Traders squared up their positions ahead of US Non Farm payroll data due to be released at 12:30 GMT today and EURUSD climbed back towards the 1.5500 figure after a day of battering yesterday that saw the unit lose nearly 200 points against the greenback. The buck has been strengthening all week on the assumption that the US economy may not be nearly as weak as analysts had previously thought, but today’s NFP report could prove to be the moment of truth that resolves the argument of whether the US is in the midst of a serious recession or simply in a slowdown.
Our pre NFP analysis Will Non-Farm Payrolls Recover provides inconclusive evidence with 6 leading indicators pointing to further deterioration in the labor market while 3 hint at improvement. The NFPs are notoriously difficult to predict for a host of reasons including the birth/death model which makes monthly adjustments to the number as well as the possibility that public sector hiring may have increased in April and therefore mitigated some of the negative effects of the recent spate of private sectors layoff announcements.
Our best guess is that the number today will likely print better than –100k loss and we base that assumption mainly on the improvement in the four week jobless claims average. Nevertheless, the possibility of a surprise either way appears to be quite strong today and the post news reaction may be typically volatile. Therefore as always we prefer to stand down ahead of the number.
In other economic news Australian Retail Sales printed better than forecast rising 0.5% vs. 0.3% expected indicating that the economy Down Under continues to grow at a healthy pace. If the bulls are indeed correct that the worst of the credit crunch crisis is behind us and global economy will continue to expand at 3% pace or better, Australia becomes the strongest beneficiary of such an outcome piggybacking on China’s voracious growth.
While RBA may have ended its rate hike cycle for now, it is unlikely to begin easing if economic conditions in Australia maintain their current levels. If RBA stands still, the Aussie with its 7.25% yield will remain a magnet for global investment flows and AUDUSD could hit parity if global risk environment remains benign.
Friday, May 2, 2008
German Retail Sales Fall, Is The Euro Bull Run Over?
Fundamental Headlines
• AUDUSD – Australian retail sales rose 0.5% in February from -0.1% the month prior. Food sales jumped 1.7% from 0.3% in February, on the back of record prices. A robust labor market and wage growth have enabled Australians to absorb the price appreciation. Inflation continues to rise and remains a concern for the RBA, but a global slowdown is expected to keep the MPC from raising rates at next weeks policy meeting. For more news and resources, visit our Australian Dollar Currency Room.
• EURUSD – German retail sales unexpectedly declined for a second month in March, as rising energy and food costs curbed consumer spending. Seasonally adjusted sales fell 0.1% after a 0.7% decline in February. The German labor market remains strong and consumer confidence is up, but if inflation doesn’t abate, shoppers may continue to tighten their wallets. Discuss the topic and your trade ideas in the EUR/USD Forum.
• GBPUSD – The U.K. construction PMI index fell to 46.1 in April from 47.0 the month prior. The sector has started to shrink weighed by the housing slump and tight credit markets. The BoE recently infused £50 billion in liquidity into the market in an attempt to loosen lending standards and promote housing demand. Discuss the topic and your trade ideas in the GBP/USD Forum.
• AUDUSD – Australian retail sales rose 0.5% in February from -0.1% the month prior. Food sales jumped 1.7% from 0.3% in February, on the back of record prices. A robust labor market and wage growth have enabled Australians to absorb the price appreciation. Inflation continues to rise and remains a concern for the RBA, but a global slowdown is expected to keep the MPC from raising rates at next weeks policy meeting. For more news and resources, visit our Australian Dollar Currency Room.
• EURUSD – German retail sales unexpectedly declined for a second month in March, as rising energy and food costs curbed consumer spending. Seasonally adjusted sales fell 0.1% after a 0.7% decline in February. The German labor market remains strong and consumer confidence is up, but if inflation doesn’t abate, shoppers may continue to tighten their wallets. Discuss the topic and your trade ideas in the EUR/USD Forum.
• GBPUSD – The U.K. construction PMI index fell to 46.1 in April from 47.0 the month prior. The sector has started to shrink weighed by the housing slump and tight credit markets. The BoE recently infused £50 billion in liquidity into the market in an attempt to loosen lending standards and promote housing demand. Discuss the topic and your trade ideas in the GBP/USD Forum.
Euro Decline Still Has More to Go
The EURUSD has fallen nearly 600 pips (to the low) from its 1.6018 top. So, is it possible that the pair is entering one of the strongest (and maybe the strongest) portions of its decline since the top? In a word; yes. As long as price remains below 1.5643, the short term structure is bearish and support does not begin until 1.5230.
Thursday, May 1, 2008
FOMC Cuts, Outlook Unclear
The dollar was mixed following the FOMC’s announcement to cut rates by 25-basis points to 2.0%. The Fed reiterated that economic activity remains weak, while “household and business spending has been subdued and labor markets have softened further”. The Fed expects lingering tight credit conditions and the “deepening housing contraction” to weigh on growth over the coming quarters. Nonetheless, the statement did not give a clear indication of whether the Fed would continue easing policy over the coming months. The FOMC said that uncertainty about the inflation outlook remains high, but does expect it to moderate in the coming quarters. While it was unclear from the policy statement, we anticipate the Fed will leave interest rates unchanged for the remainder of the year.
Economic data from the US earlier in the session was better than expected, with the advanced reading of Q1 GDP unchanged at 0.6% -- beating out calls for a drop to 0.2%. The Q1 core PCE prices declined to 2.2% from 2.5%, while GDP sales posted a 0.2% drop versus a 2.4% increase in the previous quarter. The April ADP private sector payrolls number also reported better than forecast, posting a 10k increase, compared with estimates for a 60k decline and improving slightly from 8k in March. The April Chicago PMI survey improved from March, rising to 48.3 from 48.2.
Economic data from the US earlier in the session was better than expected, with the advanced reading of Q1 GDP unchanged at 0.6% -- beating out calls for a drop to 0.2%. The Q1 core PCE prices declined to 2.2% from 2.5%, while GDP sales posted a 0.2% drop versus a 2.4% increase in the previous quarter. The April ADP private sector payrolls number also reported better than forecast, posting a 10k increase, compared with estimates for a 60k decline and improving slightly from 8k in March. The April Chicago PMI survey improved from March, rising to 48.3 from 48.2.
Dollar Mixed Ahead of Fed
The greenback was mixed in the Tuesday session, advancing versus the euro while relinquishing gains against the sterling and the yen. The economic calendar saw the release of the April consumer confidence survey, which declined to 62.3, albeit less than expected, from 64.5 from March.
The major currency pairs will likely trade within range ahead of the FOMC policy decision tomorrow afternoon. We expect the Fed to ease policy by 25-basis points to 2.0% while maintaining a downbeat outlook on the economy similar to its previous statement. Nonetheless, we anticipate the Fed to leave policy unchanged for the remainder of the year after this week’s rate cut given the aggressive easing that has already materialized.
The major currency pairs will likely trade within range ahead of the FOMC policy decision tomorrow afternoon. We expect the Fed to ease policy by 25-basis points to 2.0% while maintaining a downbeat outlook on the economy similar to its previous statement. Nonetheless, we anticipate the Fed to leave policy unchanged for the remainder of the year after this week’s rate cut given the aggressive easing that has already materialized.
USD Edges Higher Ahead of Key Week
The week ahead offers a barrage of economic news for currency traders to digest, with the key highlights coming from the US. Markets will focus closely on the FOMC monetary policy decision on Wednesday afternoon. We expect the Fed to ease policy by 25-basis points to 2.0%, and maintain a downbeat outlook on the economy similar to its previous statement. Nonetheless, we anticipate the Fed to leave policy unchanged for the remainder of the year after this week¡¯s rate cut given the aggressive easing that has already materialized.
In addition to the highly anticipated US jobs report on Friday, the calendar also consists of April consumer confidence, US Q1 advanced GDP, PCE, Chicago PMI, March consumption, personal income, durable goods orders, and factory orders. The April unemployment rate is expected to hold steady at 5.2%, while non-farm payrolls are not expected to improve, posting another 80k loss of jobs. The Q1 advanced reading for GDP is seen slowing to 0.2% from 0.6% previously, the PCE index is expected to ease to 3.7% from 3.9% in the previous quarter.
The greenback rallied to its highest levels in two-weeks against the yen at 104.79 and euro at 1.5590. While it remains to be seen whether the recent dollar rebound will be sustainable, Eurozone officials have become more outspoken about their unease over the euro¡¯s strength. ECB President Trichet said ¡°there have been at times sharp fluctuations between major currencies¡± and expressed concern about the ¡°possible implications on economic and financial stability¡±.
In addition to the highly anticipated US jobs report on Friday, the calendar also consists of April consumer confidence, US Q1 advanced GDP, PCE, Chicago PMI, March consumption, personal income, durable goods orders, and factory orders. The April unemployment rate is expected to hold steady at 5.2%, while non-farm payrolls are not expected to improve, posting another 80k loss of jobs. The Q1 advanced reading for GDP is seen slowing to 0.2% from 0.6% previously, the PCE index is expected to ease to 3.7% from 3.9% in the previous quarter.
The greenback rallied to its highest levels in two-weeks against the yen at 104.79 and euro at 1.5590. While it remains to be seen whether the recent dollar rebound will be sustainable, Eurozone officials have become more outspoken about their unease over the euro¡¯s strength. ECB President Trichet said ¡°there have been at times sharp fluctuations between major currencies¡± and expressed concern about the ¡°possible implications on economic and financial stability¡±.
USD Extends Rebound
The economic reports released in the Thursday session were initially dollar positive, with the greenback bouncing to 1.57 against the euro and rising to 104 versus the yen. Although the headline reading for durable goods orders was slightly weaker than expected at -0.3%, versus calls for a flat reading, it still marked an improvement from the -1.1% drop in February. The excluding transports durable goods orders posted a sharp improvement from the prior month, increasing by 1.5% in March, compared with a 2.4% decline. Weekly jobless claims also improved, falling to 342k down from 372k a week earlier. However, March new home sales posted a larger than expected drop, plunging by 8.5% to 526k units, versus 590k units in February.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
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