» 2007 » October

Written by Boris Schlossberg, Senior Currency Strategist DailyFX

Talking Points

• Japanese Yen: Gaps below 114.00 post G-7 but sellers emerge
• Euro: Makes new record highs
• Pound: Holds the 2.05 level
• Canadian Dollar: bounces off 31 year lows
• US Dollar: Calendar empty with only CB speak today

After the typical post G-7 gap opening, FX markets settled down during European trade as traders awaited the start of the US equity trading. With no economic data to drive trade today, the direction in FX will likely be set by the flows in DJIA as currency traders look to see if the US stock markets will continue their down draft.

Last Friday’s -366 point plunge in the Dow, triggered by the disappointing earnings news from the large money center banks put investors in a dour mood, as speculation of a serious economic slowdown in the US swept through Wall Street. With Fed funds futures handicapping a greater than 75% chance of a Fed rate cut in October, the dollar continues to be pressured with EURUSD setting yet another record high at the start of today’s Asian trading session.

As we noted in our post G-7 analysis, “The absence of  any  clear indication of support from the G-7 suggests that monetary officials will not intervene either verbally or physically to stem the dollar’s decline.  This leaves the greenback at the mercy of the speculators who will likely push it further down especially if they become convinced that the Fed will be forced to lower rates another 25bp in October with perhaps yet another 25bp cut in December yet to follow. The prospect of additional rate cuts and the lack of any political support leaves the greenback wide open to further momentum selling. The  G-7 monetary officials may have miscalculated when they assumed that the US currency will continue its decline in a measured fashion. If the EURUSD  hits 1.4500  this week, expect far more aggressive rhetoric from the G-7 authorities as fears of dollar dumping will begin to sweep the market.”

However, after staging one of the most impressive rallies of the year, the loonie is the one currency which may have trouble gaining additional ground against the greenback. On Friday the Canadian dollar set a 31 year high against the buck on the back of the hotter than expected CPI numbers, but with oil prices receding off their highs and a set of challenging economic data on the Canadian calendar this week, the CAD rally is due for a retrace. Finding the bottom in USDCAD has been a suckers game for the past month, but if oil prices correct this week USDCAD longs may be finally rewarded. The one substantial risk to this scenario is the escalation of tension on the Turkey/Iraq border. This week-end’s killing of 12 Turkish soldiers by Kurdish nationals will only exacerbate the situation and should military response ensue, all bets on a USDCAD will be off as crude may head above the $90 handle.   

 Source: FXCM

The US Dollar dropped to fresh lows on Monday while the Yen surged after a meeting of industrialized powers ended with no words of support for the Dollar, offering a green light to speculative sellers. The Dollar was also pressured by Friday’s 2.6% slide in Wall Street S&P Index and increasing speculation the Federal Reserve would cut interest rates next week; G7 leaders agreed Chinese Yuan was undervalued and they want the Yuan to appreciate faster, which means that the US dollar will depreciate faster, as China leads a generalized Asian appreciation; Futures Markets pointed US yields had fallen sharply as the Fed funds futures market priced in around a 90% chance of another 25 basis point rate cut at the central bank’s two-day policy meeting on Oct. 30/31.

Source : ACM

Written by Boris Schlossberg, Senior Currency Strategist DailyFX

A relatively sparse economic calendar and the uncertainty surrounding the outcome of the G-7 meeting later today, kept the major currency pairs in tight ranges on the last trading night of the week. 

Talking Points
• Japanese Yen: Finds support below 115.00
• Euro: Consolidates near highs, PPI cool
• Pound: GDP better than forecast, as service growth fastest in 3 years
• Canadian Dollar: CPI on tap
• US Dollar: Calendar empty eyes on G-7 

A relatively sparse economic calendar and the uncertainty surrounding the outcome of the G-7 meeting later today, kept the major currency pairs in tight ranges on the last trading night of the week.  The EURUSD marked time, hovering near record highs, but the pair was somewhat depressed by the latest German PPI news which printed far cooler results than the market expected. The PPI numbers came in at 0.2% versus 0.4% projected while the annual rate slowed to 1.5% - far below ECB’s self imposed limit of 2.0%. 

The strength of the euro is clearly having a deflationary impact on pricing in the Euro-zone and therefore raises fresh questions about the need for additional rate hikes from the ECB. Since Mr. Trichet and company have consistently reiterated the fact that their primary focus remains squarely on price levels, today’s report must be viewed as dovish by the market  as it shows little need for the European monetary authorities to tighten policy at this time.

None of this may matter with respect to the direction of EURUSD which could continue to climb higher if the Fed decides to lower rates another 25bp in October. This week’s horrid housing and jobless claims data have raised the prospect of such a move to 75% according to the latest pricing of Fed Funds futures. However, Chairman Bernanke must be aware that further monetary easing so soon after the 50bp cut in September, would immediately spur speculation of yet more cuts before the year end and could easily push the EURUSD to the 1.4500 figure within a matter of weeks, destabilizing an already woefully weak dollar.

Finally, news out of UK surprised to the upside as GDP printed at 3.3% versus 3.1% expected with the services component growing at the fastest rate in three years. The latest GDP read suggests that despite the credit crunch and ongoing problems in the financial sector, growth in UK remains robust with little immediate danger of  rate cuts from the BoE. The GBP/USD was boosted by this news rising to within a few pips of the 2.0500 figure. More interestingly, while tonight’s data offers no clues on the direction of the majors, it does change the dynamic of the EURGBP cross.  If rate expectations for ECB are indeed scaled back, as a result of lower PPI data, the cross which hit .7000 once again in overnight trade on further rate hike speculation, may begin to correct towards the 6900 figure as traders adjust to the latest economic news flow.
Listen to our free recap of the currency market with DailyFX Forex Radio.

Source: FXCM

Dollar should hold steady before the G7 meeting as traders hold back pent up selling

Producer prices remain under control in Europe, the latest figures from Germany showing a rise of just +0.2% MoM and +1.5% YoY in September. These compare with higher forecasts of +0.4% and +1.8% respectively. Intermediate goods prices were up 3.3% YoY while adjusted for oil products the index saw a rise of just +1.2% YoY. Good news for the ECB but they will never-the-less be eying the level of crude oil and the unfavorable basing effects over the coming months which will still keep the CB on a hawkish bias.

The following economic releases are due today:

August
Italian Industrial Orders         (MoM)    +0.4%
Italian Industrial Orders         (YoY)     +6.7%
Italian Industrial Sales           (MoM)    +1.5%
Italian Industrial Sales           (YoY)     +6.7%
Italian Trade Balance (Total)    EUR    -600mn
Italian Trade Balance (EU)        EUR     375mn

Q3
U.K. GDP                              (QoQ)     +0.7%
U.K. GDP                               (YoY)     +3.1%

And at long last its G7 day today and this farce will soon be over.

Already the market has decided there is little they can say or do to control FX rates without re-introducing draconian exchange controls or even fixed exchange rates. They have no intention of doing either after years of deregulation and opening of markets. Concerted intervention was tried in the 1980’s and failed.

Even the officials within the ECB can come to an agreement over whether the Euro is over valued or whether they particularly care at this moment. The European trade balance has recorded a record surplus this year, growth is at its highest and the community is wealthy.

So what is all this morbid fascination with exchange rates? So they want to avoid high volatility because it’s bad for growth. Well, I did a small bit of simple research by looking at the annual ranges from 1982 through to 2006. Of course I couldn’t take measure the Euro since it didn’t come into existence until 1999 and synthetic data in our charts cannot be relied upon for accuracy. However, I took two major currencies which have been traded throughout this period, Dollar-Yen and Dollar-Swiss. The results didn’t surprise me:

                                                         Dollar-Yen Dollar-Swiss
Average Annual Range 1982 – 1998       19.44%        21.55%
Average Annual Range 1999 – 2006       14.83%        16.32%

It’s probably over simple, but the fact is that annual ranges have reduced by around 5% in both cases. Central bankers should be satisfied…

What is more, there are three distinct markets which impact on monetary policies, exchange rates, interest rates and equity markets. Very clearly FX is last in the list of priorities as having the least impact on national monetary and fiscal policies.

Conclusion? G7 can only play lip service but actual action will not be forthcoming. The Dollar may well consolidate today but it will be sold next week – except against the Yen where all this furor has merely provided better levels to re-enter carry trades.

Next Monday is the beginning of te rest of the year…

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  116.22-45    1.4383-99    1.1770-00    2.0550-93
Res:  115.30-80    1.4309-21    1.1706-51    2.0490-12

Spt:   114.62-80    1.4226-50    1.1650-72    2.0396-19
Spt:   113.84-98    1.4180-06    1.1584-01    2.0285-07

See Also

• Considering switching to trade currencies?
  Read more about the opportunities in the Forex market

Source : GFT Forex

Asia keeps the Dollar under pressure

Following the Tertiary Index earlier in the week, the Japanese All Industry Activity Index registered a rise of +1.0% in August. This is up from the earthquake battered July revision of -0.2% but just below forecasts of +1.1%.

The result is a little interesting. Recall the tertiary index registered a rise solidly above forecasts and which represents around two-thirds of the all industry index but we see the latter fall short of target. It may mean something since the tertiary index represents the services sector while the all industry includes manufacturing and it would seem this provided the drag overall. In fact, industrial production posted a 3.5% rise and final demand components rose 2.0%. However, construction appears to be the black sheep declining by 4.5% which could be a reflection of the decline in condominium developments or possibly the new rules that have been applied to construction sites. Probably nothing in it, but worth watching out for next month’s number…

Down under Australian New Motor Vehicle Sales rose by 1.8% MoM and +7.8% YoY in September. It keeps the trend positive and reflects the buoyancy in demand from a high employment country. 

The following economic releases are due today:

August
Italian Industrial Orders        (MoM)     +0.4%
Italian Industrial Orders         (YoY)     +6.7%
Italian Industrial Sales          (MoM)     +1.5%
Italian Industrial Sales          (YoY)      +6.7%
Italian Trade Balance (Total)   EUR    -600mn
Italian Trade Balance (EU)      EUR      375mn

September
German Producer Prices        (MoM)      +0.4%
German Producer Prices        (YoY)       +1.8%

Q3
U.K. GDP                             (QoQ)     +0.7%
U.K. GDP                              (YoY)     +3.1%

The elusive surprise did come along…

However, the direction was Dollar bearish in line with the medium term view and even broke through the 1.4281 Euro high. This means there shouldn’t be a return to 1.4127-43 area and probably any pullback will remain above 1.4206-26. Maybe there is a structure that would allow for 1.4127-43 but I have my doubts.

Indeed, the depth of the pullback should highlight the overall wave pattern. For those of you who follow the Elliott Wave counts there are two possibilities – one being a direct rally to the ultimate high around 1.2720-1.4805 and the other which will see a move to around 1.4611 followed by a deeper pullback before the last leg higher to the same target. The expected pullback should help identify which of these counts are more likely to be correct.

I do still prefer the view of a move to 1.4611, correction and then target for two reasons. Firstly the Dollar cycles are bearish still for 2 months at least, maybe a week or two more. A direct rally would reach target much earlier. The second reason is the situation in the Swissie. Here we have the likelihood of a dip to just below 1.1600, a correction and then a decline to the 1.1283 low. Again, this structure would tend to provide room for the decline to last to year-end though it will probably mean the correction will be quite long.

Dollar-Yen. The breach of the 115.95 level did force follow-through to 115.25 quite perfectly. However, this morning this has been broken. I’m not going to get too bearish at this stage. A daily cycle low is due over the next week and so a recovery is due. If I look at the wave structure I actually find it difficult to see anything lower than 114.62-80. This may cause a sideways correction for 5-8 days but overall the direction remains higher – no change there.

Note important support and resistance areas:

         USDJPY        EURUSD        USDCHF       GBPUSD
Res:  116.22-45    1.4383-99     1.1770-00    2.0550-93
Res:  115.30-80    1.4309-21     1.1706-51    2.0476-12

Spt:   114.62-80    1.4226-50     1.1660-72    2.0396-19
Spt:   113.84-98    1.4180-06     1.1584-01    2.0285-07

See Also

• Want to know more about currency trading?
  Read about the largest financial market

Source : GFT Forex

Dollar under pressure - but can it be sustained…

Reuters published their own Tankan Report for Japan which identified a worsening in sentiment by Japanese manufacturers. The headline diffusion index tumbled by 3 points in October to a two-year low at +21 for manufacturing firms. However, non-manufacturing firms saw a rise of 5 points to +19.

The sharp fall in housing starts triggered by a severe reduction in available land on which residential condominium projects can be developed has been a main contributor while rising raw material costs is squeezing corporate profits. The BOJ is still banking on these costs being passed on to the consumer in higher prices that will fuel a rise in CPI. Indeed, in the non-manufacturers sector, the index for retailers fell 10 points to +6 which indicates a sluggish personal consumption trend. With the depressed nature of consumer demand it appears that companies are not confident enough to hike prices.

Of the firms surveyed 30% identified Q2 next year as the most appropriate timing for the next BOJ rate hike while 19% want the timing to be delayed further.

The Swiss Trade Balance came in smack on forecasts at CHF 1.80bn in September to mark an all-time high. Exports were up by 9.3% YoY and imports by +11% YoY. Within the figures watch exports accounted for CHF 1.3bn. Certainly there doesn’t seem to be too much wrong with the Swiss economy at the moment…

The following economic releases are due today:

August
Euro-zone Trade Balance           EUR    0.0 bn
Euro-zone Trade Balance s.a.     EUR    0.2 bn
Euro-zone Construction Output (MoM) 

September
U.K. Retail Sales                     (MoM)   +0.1%
U.K. Retail Sales                      (YoY)   +5.5%
U.K. PSNCR                              GBP    12.5bn
U.K. PSNB                                 GBP     6.1bn
U.K. M4 Money Supply              (MoM)  +0.9%
U.K. M4 Money Supply              (YoY)   12.5%
U.K. M4 Sterling Lending            GBP   18.0bn
U.S. Leading Indicators                       +0.3%
U.S. Philadelphia Fed Index                     7.0

October
Swiss ZEW Survey: Expectations 
U.S. Initial Jobless Claims        (13th)    312K
U.S. Continuing Claims             (6th) 

Following the bad housing numbers from the States yesterday and repeated comments from the IMF that not only is the Dollar is over-valued but the decline has been orderly the market has the bit between its teeth looking to sell the Dollar off now. Indeed, this is the medium term direction with cycle bearish to the end of the year. However, whether it will be able to generate sufficient momentum to push through the 1.4281 Euro and 1.1740 Swissie levels is yet to be seen.

It is certainly making a valiant effort but until these levels break there has to be a question mark whether volumes will be large enough to trigger stops. If they break then the floor opens to stronger losses to 1.4395 and possibly as high as 1.4455 Euro and 1.1668 and possibly 1.1621 Swissie. The Pound will find a barrier at 2.0493 and only above there would have momentum for a test of 2.0593.

If the closer supports hold the greater likelihood will be a return back into range.

Dollar-Yen has been suspiciously quiet also. Here the cycles are bullish and there really hasn’t been any news to justify a return to buying Yen, the carry cost is just far too much to make the attempt worthwhile. It will be only a matter of time before this too continues its rally with support at 115.95 and at the most 115.25 providing a base for a rally that should pass through the 117.93 high on the next attempt.

As for G7 there seems to be a growing realization that firstly there just isn’t enough support for intervention from within the ECB ranks, and when going beyond their closeted walls the enthusiasm wanes rapidly. It is then a battle of mind over fear to take the Euro through its barrier or to fall back into a range before heading higher next week.

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  117.10-50    1.4369-94    1.1860-96    2.0473-93
Res:  116.30-70    1.4242-81    1.1810-30    2.0421-34

Spt:   115.96-16    1.4163-80    1.1725-40    2.0340-70
Spt:   115.25-48    1.4127-43    1.1668-07    2.0270-06

See Also

• New to Forex?
  Read more about the largest global market

Source : GFT Forex

Dollar tightening into pre-G7 ranges

The Bank of England minutes for the last market policy meeting confirmed an 8:1 vote in favor of an unchanged policy. Only Blanchflower dissented, voting for a 0.25% cut. In fact, in view of the tighter credit conditions and the worsened conditions of trading partners the committee gave due consideration to a rate cut. Obviously this was not considered a strong enough reason at that time since they perceived a potential problem if this would have been misinterpreted as a signal that the outlook for growth had shifted decisively to the downside. In fact the committee considered that there had been "only limited" signs of slowing in the economy with consumer and business confidence remaining high.

Yesterday’s unemployment data showed no sign of any loss of jobs, but indeed the opposite with jobless claims reducing by 12.8K instead of the 4K forecasted though the underlying claimant count rate remained at 2.6%. This tends to act more positively on the Pound and over the next week or two there should be further gains but these may not be too strong with a core of belief growing that the economy is going to see a significant slowdown over the coming year.

There was no data from Europe but a couple of comments from ECB officials. Liebscher still pointed out that the record highs in oil prices still point to significant upside risks to inflation. However, he reaffirmed his belief that the Euro-zone growth is “ongoing and rather robust” although added that a mild slowdown will probably occur next year with market uncertainties spilling over into 2008. Liikanen also expounded that view but only saw real problems occurring should the current turbulence extend significantly into next year.

Onto the States where inflation saw a small uptick as CPI numbers were released at +0.3% MoM and 2.8% YoY. Core inflation held to forecasts at +0.2% MoM and +2.1% YoY. These aren’t serious bad numbers but the refusal for inflation to moderate will be concerning the Fed which has been basing some decisions on reduced inflationary prospects because of the current problems. As time progresses, it will begin to tie their hands with a need to lower rates to cushion the credit crunch problem but also the need to control inflation which is the primary goal.

And yesterday’s Housing Starts will not have helped with a much larger fall than expected, a comment that seems to have occurred for the past few months. September saw starts drop by a large 10.2% to a 1191K rate, well below forecasts of 1283K. Building Permits were off 7.3% to 1230K–below forecasts of 1288K.

These numbers are pretty much a disaster and from reports even worse than the most bearish of estimates within the industry. So much so that the talk on the building sites is of more job cuts. Compounded by a huge inventory of unsold homes and a growing number of defaults on mortgages it is very difficult to begin to think of when this mess will finally be sorted out. This will still weight heavy on the Dollar.

So how will the G7 meeting really halt a declining Dollar? With the IMF saying it is overvalued and yesterday another IMF official, Johnson, saying the Dollar’s decline is orderly it is difficult to even see any prospect of a meaningful correction. Indeed Johnson described the decline, “We think its part of the natural, healthy process of global rebalancing and as long as it’s accompanied by adjustments in other countries … we think it’ll be pretty healthy.”

Now, whether the market will attempt to take the Dollar lower ahead of the G7 conference is a totally different matter. The risks of knee-jerk reactions to any comments made within the communiqué that will trigger stops is far too great and the prospect is for a rather boring two days into the weekend. 

The economic release calendar is winding down also with limited numbers to be able to act as a strong enough catalyst to force a break of range and with no U.S. releases at all tomorrow. There will be plenty of debate and plenty of stories made up to fill analysts’ columns, but the end result, barring any catastrophe, is erratic short term ranges within the larger range of the past 2-3 weeks.

More later when the analysis is complete.

The following economic releases are due today from Asia.

Australian September Preliminary BOP Imports
Australian Reserve Bank Monthly Bulletin

Japan – September
Nationwide Department Store Sales  (YoY)
Tokyo Department Store Sales        (YoY)

See Also

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Source : GFT Forex

Dollar on the defensive in Asia

Australia’s Preliminary BOP Imports dipped by A$1.5bn to A$15.4bn over September. On the assumption that exports managed to remain strong in spite of the strength of the Aussie Dollar it does imply that the trade balance should provide good reading when released on November 1st. So seemingly good news with the economy still rattling along in fine fettle and will provide the RBA with one more reason to hike rates again.

Politicians and the Bank of Japan may be confident that consumer demand will pick up but consumers themselves aren’t listening. September saw national department store sales return into negative territory by dropping -2.5% YoY which followed a larger drop in July of -4.3%. The August figure only managed to clamber above zero (at +1.4%) due to the unusually hot summer. In Tokyo department store sales dipped by -2.1% YoY. While a bad number there shouldn’t be any significant impact on the Yen which is in the midst of a long term decline against the U.S. Dollar and this trend is expected to continue for some while still.

The following economic releases are due today:

August
Euro-zone Trade Balance            EUR    0.0 bn
Euro-zone Trade Balance s.a.      EUR    0.2 bn
Euro-zone Construction Output  (MoM) 

September
Swiss Trade Balance                   CHF    1.80bn
U.K. Retail Sales                      (MoM)   +0.1%
U.K. Retail Sales                      (YoY)    +5.5%
U.K. PSNCR                               GBP    12.5bn
U.K. PSNB                                 GBP      6.1bn
U.K. M4 Money Supply              (MoM)   +0.9%
U.K. M4 Money Supply               (YoY)   12.5%
U.K. M4 Sterling Lending             GBP   18.0bn
U.S. Leading Indicators                        +0.3%
U.S. Philadelphia Fed Index                      7.0

October
Swiss ZEW Survey: Expectations 
U.S. Initial Jobless Claims         (13th)     312K
U.S. Continuing Claims               (6th) 

Yesterday didn’t really produce any surprises and chances are that surprises will be hard to come by this side of the weekend. Range trading does still seem to be the favored scenario and it will probably be safer to trade on this basis. There do seem to be quite a few erratic minor ranges that break but within the larger range and this does tend to reflect a corrective pattern of consolidation.

However, let’s look at the alternative in case that elusive surprise does come along. Well, as I have maintained the Dollar’s downside is still definitely the MT direction and I still see the greater risk for a surprise to be a Dollar break out lower. Even then it may not actually make it to new lows – or maybe only minor ones – but take more care on this side of the equation.

Dollar-Yen has bounced nicely from the 115.95-116.30 support and ideally I’d like that to continue with some gains preferred today. Just a small note of warning is a possible alternative which, on break of 115.95 may well allow a slightly deeper move back to 115.25-50. However, again as I have maintained, the larger picture is higher and the next move should make its way to 120.25 over time. The only possible drag to the timing is the first daily cycle low since the August weekly lows which should occur some time next week – probably towards the end. However, don’t fight a break higher

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  117.51-93    1.4369-94    1.1860-96    2.0473-93
Res:  117.02-20    1.4242-81    1.1810-30    2.0421-34

Spt:   115.96-16    1.4163-80    1.1743-62    2.0340-70
Spt:   115.25-48    1.4127-43    1.1668-07    2.0270-06

See Also

• Thinking of switching to trade currencies?
  Read about the opportunities in the Forex market

Source : GFT Forex

Choppy trading warns of possible range trading

There have been no further releases with early Europe unwilling to follow-through on either side and beginning to form what look to be potential erratic ranges within a larger consolidation.

The following economic releases are due today:

September
Bank of England Minutes
U.K. Claimant Count Rate                  2.6%
U.K. Jobless Claims Change             - 4.0K
U.S. CPI                             (MoM)   +0.2%
U.S. CPI                              (YoY)   +2.8%
U.S. CPI Excl food & energy  (MoM)   +0.2%
U.S. CPI Excl food & energy   (YoY)   +2.1%
U.S Housing Starts                          1283K
Building Permits                              1288K

The Fed’s Beige Book is due to be published

There are just two days to go before the G7 finance ministers convene in Washington. There is obviously a good deal of central bank generated hype but frankly there doesn’t even seem to be a quorum in the ECB that feels there is actually a problem with the Euro at current levels.

However, rumors abound and everyone prefers a scare story rather than “nah… nothing will happen.” But then when it comes to holding an open position over that weekend there are few market traders who’ll be willing to risk their bonus on what is still an unknown.

Frankly, any larger positions will have been squared by now and unless any official opens his or her mouth and surreptitiously places a foot in it, the chances of any real break of the range we have seen over the past 2-3 weeks is very low.

Stories abound today of the squaring of carry trades but that isn’t the nature of the beast. Journalists have to fill a page and analysts have to find an excuse for a move. The move down in Dollar-Yen is almost complete – or may be it is complete and the Dollar isn’t going anywhere unless Mount Fuji suddenly emerges from its dormant state or a tsunami hits Tokyo Bay.

So all the releases today will probably have no more impact than slurping down a sleeping pill. Having said that, if we’re talking ranges, the Dollar is probably closer to the top of the range against the Europeans than it is to the bottom.

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  117.10-50    1.4242-81    1.1893-27    2.0436-73
Res:  116.50-70    1.4190-19    1.1844-61    2.0363-80

Spt:   115.75-00    1.4121-43    1.1769-90    2.0275-84
Spt:   114.91-40    1.4068-00    1.1668-07    2.0174-21

See Also

• Considering switching to trade currencies?
  Read more about the opportunities in the FX market

Source : GFT Forex

Dollar reaches new lows against the Euro ahead of the G7 conference

The BOE minutes this week showed that the committee warned that there were only a few signs that the economy was slowing down. Yesterday’s retail sales numbers confirmed that as far as the consumer is concerned it is still all systems go, pulling out their plastic cards to push September’s number up to +0.6% MoM and 6.3% YoY when forecasts had been more conservative at +0.1% and +5.5% respectively. The annual pace is the highest in 3 years. The only caveat to the robust number was the fact that end-summer sales provided incentive through heavy discounting. I say old bean, what’s a credit crunch?

The U.K.’s public finances continue to show improvements on a year-on-year basis with September’s numbers coming reasonably close to expectations:
    Forecast Actual
PSNCR    GBP 12.5bn  9.0bn
PSNB    GBP   6.1bn  6.9bn
M4 Money Supply (MoM) +0.9%  +1.0%
M4 Money Supply (YoY) 12.5%  12.8%
M4 Sterling Lending  GBP 18.0bn  23.0bn

The public coffers are reaping the benefits of cumulative income tax and VAT which are higher than a year ago but corporate tax receipts moderated somewhat. Money supply is reasonably stable around 12%-13% YoY which is high, but does not unduly worry the BOE. On the whole fairly positive though should have no particular impact on the Pound.

Over in the land of watches and clocks the Swiss ZEW survey improved over October by 10.7 points to -16, a much better result than the German survey earlier in the week. Current conditions were a bit softer but following the record trade surplus released earlier in the day it does still highlight a robust economy that must surely risk a hike in rates.

Following the strong industrial production numbers earlier in the month the results appear to have been shown in the Euro-zone Trade Surplus which recorded a healthy EUR 1.3bn surplus in August. On a seasonally adjusted basis this rose to EUR 4.3bn. Forecasts were for flat and +0.2bn respectively. The cumulative total for the YTD is at EUR 19.1bn which hardly bares comparison to last year’s equivalent number at a deficit of EUR -23.5bn.

It really does make you wonder why they are so concerned over the strength of the Euro… but BusinessEurope is still calling for action to prevent further Euro strength. Cake and icing are still desired for consumption…

The weekly jobless claims data from the States saw a jump to 337K – much higher than the 312K forecast. Continuing Claims also saw a stronger than expected rise to 2534K. Not the sort of numbers that the Fed had expected following their statements that the jobs market was still sturdy but there may be a case to suggest that the Columbus Day holiday caused an anomaly.

The Philadelphia Fed Index was broadly in line with forecasts coming in at 6.8 in October, and only slightly below the 7.0 forecast. However, there are a few components that cause concern with new orders jumping overboard and shipments dipped into negative territory. Inventories registered their lowest levels since Q1 2002. Only employment provided a lift with an increase of 5.1 to 12.6.

The market chose to ignore the G7 meeting which starts later today in Washington, taking the Euro bull by the horns and pushing to new historic highs at 1.4309. The move confirms further gains and consequently further losses by the Dollar over the coming weeks with 1.4455 the next target while against the Swiss Franc a dip below the 1.1621 low looks very likely.

However, whether this will begin today or whether the market will heed some semblance of restraint to keep the Dollar in a consolidation ahead of the weekend’s conference is not certain. I suspect a degree of restraint.

It has become very clear that with only partial support for controls to be made on the Euro strength coming from within the ECB ranks and virtually no support elsewhere, the chances of any substantial statement that could provide any relief to the Dollar weakness is probably as close to zero as one could get.

Even the pullback in the Dollar against the Yen provided further downward momentum but reached the 115.25 support outlined yesterday. Around here there should be a good base although a minor new low is possible.

Otherwise with a virtually non-existent release calendar and the will to push further at low ebb before the weekend, the prospect is for a sleepy end of the week…

More later when the analysis is complete.

The following economic releases are due today from Asia.

Japan August All Industry Activity Index   MoM) +1.1%
Australia September New Motor Vehicle Sales
Australia Q3 Import Price Index     (QoQ) - 1.0%
Australia Q3 Export Price Index      (QoQ) - 0.5%

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Source : GFT Forex