Friday, July 31, 2009
US Economy Contracts 1% in Quarter 2
The U.S. economy contracted by 1% in Quarter 2 of 2009. However, this is a smaller contraction than expected. Analysts had expected more shrinkage in the economy, reports the Financial Times
Wall Street analysts were expecting a contraction of 1.5 per cent, but the downward revision from the original previous quarter estimate of a 5.5 per cent drop dampened optimism.
The news has stoked some optimism. Even though the Stock market opened lower, it has since moved into positive territory, heading higher as the news sinks in. The U.S. dollar, on the other hand, is moving lower.“Even though it’s negative, we’re not seeing the horrendous numbers we saw earlier in the year or in early 2008,” said Brian Bethune, an economist at IHS Global Insight.
Usd/Cad Buy Recommendation Issued @1.0720
Usd/Cad: We have not abandoned our hopes of trying to get into this trade and will once again look to establish a long today on yet another dip. The downside pressure has been relentless with the market seemingly ignoring any oversold technical indicators in effort to see just how low we can go. We do however anticipate a major upside break in the near-term and at this point it is only a question of timing. As such, while we run the risk of potentially missing the move, we will continue to place our entry at lower levels using daily ATR analysis. Today, the projected low comes in by 1.0715 and we will look to get involved just ahead. STRATEGY: BUY @1.0720 FOR AN OPEN OBJECTIVE, STOP @1.0470. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE ON FRIDAY.
USD Weaker in New York But Yen Crosses Lower
It has been an interesting morning of trade in New York with the market extremely volatile following the economic releases but unsure as to the direction it wants to take. While equities are slightly firmer, currency carry trades have come off to reflect a notable divergence. Meanwhile, the USD has been offered with the Swisse leading the way against the greenback, followed by the Kiwi, Euro and Aussie. Although the headline reading for US GDP was better than expected, some downward revisions to the previous month, along with a much weaker personal consumption component left some traders with an unsettling feeling. Meanwhile, in Canada, headline GDP was weaker than forecast, with a downward revision also seen to the previous month. The only bright spot on the day came from Chicago PMI which managed to slightly better expectation. The IMF was back on the wires with a sluggish recovery call for the US economy despite some improved financial conditions. The IMF also stated that the USD was moderately overvalued. This follows a report from the same organization earlier in the week which also said the Euro was overvalued.
U.S. Recession Slows, But Prior Quarter GDP Revised To Worst In 27 Years
The advance reading for 2Q U.S. GDP showed a 1.0% contraction which surpassed estimates of 1.5% but a revision of the 1Q reading to -6.4% from -5.5% showed that the recession was the deepest in 27 years. Despite the contraction slowing, the 1.2% decline in personal consumption will dim the outlook for future domestic growth.
The advance reading for 2Q U.S. GDP showed a 1.0% contraction which surpassed estimates of 1.5% but a revision of the 1Q reading to -6.4% from -5.5% showed that the recession was the deepest in 27 years. Despite the contraction slowing, the 1.2% decline in personal consumption will dim the outlook for future domestic growth. Additionally, the prior quarter’s initial reading of a 2.4% increase was revised lower to 0.6% as American continue to tighten their purse strings. Taking a closer look at the break down the only positive component that we saw was government spending which rose by 5.6% as the stimulus plan started to be distributed during the period, and we should continue seeing positive contributions in the future, considering that only 10-15% of the $787 billion has been allocated. Other positive signs were the sharp improvements in gross private investment (-50.5% to -20.4%) and exports (-29.9% to -7.0%). Regardless, the expectations that unemployment will continue to rise should continue to weigh on consumer spending which will make sustainable growth difficult to attain. Next week’s Non-Farm payroll release takes on even more significant meaning as more job losses could lead to a sharp reversal in risk appetite which has been the main driver of price action.
Dollar Index slips on China Central Bank Comment
Su Ning, the Vice Governor of China’s central bank commented that they had no intention of tightening the country’s money supply and would be using market tools rather than quota styled controls as they are continue to work toward repairing China’s economy. Following those comments, the U.S. Dollar Index, a measure of the U.S. currency’s performance versus a basket of major currencies, slipped to 79.428 .DXY, a loss of .3%, and nearing 78.315 .DXY, a 7-month low hit earlier this week. Versus the Euro, the U.S. Dollar slipped to $1.4055, a loss of .1% from Wednesday’s U.S. late trading; earlier in the day, though, it has slipped to $1.4007 on the EBS trading platform, which was the lowest price in nearly two weeks.
According to one analyst, the U.S. Dollar will likely regain ground against other currencies as investors continue to close out their long positions in the commodities and stock markets. The Yen also slipped broadly following those remarks, but recovered quickly with traders wary about retaining their yen-selling positions in light of the volatility of the Shanghai stock market, which tumbled to an 8-month low. The U.S. Dollar fell to 94.95 Yen, a loss of .1%, while the Euro held steady at 133.45 Yen.
U.S. Dollar to Go Volatile on the Release of Advance GDP Figures
The USD is set to go extremely volatile today on the release of Advance GDP figures for the 2nd quarter from the U.S. economy at 12:30 GMT. The forecasted results are -1.4%, significantly better than the 1st quarter results of -5.5%. The other things that are expected to move the market to day are the publication of the CPI Flash Estimate and the Unemployment Rate from the Euro-Zone. In order to make some big profits today, open you positions in the USD, EUR, GBP, and JPY now, as Friday's trading gets under way.
Forex Market Trends
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
| Daily Trend |  | |  |  | | |
| Weekly Trend | | | | | | |
| Resistance | 1.4265 | 1.6690 | 96.50 | 1.0960 | 0.8370 | 0.8600 |
| 1.4225 | 1.6650 | 96.10 | 1.0920 | 0.8350 | 0.8580 | |
| 1.4185 | 1.6610 | 95.70 | 1.0880 | 0.8310 | 0.8560 | |
| Support | 1.4105 | 1.6530 | 94.90 | 1.0800 | 0.8270 | 0.8520 |
| 1.4065 | 1.6490 | 94.50 | 1.0760 | 0.8250 | 0.8500 | |
| 1.4025 | 1.6450 | 94.10 | 1.0720 | 0.8230 | 0.8480 |
Economic News
USD - USD Slides on Further Signs of Recovery
The Dollar slid yesterday, as the U.S. and global economy showed further signs of recovery. This was due to both the predictions for today's U.S. GDP figures, which show the U.S. economy declined at a much slower pace the in the 2nd quarter than the 1st, and global corporate earnings figures led to a jump in optimism. In turn, this helped spark a global stock rally, as investors took advantage of the fresh optimism to snap up higher-yielding currencies, such as the EUR and Australian Dollar.
The USD fell against the EUR by 75 pips to 1.4128. This comes about as Germany and the Euro-Zone released better than expected unemployment and consumer confidence figures. The USD also tumbled against the GBP, as Britain posted optimistic consumer confidence figures. The GBP/USD pair closed higher by 150 pips at the 1.6519 level. Against the Japanese Yen, the Dollar rose 0.5% to 95.35 Yen, extending gains after government data showed a drop in continuing claims, boosting optimism about the U.S. labor market.
Today, there is a reasonably strong possibility that much of the same behavior in the forex market will continue. This is likely to occur as traders continue to trade on Thursday's optimism. This may continue to drive the USD lower against its major currency [pairs. Also, it is advisable for traders to follow the following releases from the U.S. economy: Advance GDP and Employment Cost Index at 12:30 GMT and the Chicago PMI at 13:45 GMT. So if you want to make some bug money as end-of-week trading kicks in open your USD positions now.
EUR - EUR Rallies on Improved Global Economic Sentiment
The EUR was driven higher vs. the U.S Dollar yesterday by data showing an improvement in Euro-Zone economic sentiment in July, as well as an unexpected fall in German unemployment, which was seen as an encouraging sign for the region's recovery prospects. The European currency also gained more ground versus the Yen to hit session highs on Thursday as a sharp rally in stocks boosted risk appetite. The EUR rose as high as 134.86 Yen, and finished trading at 134.67 Yen.
The EUR rose dramatically against the USD to $1.4128, rebounding from a 2 week low near the $1.40 level. The Euro-Zone single currency briefly pared gains after the International Monetary Fund (IMF) said the EUR exchange rate looks somewhat on the strong side relative to its fundamentals. According to analysts, the EUR may pare its monthly gains against the U.S Dollar today prior to reports that will show deflation deepened in the 16-nation area, and job losses increased.
The GBP leaped against the U.S. Dollar on Thursday, after a report showed British house prices climbed in July for a 3rd month. This led the British Pound to extend its gains, hitting a 4 week high against the EUR. The Pound also gained against the EUR and USD due to a report released yesterday showing British consumer confidence at its highest level since April 2008. This was yet another sign that Britain is rising out of the recession. Analysts expect much of the gains for the EUR and GBP may continue throughout today's trading.
JPY - JPY Plummets against the Major Currencies
The Japanese Yen fell against its most traded currencies on Thursday as the leading economies published a string of optimistic figures. This led to global stocks rising for a 3rd straight week, reducing demand for the relative safety of the Japanese currency. Looking at the bigger picture; positive economic data, rising stocks and better-than- expected earnings improved risk appetite, analysts said. Additionally, the improved risk appetite means that the safe-haven currencies will weaken further.
A wave of Japanese mutual funds will be launched today, keeping the Yen soft against the U.S Dollar and higher-yielding currencies, such as the Australian Dollar. But in the near term, the rush in the launching of these funds is expected to have only a limited impact, as a rally in global stocks and commodities in the past few weeks has made fund managers cautious about immediately putting money to work, many traders believe.
Crude Oil - Oil Rebounds On Market Optimism
Crude Oil rose above $67.50 a barrel on Thursday, boosted by higher stock markets in Europe and Asia, better than expected corporate results and data suggesting the economic downturn is bottoming out. The more than 5% rally yesterday, the highest gain in more than 3 months was boosted as continuing U.S. jobless claims figures improved sentiment in the energy sector. All of this is further evidence that the leading economies may rise out of recession in the coming months.
Oil may continue to gain on increased optimism that the global economic decline will ease. The number of people collecting unemployment insurance decreased for a third week, according to the U.S. Labor Department. A U.S. report yesterday showed that Crude supplies unexpectedly climbed as demand lagged behind year-earlier levels. However, this failed to drive prices lower, as the price of Crude also soared on a extremely weak USD.
Technical News
EUR/USD
The cross rose to the 1.4128 level yesterday, in response to a 2 day decline in the pair. The chart's oscillators seem to be showing mixed data. On one hand, the weekly chart's Slow Stochastic signals that the upward movement will continue today. On the other hand, the RSI and the Stochastic Slow of the hourly chart shows that the pair has run out of steam, and that a bearish correction is imminent. Entering the pair when the downward breach occurs may turn out to pay off today.
GBP/USD
The GBP/USD cross soared yesterday and currently stands at 1.6535. The daily chart's oscillators seem to be neutral. However, the daily chart's RSI and MACD signal that the pair is overbought, and that a bearish correction may take place today. This is also supported by the RSI of the weekly chart. Going short on the pair may be a wise move today, as traders seek to make end-of-week profits.
USD/JPY
The cross experienced its 2nd day of gains, and is currently trading at 95.35. There is some technical data that supports the pair to hit the 96.00 mark today. However, the chart's oscillators seem to be showing misleading signals. The daily chart's MACD and the weekly chart's Stochastic slow support a bullish move today. However, the hourly charts MACD and 4-hour chart's Stochastic Slow signal a bearish trend today. Entering the pair when the signals are clearer may be the right choice today.
USD/CHF
The USD/CHF cross declined slightly yesterday, despite climbing the 2 previous days. The pair is currently trading at the 1.0860 level, and there is much technical data to support a bullish move today. The Stochastic Slow on all of the charts signals an upward direction for the volatile pair today. This is also supported by the RSI of the daily chart. Going long with tight stops may turn out to pay off today, as Friday's trading kicks in.
The Wild Card
Crude Oil
Crude Oil soared yesterday to above $67 a barrel. The oscillators of the hourly chart seem to show that the recent bullish trend for the black gold may be short lived, and that a bearish correction may be imminent. The RSI of the weekly chart and MACD of the daily chart also support the view that the price of Crude may go bearish in the near future. Entering the trend at an early stage, may turn out to be a wise choice for forex traders today.
USD trading subdued ahead of the GDP release
The Dollar and Yen continue their decline against the EUR and other higher yielding currencies ahead of the U.S GDP report due to be released today at 12:30 GMT. The report is forecasted to show that the contraction in the U.S economy slowed this quarter. Earlier today the Dollar was trading at $1.4112 per EUR from $1.4075 yesterday, and was at 95.60 Yen from 95.56 Yen Thursday.
The Pound has been appreciating today against the Dollar after a U.K report showed Consumer Confidence held at the highest level since 2008, reinforcing the belief Britain's recovery from the recession is imminent. The Pound rose to $1.6541 from $1.6493, also strengthening to 85.20 pence per EUR, from 85.31 pence yesterday.
The Japanese currency weakened to 134.94 against the EUR, from 134.49 late Thursday. The Yen fell versus 15 of its 16 major counterparts this week as global stock markets reached record levels for the year, helped by better than estimated results from companies including Sony Corp. and Motorola Inc.
The U.S market opens today with the release of the GDP results at 12:30 GMT. This will likely set the tone for today's trading as well as the beginning of next week. Traders should also follow the release of the Chicago PMI at 13:45 GMT as this will likely intensify any trend and adding to market volatility.
The Greenback Weakens to Year Low on GDP report
The USD lost ground Friday after the government said the world's largest economy shrank less than economists expected, while still indicating worrying trends in consumer spending. Despite the fact that the Gross Domestic Product (GDP) contracted 1% in the 2nd quarter, better than the predictions, traders combed through revisions to past data and components of the report and kept an eye on equities since the greenback has been so closely tried to indications of investors' risk appetite.
The U.S dollar fell further after the Chicago purchasing managers index rose to 43.4% in July from 39.9% in June, according to a survey released Friday. While still indicating overall business contraction, the Chicago PMI is considered a leading indicator to the national Institute for Supply Management manufacturers' survey to be released on Monday. Overall, the market's sentiment for the greenback remains negative. The Chicago PMI index actually came in better than expected, and the details were pretty positive across the board. The overall string of constructive economic data will likely carry into at least the early part of next week, and the greenback is trading near the lows of the day, analysts said.
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