USD - USD Slides on Poor Economic Data
During yesterday's trading, the Dollar dropped against all the major currencies. The Dollar dropped as much as 100 pips at one point against the EUR on Thursday, and saw bearish trends against the Pound and the Yen as well.
The Dollar weakened yesterday as a result of series of negative economic data releases. The U.S Retails Sales unexpectedly dropped by 0.1% in July, failing to reach expectations to rise by 1.8%. The U.S Core Retails Sales dropped by 0.6% in July too. The difference between the two reports is that the core report measures the change in the total value of sales at the retail level, excluding automobiles, due to the high volatility of automobile sales. The fact that both indices showed negative figures proves that American consumers are still cautious regarding their expenses, lacking the confidence that the worst of the recession is behind us
The other important release that helped push down the Dollar on Thursday was the weekly Unemployment Claims report which showed that 558,000 individuals filed for unemployment insurance for the first time during the past week. Both the negative Retails Sales data and the poor employment figures showed that the U.S economy is yet to pull out of recession, and thus the Dollar weakened as the trading day progressed.
Looking ahead to today, the leading data seems to be the Consumer Price Indices (CPI). The CPI measures the change in price of goods and services purchased by consumers, and thus act as a leading inflation gauge. Traders are advised to focus their attention on the Core CPI report, which excludes food and energy prices, as it tends to deliver a more reliable figure. Current forecasts suggest that prices have stayed quite stable during July. It appears that if the actual result will be similar or slightly better, it may correct some of yesterday's losses for the Dollar. However, in case of a worse-than-expected result, the Dollar is likely to continue tumbling.
EUR - EUR Soars on Positive GDP Figures
The EUR saw a volatile trading session yesterday. The EUR rose significantly higher against the Dollar, as the EUR/USD reached the 1.4300 level. However, the EUR saw mixed results against both the Yen and the Pound.
It appears that the EUR's appreciation came as a result of the better-than-expected economic data. The German Preliminary Gross Domestic Product (GDP) unexpectedly rose by 0.3% in the 2nd quarter. The GDP report measures the change in the inflation-adjusted value of all goods and services produced by the economy. The positive result generated speculations that the German economy is recovering sooner then expected, as many analysts wrongly forecast that the German economy will only pull out of recession by the middle of 2010.
Later on in Thursday's trading day, the European Flash GDP was released, showing that the Euro-Zone's GDP dropped by 0.1% during the 2nd quarter, beating expectations for a 0.5% slide. The better-than-expected figures created the sensation that the Euro-Zone economy is following the U.S optimism which we have seen in the past 2 months that the recession will end sooner than expected. As a result, this has strengthened the EUR.
As for today, a batch of data is expected from the European economies. The French Preliminary Non-Farm Payrolls will be released, and analysts forecast that 0.7% people have lost their jobs during the previous quarter in France. The European Consumer Prices Indices are also expected today, and are predicted to deliver mixed results. It currently seems that if the actual results will be similar to forecasts, the EUR may drop slightly due to the overall negative figures.
JPY - Yen Rises on Asian Equity Rally
The JPY started yesterday's trading with bullish trends against all the major currencies. The Yen continued to rise against the Dollar, yet later on lost gains against the EUR and the Pound. The Yen soared against the major pairs as a rally in Asian stocks spurred demand for higher-yielding assets. The Bank of Japan stated yesterday that Japan's economic conditions have stopped worsening, and are likely to turn upward over time. This created positive sentiment which was reflected in Asian stock markets, and was followed by a strengthening Yen.
Yesterday, the Tertiary Industry Activity report showed that the total value of services purchased by business rose by 0.1% in June. This is another indication that Japanese consumers feel safer to enlarge their expenses, which means that the general sentiment is that the economy is doing better. Looking ahead to today, no significant data is expected from the Japanese economy. Traders should mainly focus on the major data releases from the U.S economy, as this is likely set the tone for today's trading.
Crude Oil - Crude Oil Eyes $73 a Barrel
Crude Oil continued to rise yesterday, marking the second consecutive day of rising prices. A barrel of Crude Oil rose to over $72 during yesterday's trading session, and now eyes $73 a barrel. Crude was helped by a weak USD Dollar, as the commodity is valued in Dollars, and thus a drop of the Dollar against the major currencies is usually followed by a rise in commodities prices, especially Oil.
The rise in Crude Oil and the weak USD was largely due U.S equities rallying to a 10-month high, and the German and French economies delivering better than expected data. What seems to be an early recovery for the leading western economies has sparked optimism for a rebound in fuel demand. It currently seems that every positive economic figure from the U.S or the Euro-Zone may spark an appreciation in Oil prices, as expectations for higher fuel demand are constantly growing.
Article Source - Dollar Anticipates Release of U.S. Core CPI
Key Overnight Developments
• RBA’s Stevens Conjures ‘Emergency’ Rate Increase Speculation
• New Zealand Retail Sales Unexpectedly Gain in June
• Some Bank of Japan Members Wanted to Extend Program
Pound traders eased into the Asian session after a volatile U.S. session sent Sterling bouncing between pivot support and resistance against the Dollar. Euro price action, at the time of this publication, was set to end its five day winning streak against the greenback.
Asia Session Highlights
New Zealand Retail Sales rose 0.1% in June, much stronger than the anticipated 0.3% contractionary figure. Despite a continued growth, spending gains still performed weaker than in the previous month. The previous period may have been a simple green shoot as the figure happened to be the strongest of such in 12 months. Spending in the three months ending June, however, saw the first gain in retail sales in seven quarters. Such activity occurred in a period in which wages grew by the slowest pace in 10 years, adding to speculation that much of this spree has been led by cash handouts implemented by the New Zealand government. Additionally, it does seem odd that a turnaround of this magnitude could occur at such a rapid pace; the previous quarter's sales figure contracted 2.7%. As the market mechanism kicks in again and the government's cash handouts are phased from the metric, labor market weakness will regain the reigns. Keep in mind that the country's Finance Minister, Bill English, stated two weeks ago that the administration expects the unemployment rate to continue rising for quite some time.
Minutes of the July 14-15 meeting of the Bank of Japan revealed that they will extend purchases of corporate debt and asset-backed paper by there additional months, until December 31. Despite economic conditions which have "stopped worsening" there are still some key companies that are lacking the credit to stay afloat. "Another extension might become necessary if the bank's judgment was that the situation had not improved sufficiently," some board members added." An extension of such alternative methods of monetary easing would be welcomed in the country which has, in June, seen retail sales plummet significantly more than forecast and the unemployment rate rise more than anticipated.
Reserve Bank of Australia Governor Glenn Stevens said that the bank will raise it's "emergency" level overnight cash rate as the economy recovers from recession. At his half-yearly testimony given to parliament's finance committee, the 51-year old head of the RBA said "there will come a time when the exceptional monetary stimulus in place at present will no longer be needed." The hawkishly sharper rhetoric is a stark change from that which was given in the minute of their meeting five weeks ago. Perhaps the RBA is playing a game of chicken - at their latest meeting they revised their 2009 growth estimate up to 0.5% from a contraction of -1.0%. But it seems as though the market didn't buy it.
Euro Session: What to Expect
Euro-Zone Consumer Prices in July are expected to have shrunk for the first time since the start of the year on a monthly basis. Looking at the figure on a year-over-year basis, prices have been trending downward as last summer’s oil-based inflation continues to be phased out of the yearly number. But this next piece of data might be a bit better than the Bloomberg consensus would have one believe. Just yesterday it was announced that German and French GDP had unexpectedly grown in the second quarter of the year. On a broader-spectrum, the Euro-Zone economy contracted at a slower pace than estimates had originally figured. Much of this may have been due to labor conditions which had improved. Spain, the country in the area with the largest amount of job losses in the last year, had to revise their joblessness rate down. As such, the fact that there are additional laborers employed may raise inflationary pressures as the dwindling number of free workers declines. Although this may seem logical in theory, wages are sticky and take some time to adjust to an equilibrium level of supply and demand. Furthermore, if there was indeed a greater level of free cash floating in the pockets of ordinary citizens, it would have made sense for consumer spending to have risen. Unfortunately, June saw retail sales decline 0.2% when forecasts calls for a rise of 0.3% in the figure. The two contradictory indicators lead to some confusion. Nonetheless, unexpected growth will likely weigh in some for or another.
Written by Luis Gil, DailyFX Research
Article Source - Australia Readies to Raise Interest Rates, Says Central Bank Chief (Euro Open)
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