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Thursday April 28, 2005 - 21:58:20 GMT

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Forex: Even GDP Canít Take The Dollar Down

DailyFX Fundamentals 04-28-05

By Kathy Lien, Chief Strategist of

∑ Even GDP Canít Take The Dollar Down
∑ FXCM SSI Signals That Euro Could Move Lower
∑ Yen Sells Off On Sea Of Red Data

US Dollar

The US dollar is still resilient in the face of the weakest growth in two years. The mother of all lagging indicators (GDP) increased a measly 3.1% compared to last quarterís 3.8% growth. Todayís price action in the EURUSD played right into our latest piece on the most market-moving indicators for the US dollar. According to our report, the initial 20-minute reaction off of the GDP release tends to be much more significant that the overall daily reaction. In fact, GDP held the lowest ranking on our list of most important indicators. The reason pretty much profiles todayís report, which is that GDP data is prone to ambiguity and misinterpretation. The weakness in growth came primarily from inventories and not consumer spending. Although consumer spending did slow thanks to the rise in oil and gasoline prices, the market had anticipated a sharper dive. Inflation, as measured by the price deflator also came in above estimates, rising by 3.2% compared to expectations for a 2.1% slide. With the details of the report painting a diverging picture, the Fed will be going on as planned with their rate hike next week. Fed fund futures did not move significantly on the back of the release.


The FXCM Speculative Sentiment Index that we released this morning can also shed more light on todayís counter-intuitive move in the EURUSD following the GDP release. According to the report, long positions in the euro outpaced short positions 1.56 to 1. The ratio flipped from net shorts to net longs over the past week with long positions rising by 40%. With the ratio net long and growing, our contrarian indicator signaled that the EURUSD was bound for a continuation move lower. Meanwhile fundamentals did not help the euroís case very much either. As was leaked yesterday, German unemployment fell 79k in the month of April. Although this is the first time that unemployment declined in 16 months, the German labor agency squashed any optimism by attributing the gains to governmentís recent changes to the way unemployment is calculated. According to Reuters, the German government is still set to cut their growth forecasts for 2005 from 1.6% to 1.0%, confirming the deteriorating conditions in the Eurozone.

British Pound

The lack of data from the UK today kept the pound basically unchanged from yesterday. The only figure that was released was from the Nationwide Building Society, which showed that house prices rose by 0.9% in April. This reversed Marchís fall of 0.6%, but the general trend and expectations held by homeowners for the next 6 months was identified as flat. The group also pointed out an excess supply of houses for sale largely due to the unmatched price expectations between sellers and buyers. As these homes remain unsold, Nationwide is predicting that sellers will have to lower their unrealistic prices and we will see an increase in the volume of home sales. Later in the morning, there was a short blip of excitement immediately after the US GDP release when the pair shot up 40 pips but returned to its original level half an hour later, the same effect seen in the euro. As the market processed the news, the dollar slowly gained ground and the pair moved downwards for the rest of the session.

Japanese Yen

The Japanese yen sold off against the US dollar amidst a sea of red data. Industrial production and retail sales both contracted for the second consecutive month. Large retailersí sales fell a more than expected 4.1% while housing starts declined 2.7% on an annualized basis. The Bank of Japan shrugged this data off by saying that the economy continues to recover and the pace of growth should accelerate in mid-2005. In our opinion, this could very well be true, but it is dependent on one thing, which is oil. The slowdown in the global recovery since the second half of last year has been closely tied to oil prices. If the recent sell-off in oil prices continue, it would be a significant relief for consumers and businesses globally. As expected, the Bank of Japan left monetary policy unchanged. The Japanese government also chimed in on pressuring China to revalue their currency last night. MoF Watanabe said that China needs consider what is best for itself, as well as the global economy. USDJPY trading ranges have been contracting as liquidity begins to thin out ahead of next weekís Golden Week holiday. Markets will be closed for a good portion of the week.


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Mon 10 Sep 2018
AA 08:30 GB- GDP, Trade, Output
Tue 11 Sep 2018
AA 08:30 GB- Employment Decision
A 09:00 DE- ZEW Survey
Wed 12 Sep 2018
A 12:30 US- PPI
A 14:30 US- EIA Crude
A 18:00 US- Beige Book
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A 1:30 AU- Employment
AA 11:00 GB- Bank of England Decision
AA 11:45 EZ- European Central Bank Decision
A 12:30 US- Weekly Jobless
AA 12:30 US- CPI
Fri 14 Sep 2018
A 08:30 GB- GDP
AA 12:30 US- Retail Sales
A 13:15 US- Industrial Production
AA 14:00 US- prelim University of Michigan

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