell 0.1 percent, reflecting a drop in new-car prices, clothing and shelter.

For the 6th week in a row, the dollar posted weekly gains against the Euro – the longest streak since a sixth week period ending during the summer of 2000. After plunging 0.788% in last Thursday’s session, its lowest price against the greenback in nine months, the Euro managed to regain some of its prior losses against the USD, increasing by 1.192% on Friday.
However, despite a remarkable recovery right before the week’s end, the EUR/USD was unable to erase all of its weekly losses, and closed the week at 1.36111 - down a mere 0.0279% from last Monday’s open.

Last Friday, the EU saw the release of several key economic indicators, including the monthly German PPI, which declined slower than expected. Germany’s Producer Price Index dropped 3.4% year-on-year in January, compared the 5.2% fall in the previous month.
On a monthly basis, the indicator rose 0.8% in January, compared to the previous fall of 0.1% in the preceding month, and a 0.3% expected.

A rise in output helped German manufacturing activity, expand at its fastest pace since June of 2007, indicating a healthy resumption of growth in the EU’s leading economy.

A flash estimate of the Market composite purchasing managers' index (PMI), which surveys both the manufacturing and services sectors, rose to 55.4 from 54.6 in January, with activity expanding at its quickest pace since August 2007. The manufacturing sector PMI surpassed expectation with a reading of 57.1, a dramatic increase from January’s 53.7. While the service sector PMI came in below expectations, it still remained in positive territory, growing for a seventh consecutive month.

Following the release of these key German figures, the EU announced the Flash manufacturing PMI as well as Flash Service PMI for the entire 16-single currency bloc, reflecting similar movements as the German PMIs. While the euro zone’s manufacturing sector recorded its best month in the past two and half years (out at 54.1, versus expected 52.8 and prior 52.4), the Service sector expanded at a slower pace than expected, out at 52.0 versus expected 52.6 and prior 52.5.

Early this morning, the Euro managed to take back all of the ground lost last week to the USD, as the Asian markets appeared to prefer risk on options- the EUR/USD squeeze as high as 1.36525. Out tomorrow, is the German Info Business Climate – this major survey of 7,000 businesses has been steadily rising. Last month’s 95.8 score is expected to be followed by 96.3, continuing the steady uptrend seen throughout the past year.



The Dollar Index gained nearly 1%, as the FED raised interest rates to 0.75%

Friday, February 19, 2010

For the first time in three years, the Federal Reserve unexpectedly increased the discount interest rate by 0.25bps. The dollar rallied across the board on this surprise move, including climbing to a nine-month high against the Euro.

The greenback headed for a sixth week of gains against the single European currency as the central bank took another step to withdraw from the unprecedented measures it used to halt the financial crisis.

Immediately after the release of the Fed's statement, the EUR/USD tumbled to a new low of 1.3444, from 1.3568 - plunging a total of 0.9% over the course of yesterday's Forex online session. The greenback traded at 91.90 yen from 91.81 yen after earlier advancing to 92.09 yen, the highest since Jan. 12.

The Fed surprising decision to raise the benchmark interest rate will current enhanced speculations that the US will withdraw its stimulus measures ahead of other developed countries - further fueling the dollar to appreciate.

This unexpected rate hike comes in the wake of the yesterday's release of a powerful string of significant economic data. The US January’s PPI, reporting an increase of 1.4% (core +0.3%) from December -this 1.4% rise in prices paid to factories, farmers and producers followed a prior 0.4% between November and December of last year.

The PPI reports shows significant inflationary pressure from higher commodity prices – crude oil prices rose by 9.6% last month and natural gases increased by 25.5%. Later today, the US will release its CPI – generally considered less volatile than the PPI, the January’s Consumer Price Index is expected to show an increase of 0.3% from the previous month, versus a 0.1% rise between November and December of last year.

Moreover the number of Americans filling for first-time unemployment insurance unexpectedly shot up by 31,000 last week, as the number of initial jobless applications hit 473,000, versus predicted 440K. Despite an increase in sales, companies are still reluctant to hire, and may demand more and stronger evidence that indeed sales are increasing and that the market is beginning to recuperate.

Yesterday’s sequence of powerful economic indicators for the US concluded with the Philly Fed Manufacturing Index. The report showed that manufacturing activity in the Philadelphia region expanded in February for its sixth consecutive straight month, as orders surged to its highest level in more than 5 years – further exemplifying how factories are leading the economic recovery. The index fell in line with expectations, rising to 17.6 this month from 15.2 in January.



Recession Continues to steal jobs across the British Island

Thursday, February 18, 2010

U.K jobless claims unexpectedly jumped this past January to the highest level since April 1997, as the recession continues to steal jobs from businesses across the British Island.

Yesterday morning’s Claimant Count Change reported that the number of people receiving unemployment benefits rose to a record 1.64 Million, increasing by a drastic 23,500 claims from the previous month.

Last month the number of joblessness claims had dropped by 14.6K – this month, economists were expecting unemployment claims to continue to fall by another 9.6K. Despite this increase, the unemployment rate stayed as expected at 7.8%.

In regards to salary, the average earnings index rose a dismal 0.8% last December over the year (1.2% excluding bonuses), versus expected 1.2% - the lowest recorded yearly change in salaries.

Despite the disappointing job figures, The GBP saw little change in the Forex online market trading, after the release of the worse than expected claimant count, trading at $1.5770 down 0.115% from the day’s opening of $1.57882.

Moreover, the Bank of England meeting minutes were released and showed that BoE policy makers agreed unanimously pause their £200 billion bond purchasing program.

Tuesday’s bullish trend for the GBP/USD took a turn for the worse, as the combination of the BoE vote to suspend its asset purchase program along, push the sterling down 0.744% against the greenback - the pair closed at $1.56647.

Early this morning, Britain’s bureau of National Statistics will release the Public Net Borrowing Figure – the difference in spending and income from public operations, central government and local governments.

British public expenditure is eyed by the opposition and by investors alike. After many months of extended borrowing, the British government is expected to report negative borrowing of 2.4B,something that could potential help the Pound regain some of yesterday’s losses.



UK Consumer Inflation soars above 3 pct

Wednesday, February 17, 2010

Yesterday morning, the Bank of England released its CPI, showing that consumer inflation in the United Kingdom rose to an annual pace of 3.5% in January.

While Forex online analysts had predicted an increase of 3.6% in inflation, the actual rise of 3.5% still required the BoE governor Mervyn King to write a letter to the Chancellor of the Exchequer Alistair Darling – the BoE chief is
required to write an open letter to the Chancellor when inflation misses its 2% target by more than a full percent.

The BoE had warned that the January inflation was likely to be higher than that of December’s 2.9% increase, as a temporary cut in the value-added tax expired at the end of last year, returning the VAT to its previous level of 17.5%. At the same time, core CPI, which excludes the cost of energy, food, alcohol and tobacco, accelerated 3.1% in January, the fastest pace on record.

The Pound appreciated against the dollar, after BoE reported that British inflation hit a 14-month high in January. The GBP/USD pair hit a 1.57278 high during the European morning trading sessions – the sterling gained 0.4% against the US dollar following the release of the inflation report.

The release of the CPI index Coincided with news that shares in the leading British Bank Barclays surged 7.66% after beating expectations with the profits over 11£ Billion last year – also responsible for pushing the pound towards yesterday morning’s heavy gains. The GBP/USD closed 1.56651 yesterday, up 0.74% from the days open.

After a bumpy Tuesday, the Pound is buckled in tight for a very chaotic Wednesday, as Britain is set to release a string of important economic data, leading the pack is the Claimant Count Change.

While this number is generally considered a lagging indicator, the number of unemployed people is an important signal of overall economic health as consumer spending is highly correlated with labor conditions.

The Department of Statistics is predicting a drop of -14.6K in employment versus last month’s fall of -15.2K. Economists are also forecasting that the unemployment rate will remain at its current level of 7.8%. The highly anticipated employment figures will be accompanied by the result so the MPC Meeting Minutes as well as the Average Earnings Index, predicting to show a rise of 1.2% compared to the same three months last year.



Aussie got off to a strong start this week while China’s economy indicating expansion

Tuesday, February 16, 2010

Yesterday, due to President’s day, the US government and Banks were closed and as a result, the US did not issue any new economic data. Today’s TIC Long-Term Purchases will be the first report this week issued by the US that could potential wipe out some of the greenback’s prior week gains against the Euro.

The TIC Long-Term Purchases, which represents the difference in value between foreign long-term securities purchased by foreigners during the reported period, increased last month, rising from 20 to 126 billion dollars. Analysts are predicting that while the last month’s elevated confidence in the US economy and the dollar probably won’t repeat itself this time, they are still expecting a the index to come out at 50.3Billion.

After finishing last week up against the greenback, the Aussie got off to a strong start this week and continued to increase against its major counterparts.

The Australian dollar continued to appreciate on speculation that China’s economic expansion may accelerate, thus boosting demand for commodities and other cross currencies may initiate satisfied Forex online trading.
The AUD rose against all 16 of its most-traded peers after Goldman Sachs Group Inc. and Bank of America-Merrill Lynch maintained their forecasts for Chinese growth even as officials cool lending to restrain price growth.

According to these two banks, economic growth in China, Australia’s biggest trading partner, may continue expanding even after the Chinese central bank raised reserve requirements for lenders last Friday – as result Goldman kept its growth forecast at 11.4%, while Merrill held its at 10.1%. Following the release of this news, the Aussie appreciated 0.2% against the USD.

The highlight of the Asian session this morning was the release of the Australian Monetary Policy Meeting Minutes, which shed light on the RBA’s prior decision to leave key interest rates unchanged at 3.75%. While the central Bank repeated that further rate hikes may occur in the near future, there was little change in the Australian currency.

Following the release of the RBA minutes the AUD traded at 0.89625USD from its opening price of 0.88951USD.


Decline of the Euro Continues

Monday, February 15, 2010

For the third week in a row, the Euro suffered heavy losses against its major currency counterparts in the Forex online market. The single European currency tumbled to a new 8 and half month low against the US dollar at last Friday’s closing, following the release of worse than expected German and Euro Zone GDP figures.

This unexpectedly weak economic data came at a particularly bad time for the 16-nation common currency, as European Governments continue to struggle to determine a solution for the Greece debt crisis, as well as stabilize financial market fears over the instability of the Euro, which have been driving the currency lower and lower.

After the EU economic summit, last Thursday, offered few details regarding its agreement to help Greece weather its financial crisis, the Euro struck $1.36880, tumbling 0.331% against the Greenback, from its opening price that day.

The 16-nation common currency slid as a statement issued by European leaders left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits.

Unfortunately these losses were not the last for the single bloc currency, as the Euro continued to plummet against its major counterparts throughout Friday. Europe string of alarmingly bad news began with Germany’s Prelim GDP, as the report showed that quarter-on-quarter growth was 0.0%, despite previous expansion in the two prior quarters GDP, and an optimistic previous expansion in the two prior quarters GDP, and an optimistic predicted forecast of a 0.2% increase. The German prelim GDP was followed by a disappointing Flash GDP for the entire Euro Zone. While analysts had predicted that that the Euro Zone’s Q4 GDP, would continue to increase by 0.4%, as it had done in the previous quarter, the single currency’s GDP came out just 0.1% higher. Fear that the Europe’s economic recovery had stalled, and may be beginning to falter sent the Euro tumbling another 0.423% against the US dollar- the heavily traded pair finished off the week at low of 1.3601.

While weak European figures sent the EUR/USD pair sinking to a record 8 and half month low, the USD continued to appreciate against its major counterparts.

January sales at the U.S retailers climbed more than anticipated, as retail purchases increased by 0.5%, the third gain in the past four months. However, despite an increase in the Monthly Retail Sales, the University of Michigan’s consumer sentiment index dropped to 73.7, falling short of analysts’ prediction of 74.8 and a prior level of 74.4.

Friday’s mixed release of economic data showed that while American’s have increased their spending in the retail sector, consumer confidence fell illustrating that the recovery of household spending may be gradual.

Over in the Pacific, the Aussie surged to a week high after the country’s jobless rate unexpectedly feel and the Chinese bank lending rate increased. The AUD closed at 0.88759USD, up almost 2.27% from last week’s open of 0.86783.

This Australian positive economic data fueled the AUD to increase against the Japanese Yen- the pair shot up 3.19% from Monday’s opening price of 77.356 to Friday’s close of 79.825.

Early tomorrow morning (0030gMT), Australia will publish the results of the Monetary Policy Meeting Minutes – after three consecutive increases in the interest rate, the late Australian rate decision disappointingly produced no rate hike. This report will explain why, and in no doubt will shake the Aussie.

Late last night, the Japanese government released two key economic indicators: the quarterly Prelim GDP and the yearly Prelim Price Index. Japan's economy expanded in line with expectations in the Q4 of 2009 – The Prelim GDP saw a growth of 1.1% in real terms from the July-September quarter, slightly better than expected 1.0% growth. The highly awaited Japanese Cabinet data also showed that GDP grew 4.6% on an annualized basis. Domestic demand added 0.6 percentage points to GDP growth in the latest quarter, while external demand -- exports minus imports --added 0.5 percentage points to growth. Additionally, the Prelim GDP Price Index, the broadest measure of prices in the economy, fell a record 3%. The Yen gained 0.133% following the release of these report, trading at 90.15USD from 90.03USD prior to the report.



Trade balance curved in the market Unbalance

Thursday, February 11, 2010

Early yesterday afternoon, the US and Canada simultaneously released their Trade Balance. The U.S December Trade Balance came out wider than expected – the deficit rose to -40.2B as imports surged more than exports.

Forex Analysts had predicted that the deficit would contract to 35.8B from its previous reported level of 36.4B, instead the US trade gap unexpectedly widened to its biggest level this year.

Even though exports climbed to their highest level since October ’08, this eighth consecutive rise in exports was trumped by an 8.4% increase in Imports (particularly petroleum).

The result of faster economic growth in emerging countries combined with a drop in the dollar’s value is allowing American goods are becoming more competitive and may in fact propel gains in sales overseas that will spur further gains in U.S. manufacturing.

On the other side of the 49th parallel, Canada also saw their Trade Deficit widen more than expected. As imports slightly outpaced exports, Canada’s trade deficit remained at 0.2B, versus the expected forecast that the trade deficit would shrink to 0.1B. The 1.7% increase in exports was slightly outpaced by a 1.8% rise in imports resulting in Canada's trade deficit with the world widening to $246 million in December from $201 million in November.

According to the Bank of Canada, the combination of low U.S demand and strong Canadian dollar are a “significant drag” on the economy. Governor Mark Carney has pledged to keep his benchmark lending rate at a record 0.25 percent through June to stimulate demand unless the inflation outlook shifts.

Following the release of both countries trade balances, the Canadian currency tumbled against the USD- the pair increased from the day’s open of 1.06651 USD/CAD to 1.0686; however, by yesterday’s close, the Loonie managed to regain some of its lost ground against its US counterpart- closing at 1.06265.

Across the Atlantic, the Euro continues to move away from its 8 month low against the USD, as speculations increase that today’s EU summit will shed light on a possible rescue package for Greece. With the EU holding their 1 day summit today, the EUR increased from yesterday’s close of 1.37336USD to a high of 1.37995 in Asian markets early this morning.

While the Euro continues to rise versus its American counterpart, the British Pound continues to plummet against the USD. Yesterday, the Sterling was hit hard as the BoE Inflation report forecasted low inflation for a long period, suggesting more quantitative easing ahead; the Pound plunged 0.88% from its opening price of 1.57088 to 1.55701, finishing off the day at 1.55974.

Yesterday, the Bank of England lowered U.K.'s economic outlook and forecast inflation to undershoot its 2% target. The central bank Governor Mervyn King also kept the door open for further quantitative easing.

Britain’s February Inflation Report depicts economic growth to reach around 3.2% in the second quarter of next year- smaller than the previous estimate of 4%. According the BoE, the strength of the recovery is highly uncertain and output is unlikely to return to a level consistent with its pre-crisis trend for a considerable period.

King forecasted inflation to exceed 3% in January, but estimates the figure to fall below the target quickly. Annual inflation had exceeded the central bank's 2% target in December for the first time since May 2009 and stood at a nine-month high of 2.9%. "It is more likely than not that inflation will be below the target for much of the forecast period, but the risks are broadly balanced by the end," the bank said.

Shortly midnight, Australia released its employment change for January as well as its current unemployment rate. With both numbers coming out better than expected - employment change increased to 52.7K versus expected 15.1K causing the unemployment rate to tumble to 5.3% versus expected 5.6% and prior 5.5% - the Aussie rose more than 1% against the dollar and the Yen.

The AUD/USD opened in Asian Markets this morning at 0.87506- after the release of the better than expected employment data, the pair increased 1.75% to a week high of 0.89040



USD survives steadily

Wednesday, February 10, 2010

After one of the most volatile weeks in the Forex Market this year, this week got off to a slow start- however, today's busy events will sure put an end to this week's relatively smooth sailing.
The speculator news that the European Union may by coming to the rescue of its deficit ridden member, Greece, put the brakes on the EUR/USD downwards slide - causing the dollar to distance itself from last Friday's 8 month high of 1.3595USD/EUR. In hopes of containing the debt crisis that many fear could spread to Portugal, Spain, and Italy, the EU is meeting all Thursday in Brussels.

With risk appetite rising, the dollar also came under pressure versus the sterling, dropping to 1.5750 from Friday's 8-month high near 1.5530.After a slow start to the week, shortly after midnight yesterday the UK simultaneously released two interesting reports - the British Retail Consortium showed retail spending increased at an annual pace of 1.2% in January after surging 6.0% in the previous month to mark the slowest pace of growth in at least 15 years and the Royal Institution of Chartered Surveyor home price balance index increased to 32% from 30% amid expectations for a drop to 27%.

These two reports were followed by the UK's awaited Trade Balance-despite expectations that the UK's trade deficit would contract slightly from its prior level of 6.8B to 6.6B, the deficit unexpectedly widened or December, slipping to a new low of 7.27 Billion Pounds. Following news of the increased trade deficit, the Pound continued to fall against its major counterparts –the EUR/GBP broke to a 3-week high- increasing from the day's opening level of 0.8755 hitting 0.8820 shortly after the trade balance was released.

Later today, we can expect more volatility in the GBP, as the UK will release (at 930GMT) its monthly Manufacturing Production. This major indictor of the economy remained unchanged in the past two months, disappointing the Pound. This time, a rise of 0.4% is predicted. An hour after the release of this report, the BoE will announce its Inflation report- an important quarterly event, in which the central bank projects the inflation and economic growth for a long time forward.

The Bank of England's February Inflation Report is likely to justify only modest policy tightening, with inflation on unchanged rates likely to be shown coming in above target at the end of the two year forecast horizon. On market interest rates, analysts think inflation will be projected below target two years out, with the BOE forecasts endorsing the view that only relatively small increases in Bank Rate will be needed to get inflation back on track.

While falling against both the Euro and the Pound, the USD managed to stay steady versus its neighboring currency- the CAD. However, this currency pair could come under extensive pressure today as both the US and Canada will simultaneously release their trade balance reports. This double hitter event typically ignites a volatile movement in the pair- however, which way the pair will move is yet to be seen.

With Canada's trade balance expected to be almost perfectly balance, analysts are predicting a small deficit of 0.1B, the US is predicting that vast deficit might contract slightly, from its previous level of 36.4B to an expected deficit of 35.8B. While a contraction in a trade deficit might appear as a positive indicator, this is not the case for the US. A contraction in the deficit would signify that foreign countries are less willing to sell goods to America in exchange for U.S dollars- resulting in a depreciation of the dollar.

Shortly after midnight (0030GMT), Australia released its monthly home loans – while analysts were predicting a fall of 4.8%, the Australian Bureau of Statistics reported that the number of home loans extended last December by 5.5%.

This report follows yesterday's Westpack Consumer Sentiment index which slipped 2.6% to 117 from 120.1 in the previous month – a reading above 100 means that optimists outnumber pessimists. While Australian Consumer confidence fell this month, it is still 2.9% above the December 2009 reading and 15.2% above its long term average.



Will the Pound regain its sovereign strength?

Tuesday, February 9, 2010

Last week the British Pound hit a nine month low, falling victim to the strengthening US dollar, particularly on Friday following the release of a better than expected Unemployment rate. After plummeting 1.9% against the greenback, this week’s events I the Forex market will play an important role in determining if the Pound can regain its sovereign strength.

Britain started the day off early releasing two interesting reports at one minute past midnight. At 00:01 GMT, the government announced the BRC Retail Sales Monitor which supplies as early indication to Britain’s retail (often referred to as the “mini-retail sales”).

Unfortunately, retail sales fell 0.7% in January from the same month last year, while total annual sales grew 1.2%- the weakest January performance in 15 years. Simultaneously, the government released the RICS House Price Balance- this figure shows the balance between areas with rising prices and areas with dropping once.

After reaching a peak of 35% in November, the balance fell back to 30% last December; while this week’s release was predicted to show another dip to 28%, against expectations RICS monthly survey found a net balance of 32% of chartered surveyors reported a rise rather than a fall in house prices.

So far this morning, the GBP has managed to recover slightly against the USD-opening at 1.55894, the Pound managed to increase as much as 0.34% against the greenback, going as high as 1.56426. Later today (930GMT), Britain will release it Trade Balance, predicted to show a smaller deficit of 6.6B versus last month’s report which showed a trade deficit of 6.8Billion. If the trade deficit comes in better than expected, the Sterling could very well continue this daily upward trend.

On the other side of the British Channel, following speculation that European officials meeting this week will agree to assist Greece in tackling its deficit, the Euro managed to regain some of last week’s losses- rallying from an eight month low versus the dollar and a near one year low versus the Yen.

This morning, the early Asian markets witnesses a 0.629% increase in the EUR/USD - with the pair increasing from its eight month low opening price of 1.36547 to hitting a high of 1.47406. The speculator news also fueled the Euro to appreciate against the Yen- the pair increased almost 1%, reaching as high as 123.114.

Across the Atlantic, Canada reported (yesterday) a 5.8% rise in their housing starts for January, beating consumer expectations of 180K- resulting in a seasonally adjusted rate of 186,300 units from an upwardly revised 176,100 units in December.

This report which usually has a significant impact on the Loonie, caused the USD/CAD to fall 0.38% reaching a daily low of 1.06555- however, this positive economic news did not have a lasting effect on the USD/CAD, as the pair closed yesterday at 1.07600.

However, the Loonie’s battle against its neighbor’s powerful currency is not over- tomorrow both Canada and the US will simultaneously announce their Trade Balance.

While Canada is expected to report a near perfect balance of -0.1B, the US is predicting a deficit of -35.7B, versus last month’s -36.4B. This double hitter event usually causes the USD/CAD pair to dramatically fluctuate- potentially giving an opportunity for the CAD to recovery against the US dollar.



Return of the Greenback

Monday, February 8, 2010

After one of the wildest and busiest weeks this year in the forex market, the USD emerges as the clear winner.

Last Friday, the US released their much anticipated Change in Non-Farm Payroll – for the first time, in over a year this report was expected to show to an increase in jobs of 10K last January. Unfortunately, despite analysts’ predictions, the NFP continued to fall by 20,000- reflecting a plunge in construction employment, a drop in state and local government hiring as well as companies decision to boost workers’ hours and overtime instead of hire new employees. Oddly despite a negative NFP, the unemployment rate in the U.S unexpectedly declined in January, to 9.7%-the lowest level since last August. The result of this lower than expected unemployment, fueled the dollar to continue

appreciating against both the Euro and the Pound.

Following last Thursday’s news that both the ECB and the BoE were holding their interest rates at their current historically low levels of 1.0% and 0.5%, respectively, both the EUR and the GBP plummet against their American counterpart. While the Pound fell from its opening price of 1.59004, closed at 1.57656 (falling nearly 0.847%), the Euro reached a new 8 month low, falling a drastic 1.17% and closing at 1.37269.

The tragedy of the Pound and the Euro, continued on Friday following the release of America’s better than expected unemployment rate, as both currencies continued to depreciate against the greenback- with the Euro falling another 0.3635%, closing off the week at an even lower 8 month low of 1.36771 while the Pound continued to plummet to 1.56393.

For the second week in a row, positive news from the US has pushed the greenback towards a strong finish. The only currency that was able to hold its own against the progressively stronger USD, and the positive economic data coming out of the United States was the CAD.

Ninety minutes prior to the release of the US NFP and unemployment rate, Canada announced its employment change of the past month, as well as its current unemployment rate. January’s employment change came out almost three times higher than predicted at 43K versus expected 15.2K (and prior -2.6K). The Canadian Bureau of Statistics reported that while full-time employment rose by 1,400, part-time jobs surged by about 41,500, producing Canada’s fourth increase in employment in the past 6 months. As a result, Canada’s unemployment rate unexpectedly fell from its prior (and predicted) level of 8.5% to 8.3%. Instantly after the release of this positive Canadian economic data, the USD/CAD fell from 1.0750 to 1.0720.

As a result of last week’s intensified hype that the US NFP was predicting an increase in the number of jobs for January, for the majority of the past week, the USD strengthened against its neighbor’s currency. While the positive Canadian unemployment news caused the Loonie to retake some of its lost ground from the USD, the USD/CAD increased a total of 1.03% last week, with the neighboring pair closing at 1.07137.

Later today, the CAD could very well regain some last week’s losses as at 13:15GMT, Canada will announce its Housing Stats. This monthly report, which depicts the annualized number of new residential buildings that began construction on January, is predicting to show an increase of 5K from the previous report (expected 180K versus prior 175K).

Compared to chaotic events of last week, this week seems relatively calm, with the only key economic data of today being the above mentioned CAD Housing Stats. Tomorrow (930GMT), Great Britain will announce its Trade Balance, expected to continue to show a deficit of -6.6B, versus the prior reported deficit of -6.8B. In regards to Trade Balances, on Wednesday both Canada and the US will simultaneously announce theirs. This double hitter event usually causes the USD/CAD pair to dramatically fluctuate- potentially giving an opportunity for the CAD to recovery against the US dollar.



Both Britain and Europe to announce rate decision, one day ahead of U.S Non-Farm Payrolls

Thursday, February 4, 2010

It is a very busy day ahead, as both the European Central Bank and the Bank of England are scheduled to announce their rate decisions.

Early this afternoon (1245GMT), the European Central Bank will announce its Minimum Bid Rate. The ECB, is expected to keep benchmark interest rates at its current record low level of 1.0%. This prediction come after Jean-Claude Trichet, president of the ECB, indicated that he would like wait for new growth and inflation forecasts in March before deciding when to step up the withdrawal of measures used to battle the financial crisis. Continual concerns over rising unemployment, in addition to increasing apprehensions that Greece’s fiscal problems could spread through the Euro zone, complicate the ECB’s efforts to return the euro-area economy to health.

The ECB announcement comes shortly after the Bank of England’s official rate decision (1200GMT). Analysts do not predict a rate hike- the BoE, is expected to leave the overnight rate at its historical low level of 0.5%. This decision comes out following earlier announcements, and indicators that that the UK emerged, barely, from the recession in the 4th quarter of last year.

The pressure is high for the Euro and the Pound, as these two highly anticipated rate decisions, come one day ahead of the U.S Non-Farm Payroll Change (announce tomorrow at 1330GMT), and follow yesterday’s release of a better than expected ADP Non-Foreign Payroll figure.

The release of ADP Non-Foreign Payroll, widely considered as an indicator for the NFP, fueled the dollar towards appreciating against both the Pound and the Euro. Following the release of the ADP figure yesterday, the EUR/USD, fell below the 1.4 mark, hitting 1.3960. This bearish reversal, further confirms that the Euro is on the cusp of entering a downwards trend against the dollar- any unexpected news in the ECB official bank rate today, could send the Euro spiraling downwards against its USD counterpart.
Moreover, the positive news in regards to U.S employment further caused the Pound to depreciate against the dollar. Yesterday, the GBP/USD tumbled from a 1.6070 session high to close at 1.59003.

For the first time in a long time, analysts are predicting an increase in the US Non-Farm payrolls of 10K. Last month’s Non-Farm Payrolls were disappointing and showed a loss of 85,000 jobs in the US in December. Hopes were already high for the Non-Farm Payrolls, but expectations increased exponentially when yesterday’s ADP Non- Farm Employment Change, was much better than expected. The ADP figure, which measures the jobs in the private sector, showed a loss of 22,000 jobs. While it is still a negative number, it is much lower than the expected loss of 31K, and lasts months loss of 61K.

Apart from increasing against both the GBP and the EUR, the positive results of the ADP figure, triggered the USD/JPY to rebound from 90.05 session low has extended to session high at 90.85 high.

The release of a better than expected positive result in the Non-Farm Payrolls on Friday will certainly further boost the dollar against its major currency counterparts, and raise chances of a future rate hike. While there have been many signs that the U.S is on the road to recovery (namely the higher than expected Q4 GDP, announced last week), a strong number in the NFP, will surely push the USD on the path to regaining some of last year’s traumatic losses.



Euro continues to face a tough battle

Wednesday, February 3, 2010

The U.S dollar slipped further away from its six month high against the Euro, as concerns in the Forex market began to ease over Greece’s debt. The EUR managed to keep a firm hand, on overnight gains, reaching $1.36969 (increasing 0.18% versus the USD) in the Asian Markets early this morning. However, the Euro continues to face a tough battle, as investors continue to remain skeptical over Greece’s, and now Portugal’s, financial problems.

Whether the Euro manages to hold on to this morning’s gain against the US dollar is yet to be seen- as both the EU and US are set to release two pivotal reports later this week (EUR minimum bid rate, USD Non-Farm Payroll Change).

Tomorrow (1245GMT), the European Central Bank will announce its minimum bid rate- Jean Claude-Trichet, the president of the ECB, is predicted to leave the overnight Interest rates unchanged at 1.0%. Unemployment in the European Union has skyrocketed to 10%, while the recovery from the recession is still wavering- the decision to keep the rate low will hopefully give the EU a stronger push towards economic recovery.

Later today (1315GMT), the US will release its ADP Non-Farm Payrolls, a predictor index for Friday’s widely anticipated Change Non-Farm Payroll. The index is predicting a further decrease in the number of employed people by 31K; a substantially smaller decrease than last month’s fall of 84K. Also today, the US will release it ISM Non-manufacturing PMI expected to come in at 51.1, versus a prior level of 49.8 in December. A reading of above 50 signifies growth, indicating that service industries in the U.S are expected have expanded in January.

This morning the Asian market saw an increase in the GBP, as the sterling rose following news that the UK consumer confidence improved in January coming in better than expected and increasing 3 points from the previous month. The Pound advanced against 15 of its 16 major counterparts following news that that consumer sentiments were improving. Following the release of the index, the British currency rose to $1.6027 (6:40 GMT) from $1.5973 in at closing in New York yesterday.

Britain managed to return to economic growth in the Q4 of 2009, as both housing prices and unemployment began to decline. However, this small increase in the Pound could easily be lost. Tomorrow, the Bank of England will announce the Official Bank Rate- the Monetary Policy Committee is expected to leave its key interest rate unchanged at the record low level of 0.5%. Moreover, the BoE is expected to call an end to its radical policy of pumping out new money after Britain narrowly emerged from the recession in the last quarter of 2009. Introduced almost one year ago by the Bank of England, this extreme policy’s objective was to encourage commercial banks to increase lending to both businesses as well as individuals.

Australia’s trade deficit continued to widen last December, as imports of goods such as gasoline and oil reached 2 year high – further adding evidence to the economic recovery. Imports rose 6% last December, the biggest monthly gain since May of 2008 (oil and gasoline imports jumped 26%, while gold imports swelled a record 51%). Following yesterday’s decrease of 1.4% against the USD (due to the unchanged overnight rate), news of the increased trade deficit, caused the Aussie to continue to fall against the greenback- dropping from 88.7 U.S cents to 88.64 U.S cents after the announcement.

The fate of the AUD is still up in the air, as tomorrow (0030GMT) the Australian Bureau of Statistics will release its monthly Building Approval, expected to fall 0.2% versus prior increase of 5.9%, and its Retail Sales, expected to increase slightly by 0.3% versus prior reported increase of 1.4%. The RBA’s decision yesterday to keep the interest rate unchanged at 3.75% sent the Aussie on downwards spiral. If these two reports come in better than expected the Aussie could potential regain some of yesterday’s and today’s losses.



The USD makes a surprising recovery

Tuesday, February 2, 2010

The USD finished off last week on a very positive note as the dollar rose against all major currency, following the release of Friday’s stronger than expected economic indicating that the United States was recovery faster than other developed countries.

When markets closed on Friday, the Dollar reached a 7 month high versus the Euro as the EUR/USD drastically fell allowing the dollar to cross the 1.4 EUR/USD mark- closing at 1.3860. The dollars increasing momentum was also shown as it hit a hit a three week high against the British pound, closing at 1.5983 on Friday. The USD also gained against the CHF and the CAD.

The gains in the US dollar can be attributed to the release of Friday’s advanced GDP. The report showed a rapid increase of 5.7% for Q4 of 2009 – the fastest increase in 6 years. Such positive data raises expectations that the U.S FED would potentially increase interest rate before the European Central Bank, thus encouraging investors to move into dollar based assets.

However, despite this unexpected accelerated growth in the Q4, many economists are concerned that this economic rebound may not be sustainable as fiscal and monetary stimulus is withdrawn and recent data shows the recovery in housing and retail demand slowing.

A closer evaluation of the Q4 GDP, reveals that much of the increase in the GDP was due to increased auto production and rebuilding of inventories; at the same time, consumer spending and investments remain weak.

Much of the improvement in Q4 GDP was due to increased auto production and rebuilding of inventories. Consumer spending and business investments remain weak. USD traded higher after release of stronger than expected GDP. The GDP report may have some analysts looking for an earlier FOMC rate hike. The GDP deflator however came out below expectations which suggest that inflationary pressures remain tame despite improving growth.

While the USD may have ended January on a promising note, it is questionable if it can continue its uphill battle and regain some of the previous year’s losses against it major counterparts. The first week of February already promises us some interesting economic action, starting today with the release of Personal Spending expected to increase 0.3% compared with the 0.5% of last month, and the January ISM Manufacturing PMI expected at 55.5 compared to last month’s 54.9. Tomorrow, the US will release its Pending Home sales - expected to remain at the same rate as the previous month. US Dollar traders will have to pay strict attention to any surprises in the Non Farm payroll results, released later this week on Friday.

This week, the US will also be releasing its unemployment claims, followed by the unemployment rate predicted to stay constant at its dismal level of 10%. Its predicted that the US labor market added a net 13,000 jobs throughout the month of January-however, these numbers are notorious for being volatile and very difficult to predict.

Its sufficed to say that USD is in for a risky week- whether or not the dollar manages to hold on tight to its previous week’s gain, all depends on whether this week’s fairly positive predictions transpire.



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