Thursday August 19, 2004 - 21:15:51 GMT
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Dollar Falls On Weaker US Leading Indicators And Philly Fed Survey
DailyFX Fundamentals 08-19-04
By Kathy Lien, Chief Strategist of www.dailyfx.com
·Dollar Falls On Weaker US Leading Indicators And Philly Fed Survey
·Pound Brushes Off Weaker Retail Sales Data
·Japanese Economic Minister Takenaka Calls Weak Q2 Growth An “Adjustment” Instead Of A “Correction”
The euro continues to linger at the top of its recent range. With no US data scheduled for release tomorrow, it is unlikely that we will see some decisive price action or a convincing catalyst for an upside break of the range. Germany reported a higher than expected producer price index for the month of July. Prices increased 0.6% on a monthly basis, instead of the market’s forecast of 0.2%. The biggest increases came from higher steel and oil prices. Although inflation, as measured by yesterday’s consumer price index for the Eurozone as a whole decreased on a monthly basis last month, prices in Germany have continued to move higher. The country’s factory orders also fell 3.4% in June, erasing the gains in both April and May. However, there are European data scheduled for release tomorrow including second quarter French GDP and the Eurozone’s trade and current account balance. Economic activity in France has been healthier than most of its neighboring Eurozone countries, which makes it likely that the second release of Q2 GDP will be confirmed at 0.8%. A modest acceleration could occur in price action if the trade data diverges significantly from the market’s forecasts. Otherwise, we will have to wait for the middle of next week for more interesting price action.
The dollar continues to struggle to contain losses as two key US economic metrics confirm the recent deterioration in the US economy. Leading indicators fell a worse than expected -0.3% in the month of July, marking the second consecutive month of declines. Six out of the ten components of the report decreased, with the most notable losses on a percentage basis in the interest rate spread and pace of deliveries. According to the report, consumer expectations improved, which is in line with an increase in the coincident index. In the Philadelphia region, only 28.5% percent of companies surveyed reported increasing manufacturing activity in August, down from 36.1% in July. Prices paid rose while new orders fell to the lowest level in 3 months. With deteriorations in both the Empire State and Philly Fed surveys, there could be a steeper slide in the national ISM survey due out on September 1st. Meanwhile, jobless claims increased a less than expected 331k in the week ending August 14th. Although this is encouraging, claims have had a weak correlation with payrolls in recent months.
The British pound bounced right off the bottom of its 3-week range on mixed economic data. Mortgage lending reached record highs while retail sales fell -0.4% in July. The contrasting data is further evidence that the UK economy may be beginning to slow. Furthermore, even though mortgage lending was particularly healthy, demand in the summer season is traditionally more robust. However, the Council of Mortgage Lenders did indicate that real estate agents are reporting a slowdown in activity. A more substantial slowdown in the housing market appears inevitable. In terms of retail sales, a retracement has already been priced into the market after the sharp surge in June. Higher interest rates have made consumers more conservative with their spending habits. However, even though the UK economy is showing signs of slowing, it does not draw away from the fact that it is an inevitable slowing from many quarters of spectacular growth.
After six consecutive sessions of losses, USDJPY ended the US trading session generally unchanged. It appears to have become immune to the continual record highs registered in the price of crude. Instead, the market had latched onto the more encouraging comments by Japan’s Economic Minister Takenaka. He said that the alarmingly weak Q2 GDP growth was an “adjustment” instead of a “correction phase.” Many people see the decline in plant and equipment spending as a temporary falloff that should be reversed in the next quarter. Also, Takenaka echoed the sentiments of Greenspan on oil. That is, he believes that the recent surge in oil prices is temporary and should not have a significant impact on the economy.
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