Friday May 30, 2008 - 22:45:39 GMT
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Forex Research - US Dollar Weighed Down By Slowing Spending, Watch for NFPs Next Week
â€˘ Euro Growth Comes Under Fire Just As ECB Decision Approaches
â€˘ Commodity Dollars: Canadian Economy Contracts For The First Time In Nearly Five Years
US Dollar Weighed Down By Slowing Spending, Watch for NFPs Next Week
The US dollar inched lower on Friday as US indicators
only added to the pile of evidence suggesting that the economy is far
from recovery mode. First, personal spending and personal income both
slowed to a 0.2 percent pace during the month of April, indicating that consumption is not only weak, but will likely remain so through Q2. Indeed,
record energy prices, a collapse in the housing sector, and a
deteriorating labor market create a less-than-ideal environment for
spending to recover. In fact, sentiment during the month of May was
confirmed at a 28 year low of 59.8, according to the University of Michigan
consumer confidence survey. It is not only the consumer side of the
coin suffering though, as Chicago PMI held below 50 for the fourth
consecutive month, signaling a contraction in business activity. A
breakdown of the index shows a surge in the prices paid component, as
rocketing commodity prices are undoubtly pushing input costs higher.
Given the pick up we've seen in US CPI figures in recent months, it
appears that businesses are passing these costs on to customers.
Looking ahead to next week, the US
dollar faces heavy event risk from the release of the ISM reports for
the manufacturing (Monday) and services (Wednesday) sectors. However,
Fridayâ€™s non-farm payrolls release should â€“ as usual â€“ prove to be the
main event, especially as payrolls are expected to fall negative for
the fifth consecutive month.
Watch for our NFP Preview on Thursday in order to get a better sense of
how the odds stack up ahead of the release, and if you should be
watching for a surprisingly strong (dollar bullish) or weak (dollar bearish) number.
Euro Growth Comes Under Fire Just As ECB Decision Approaches
three straight days of hearty loses, the euro was finally able to
regain its footing. However, the rebound was modest and more a result
of position squaring rather than a fundamental change of trend. The
economic offerings from the docket were a mixed bag for the liquid
currency. For the bulls, the second teir and infrequently market moving
Euro-Zone CPI estimate for May boosted hawkish sentiment ahead of next
Thursdayâ€™s ECB rate decision. The outlook for price pressures in the
consumer basket jumped more than economists had expected to a 3.6
percent clip â€“ matching a sixteen year high. This isnâ€™t too suprising
considering the pass through energy prices and rising costs of lending.
On the other side of the monetary policy coin however, was the more
market-moving German retail sales report for April. Measuring consumer
spending trends in the Euro Zoneâ€™s largest economy, this indicator is
understandably a top mover. And, considering the surprise drop in
consumption, it is no wonder the future hawkishness of the central bank
is in doubt. Retail sales dropped 1.7 percent last month â€“ marking the
six time in the past eight months that spending has dropped.
Interestingly enough, inflation was blamed for the drop in consumption
â€“ an interesting consideration for the ECB when they meet next week.
Visit the Euro Currency Room for resources dedicated specifically to the Euro.
Commodity Dollars: Canadian Economy Contracts For The First Time In Nearly Five Years
com bloc lost the support of its commodity correlation Friday as
volatility for crude and gold settled. Instead, trading in the
Canadian, Australian and New Zealand dollars were guided by active
fundamental speculation. The loonie was arguably the most active
currency among the three as traders received the growth numbers for
March and the first quarter. Both readings would weigh on the Canadian
dollar. Through March, the worldâ€™s 14th largest economy cooled 0.2
percent. Far more concerning though, the quarterly figure posted its
first negative reading since 2003. Canadaâ€™s 0.3 percent clip of
negative growth draws a notable contrast to the USâ€™s as of yet positive
readings. Whatâ€™s more, the breakdown shows that the pressure on the
economy is not just from the manufacturing sectorâ€™s troubles with
unfavorable exchange rates and high input costs, but from trade and
housing as well. For Australia, the Private Sector Credit report for
April was a surprise fundamental driver. The 0.4 percent climb marked
the smallest increase in borrowing in seven years â€“ a reflection of
high credit costs and perhaps fading consumer spending. No doubt, this
will be a reading to consider next week when the RBA meets. There last
report suggested they were considering a rate cut ealier this month.
The RBNZ will likely raise similar concerns at their decision on Sunday.
Tell us what you think on the Canadian dollar Forum.
British Pound: Bank of England Likely to Leave Rates Unchanged Next Week
British pound experienced a choppy day of trading between 1.97 â€“ 1.98,
as GfK consumer confidence dropped to a more than 18-year low of -29
from -24. Conditions in the UK economy are increasingly looking like that of the US, especially givent the sharp slowdown in the UK housing sector. While this is surely of concern to the Bank of Englandâ€™s
Monetary Policy Committee, they are expected to leave rates steady next
Thursday at 5.00 percent as rocketing inflation pressures prevent the
them from focusing on tighter credit conditions and the collapse of the
UK property markets. Since the MPC is anticipated to leave rates
unchanged, they are unlikely to issue a monetary policy statement,
which should leave the marketâ€™s reaction to the news very muted.
Visit the British Pound Currency Room for resources dedicated specifically to the British Pound.
Fundamentals Add To Risk Pressures In Yenâ€™s Retreat
appetite settled through Friday as traders looked to square the books
at the end of a busy week. However, fundamental yen traders would find
no peace as economic indicators would take up the reins to the yenâ€™s
steady decline. Typically, Japanese data has little influence on price
action; yet todayâ€™s offerings were too influential to ignore. The
national inflation number retreated from its decade high after the
expiration of a gasoline tax, curbing hawkish feelings. The outlook for
growth was more concerning. Consumer spending fell the most in 19
months while industrial production marked consecutive contractions for
the first time in four years. This leaves little hope for any BoJ hike.
Visit the Japanese Yen Currency Room for resources dedicated specifically to the Yen.
Questions? Comments? You can email John or Terri about this or
other articles they have authored at [email protected] or
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