USD - Non-Farm Payrolls Week Kicks Off
Last week the Dollar saw mixed results against the major currencies. The USD underwent extremely volatile sessions against the EUR and the Yen, yet the pairs rapidly returned to former rates by Friday's close after the US and Canada released their GDP figures.
It appears that the mixed results which were received from the U.S leading economic indicators were the main reason for the Dollar's harsh volatility, experienced last week. On Monday, the New Home Sales report, which measures the annualized number of new single-family homes that were sold during the previous month, delivered the highest figure in 7 months. In addition, the Core Durable Goods Orders index, a leading indicator of production, delivered the third consecutive positive figure.
However, aside from these positive reports, the Conference Board's Consumer Report, which was released on Tuesday, showed that the U.S consumers are still cautious regarding their expenses. Usually, the more secure the consumers feel, the better the economy is doing. The weekly Unemployment Claims also delivered negative figures, as 584,000 individuals lost their jobs during the past week.
As for this week, an extremely busy trading week is impending. The leading economic publications for the week will be the Manufacturing Purchasing Managers' Index, the Pending Home Sales, the ADP Non-Farm Employment Change, the weekly Unemployment Claims, and of course, the Non-Farm Payrolls on Friday. This week promises to create large volatility for USD pairs, which will provide traders many opportunities to create high profits.
EUR - Euro-Zone Interest Rate Announcement Scheduled This Week
The EUR experienced a rather volatile session during last week's trading. The EUR saw mixed results vs. the Dollar, starting the week with a sharp drop, and correcting it by the weekend. The EUR also saw mixed results against the Yen and slid partially against the Pound.
The indecisive figures from the Euro-Zone's strongest economy, Germany, was the main reason for the EUR's volatility. On one hand, the German Unemployment Change showed that merely 6,000 people lost their jobs during June. This continued the relatively positive employment condition in Germany from the past few months. However, on the other hand, the German Preliminary Consumer Price Index delivered a negative result, showing that the inflation level in Germany is currently the most fragile aspect of its economy, and that concerns for deflation shouldn't be revoked at the moment.
As for the week ahead, traders should once again focus their concentration on the German economy publication. A bundle of data is expected from the German economy, and its results will have a large impact on the EUR. The leading publications are the German Retails Sales, the Factory Orders, and the Industrial Production. Yet on top of that, the European Central Bank (ECB) is scheduled to announce its Interest Rate and monetary policy decisions on Thursday. In case the ECB surprises and manipulates interest rates, the EUR will be strongly impacted, and is likely to influence the major currencies as well.
JPY - Yen's Volatility Continues
The Yen continued with its volatile activity from the past week. The JPY saw frequent ups and downs against the Dollar, closing the week around the 94.50 level. The Yan also underwent a volatile session against the EUR, and dropped against the GBP.
The significant news publications from the Japanese economy delivered mixed results as well. The Japanese Retails Sales dropped for the 10th consecutive month. This demonstrates the poor consuming condition in Japan, which shows that the Japanese still lack the confidence that the recession is a part of the past and not the future. The Preliminary Industrial Production reports, however, showed that the total inflation-adjusted value of output produced by manufacturers in June rose by 2.4%. This shows that although the Japanese are cutting on expenses, the Japanese economy still manages to create large export, and thus the industrial production figures continue to rise despite the recession.
Looking ahead to this week, two indicators seem to be more relevant then the others. Tomorrow night, the Japanese Monetary Base is scheduled. This indicator's result seems to have influence on the Japanese interest rates, and thus investors tend to react to this publication. Also this week, the Leading Indicators index will be published on Thursday. This index is designed to predict the direction of the economy and has the potential to impact the Yen's value.
Crude Oil - Crude Oil Reaches $70 a Barrel
Crude Oil's prices continue to rise, and a barrel of Crude Oil is currently trading near $70 a barrel, a 1-month high.
Crude Oil began last week's trading with a sharp drop in value, mostly as a result of the strengthening Dollar. Later on, the Dollar dropped and the positive global data created a sentiment that the leading economies are pulling out of recession. It is widely thought that a financial improvement will raise energy demand, and thus the prices of oil rose. The positive figures from the global equity markets also contributed to Crude Oil's bullish trend. It still looks that oil's value is strongly correlated with the equity markets, especially in the U.S, and traders are advised to consider this in their Crude Oil positions.
As for the week head, Crude Oil looks to continue with its bullish trend. However, traders should follow the Dollar's value, global equity markets and energy reports this week, as Crude Oil has proven to be a very volatile investment.
Article Source - Full Week of Fundamental Data Looks to Provide Volatility
Key Overnight Developments
• Australian Manufacturing Sector Shrinks at Slowest Pace in 10 Months
• Japanese Workers’ Earnings Fell The Most in Over 18 Years
• New Zealand Economy Will Shrink in Third Quarter, Says Treasury
• Roubini Says Financial System “Very Damaged”, Stocks Rally “Excessive”
The Euro tested above 1.43 in overnight trading but failed to break through once again, ticking in a 60-pip band above 1.4240. The British Pound oscillated in a narrowing range around 1.6740.
Asia Session Highlights
Australia’s AiG Performance of Manufacturing Index rose to 44.5 in July, showing the sector was contracting at the slowest pace since September 2008. The rebound likely owes to generous fiscal aid package: Prime Minister Kevin Rudd and company have distributed over A$12 billion in cash handouts this year and set aside A$22 billion for infrastructure projects. AiG chief executive Heather Ridout said that while the result was “encouraging”, the big question going forward “whether these improvements will be sustained once [fiscal] stimulatory forces have abated.”
Japan’s Labor Cash Earnings fell at an annual pace of -7.1% in June, the largest decline since records began in January 1991. Last week, the jobless rate rose to the highest in 6 years as companies cut production capacity amid the downturn in global demand. Earnings are likely to remain stagnant with unemployment to approach 6% by the second half of 2010 according to a survey of economists conducted by Bloomberg, trimming consumer spending and holding back the world’s second-largest economy from staging a meaningful rebound from the worst recession since World War II.
New Zealand’s Treasury Department said the economy will contract for the sixth consecutive time in the third quarter, shedding 0.2%, with positive growth likely to return in the final three months of 2009. GDP is expected to shrink 0.4% in the three months through June. The Treasury added that consumer spending is likely to “remain soft” as unemployment continues to rise. Indeed, economists forecast the jobless rate will hit 6% this year and average a whopping 7.45% in 2010.
Infamous New York University professor Nouriel Roubini that has earned the nickname “Dr. Doom” for predicting the 2008 credit crisis and recession said the US financial system is still “very damaged” and predicted that the economy will grow at a rate of just 1% for the “next couple of years” as weak credit growth restricts economic recovery. Still, Roubini noted the European Union and Japan are experiencing a “more dynamic” slowdown that that seen in the States and said that US interest rates may rise next year. Turning to the global economy, Roubini said lower spending will hold back growth and cautioned that deflation, not inflation, is the biggest threat to a sustained rebound. On the financial markets, Roubini said recent stock gains are “excessive” while current oil prices are “not justified” and driven primarily by “speculation”. On the US Dollar, Roubini said the greenback may fall against Asian currencies.
Euro Session: What to Expect
German Retail Sales are set to grow 0.9% in the year to June, the first time annualized growth turns positive in five months. The improvement likely owes to the government’s 85 billion euro stimulus plan, which includes spending, tax breaks, and a 2500 euro payment to consumers who trade in their old car and buy a new one. Seasonal forces are also likely to have helped the metric higher, with many German stores running discounting campaigns during the summer. Markit, leading provider of financial information services, said last week that the recent rebound in retail activity was “generally attributed [to] promotional activity.” Looking ahead, weakness in the labor market is likely to keep underlying consumer demand lackluster as the effects of fiscal policy fade and stores run out of room to mark down prices as profit margins narrow. The jobless rate held at a 19-month high of 8.3% in July and the OECD has forecast it will top 11% next year, weighing on disposable incomes and discouraging spending.
Switzerland’s SVME-Purchasing Managers Index is expected to tick higher to 43.6 in July from 41.8 in the previous month, showing that manufacturing is contracting at the slowest pace since October 2008. Most of the sector’s output is exported for sale in the European Union, where ample government spending plans and efforts to top up depleted inventories have slowed the drop in demand brought on by the global economic crisis. Things do not look particularly rosy in the months to come, however, with most industrial countries struggling to find catalysts for continued growth after the flow of stimulus cash dries up.
The UK Manufacturing Purchasing Manager Index is set to follow the same trajectory as its Swiss counterpart: the metric is set to rise for the fifth consecutive month to register at 47.8 in July, driven by stimulus-fueled demand and restocking.
Written by Ilya Spivak, Currency Analyst
Article Source - Stocks Rally is "Excessive", Financial System "Very Damaged" Says Roubini (Euro Open)
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The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
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