Tuesday August 30, 2005 - 10:51:42 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
• USD retains yesterday’s gains, but oil price background continues to create uncertainty.
• USD-JPY has some upside risk while above 110.80.
• Weak CBI retail survey/consumer credit leave GBP weaker.
• US consumer confidence and FOMC minutes feature today.
0 The ongoing rise in oil prices remains at centre stage and this is clouding FX market perceptions to a certain degree. Given the impact oil price strength could have on future economic conditions the market is not likely to take current economic data as a cast iron indication of what will happen in the future. However, the fears about the possible impact of hurricane Katrina were downgraded a little yesterday and this partly explains the recovery seen in the USD.
For the time being the market seems happy to view the current situation as one where Asian currencies are inversely correlated to oil prices. The USD is also generally seen as a loser against European currencies in the face of stronger oil prices, in part because the USD has most to lose if economic conditions in general are hit. Of the majors, the USD has benefited the most this year from the way economic conditions have developed in the US and elsewhere (reflected in the move in rate differentials in the USD’s favour). Anything that threatens this backdrop should be negative for the USD, even though most economies suffer from energy price strength. However, one supporting factor for the US in general is that typically, if there is any major retreat in emerging markets in Asia, the flow back into the USD investor base normally offers some generalised USD support, so it is not a one-way argument against the USD.
This degree of uncertainty is likely to remain in place in the short-term and the market will need some technical developments to trigger some kind of momentum. In this regard, EUR-USD
needs to breach either 1.2125 or 1.2345 to generate some interest. 1.2160 and 1.2270 are the closer parameters of interest. On the data front, the ISM manufacturing and the August employment report feature in the US this week, although they may need to be unusual to change market perceptions about the US economy, especially given overriding concerns about energy prices. The market will perhaps be more vulnerable to weak data.
has underperformed since the Asian session began this morning and USD-JPY will retain some upside risk as long as 110.80 holds early on today. Data last night was not that helpful for the JPY, with the unemployment rate higher than expected and consumer spending softer. However, the employment data was fairly solid and the job-to-applicants ratio rose to a fresh 13-yr high, suggesting good labour demand.
has been weaker following a poor CBI retail survey last night and a softer than expected consumer credit outcome this morning. Mortgage approvals were more resilient, although a move above 100k is needed to suggest genuine strength and this may be difficult to sustain. A balance of 18% of retailers reported lower sales volumes on a y/y basis in August and this left the 3-mth moving average for this series also at -18, the lowest level since the survey began 22 years ago. 0.6835 needs to break on EUR-GBP to keep the move going, while cable will retain downside risk today while below 1.7885.
consumer confidence is due and the market will be keen to see whether it reflects the downturn reported in last week’s Michigan sentiment survey. Factory orders will be watched for any revisions to the durables data already released. The latest FOMC minutes are also due. Any discussion about the degree of monetary policy accommodation still in place will be looked for, although FOMC members have been largely reluctant to go into such detail so far.
Data/event EDT Consensus*
CA Industrial PI (Jun) m/m 08.30 +0.2%
CA Raw materials PI (Jun) m/m 08.30 +2.0%
CA Current account (Q2) 08.30 C$4.9bn
US Consumer confidence (Aug) 10.00 101.8
US Factory orders (Jul) m/m 10.00 -1.7%
US Minutes of Aug 9 FOMC meeting 14.00
US ABC consumer conf (w/e Aug 28) 17.00 -9 last
JP Ind prod (Jul, prel) m/m 19.50 -0.5%
AU Building approvals (Jul) m/m 21.30 -1.0%
AU Current account (Q2) 21.30 -A$13.6bn
Latest data Actual Consensus*
GB CBI retail trades survey (Aug) -18 -18 last
JP Unemployment rate (Jul) 4.4% +4.2%
JP PCE workers (Jul) y/y -3.3% +0.8%
JP Retail sales (Jul) y/y +0.6% +2.5%
AU Trade balance (Jul) -A$1.5bn -A$1.4bn
AU Retail sales (Jul) m/m 0.0% +0.3%
GB Consumer credit (Jul) £1.2bn £1.5bn
GB Mortgage approvals (Jul, sa) 97k 95k
IT CPI (Aug, prel) y/y +2.0% +2.1%
*Consensus unless stated
2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005
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