Fundamental Analysis 16 October 08
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Analysis <16>: USD The USD gained on the GBP and the EUR on a day that watched global equities suffer yet another day of withering value. Positive sentiment from the announced rescue packages in the U.S. and other governments seems to have eroded and stock markets are suffering once again. In a somber speech yesterday, Federal Reserve Chairman Bernanke quietly said that the underlying reasons for the financial crisis are bigger than poor corporate governance within financial institutions. As the USD gained against the GBP and EUR, even as U.S. economic data produced negative numbers, it has become apparent that some investors now consider the USD a safe haven as this crisis deepens. Core Retail Sales were below expectations coming in at minus -0.6%, compared to the forecasted minus -0.3. PPI monthly figures met estimates and produced a minus -0.4% result. The most ominous statistic of the day belonged to the Empire State Manufacturing Index which came in with a staggeringly bad minus -24.6 reading, far below the projection of minus -9.0. The U.S economy appears to be on the threshold of a recession and today there will be further data to examine. An avalanche of releases are scheduled starting with the Core CPI which is forecasted to be 0.2%, weekly Unemployment Claims will be published at the same time and are expected to show a 469K number – which would be slightly better than the previous result of 478K. Next is the TIC Net Long Term Transaction figure, which is estimated to be 28.0 billion USD. Another important piece of data will be the Philly Fed’s Manufacturing Index which is projected to have a reading of minus -9.0. All of this data on a typical day would cause wild conjecture, but this is not a normal trading environment and fundamentals are being outweighed by negative investor sentiment which shows little signs of relenting for the time being. Tomorrow Building Permit data and Consumer Sentiment numbers are due for release. Investors will continue to have a busy day as they must pay close attention to a wide array of market results, data, and developing news which has become a daily event as various government officials make their opinions known. The USD could continue to show signs of strength today.
EUR The EUR lost ground to the USD on Wednesday as investors continued to express skepticism about the ability of the European Union to offer a unified plan to cope with the financial crisis. Some banking institutions in Europe, like their counterparts in the U.S., are facing increasing liquidity issues and admitting large financial losses. EUR investor confidence appears to be under attack as negative data continues to point to a recession. Yesterday CPI data met expectations as the broad European index came in with a result of 3.6%. Today there will be no major economic data except for Italian Trade Balance figures, which is expected to have a reading of minus -1.20 billion. Tomorrow the broad European Trade Balance numbers will be released. The major economic risk events for EUR investors will likely come from various government heads of state. French President Sarkozy continues to press for coordinated action from Europe and is calling for a ‘new financial order’. Investors, however, will have to judge the substance of such talk and seem to question the ability of the 27 member European Union acting in a coordinated economic fashion. The EUR may face renewed pressure today.
GBP The Sterling weakened against the USD as GBP traders continued to show nervous sentiment about the future of the U.K economy and BoE monetary policy. Though the U.K. Claimant Count Change came in better than expected with a number of 31.8K compared to the forecasted 35K, the Unemployment Rate did no favors and climbed to 5.7%. Bank of England MPC member David Blanchflower promptly followed up with comments suggesting that the U.K. economy was in trouble and that the unemployment numbers were “horrendous and much worse than I feared”. Blanchflower has been a noted dove among the BoE members for a long time, the question investors will be asking is what the other members of the MPC are currently thinking. The U.K. has no major economic releases planned for today or tomorrow. The Sterling will largely trade on market sentiment reinforced by the likelihood that other U.K. government officials will speak today.
JPY The JPY continued to pick up a bit of ground on Wednesday as world equity markets plummeted, once again leaving JPY carry traders skittish about risk appetite. The JPY has been a particularly stable currency the past few weeks as the financial crisis has deepened as risk adverse investors have perhaps used the currency as a safe haven. If the global stock markets continue to face pressure, the JPY should continue to show strength.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
EUR The EUR lost ground to the USD on Wednesday as investors continued to express skepticism about the ability of the European Union to offer a unified plan to cope with the financial crisis. Some banking institutions in Europe, like their counterparts in the U.S., are facing increasing liquidity issues and admitting large financial losses. EUR investor confidence appears to be under attack as negative data continues to point to a recession. Yesterday CPI data met expectations as the broad European index came in with a result of 3.6%. Today there will be no major economic data except for Italian Trade Balance figures, which is expected to have a reading of minus -1.20 billion. Tomorrow the broad European Trade Balance numbers will be released. The major economic risk events for EUR investors will likely come from various government heads of state. French President Sarkozy continues to press for coordinated action from Europe and is calling for a ‘new financial order’. Investors, however, will have to judge the substance of such talk and seem to question the ability of the 27 member European Union acting in a coordinated economic fashion. The EUR may face renewed pressure today.
GBP The Sterling weakened against the USD as GBP traders continued to show nervous sentiment about the future of the U.K economy and BoE monetary policy. Though the U.K. Claimant Count Change came in better than expected with a number of 31.8K compared to the forecasted 35K, the Unemployment Rate did no favors and climbed to 5.7%. Bank of England MPC member David Blanchflower promptly followed up with comments suggesting that the U.K. economy was in trouble and that the unemployment numbers were “horrendous and much worse than I feared”. Blanchflower has been a noted dove among the BoE members for a long time, the question investors will be asking is what the other members of the MPC are currently thinking. The U.K. has no major economic releases planned for today or tomorrow. The Sterling will largely trade on market sentiment reinforced by the likelihood that other U.K. government officials will speak today.
JPY The JPY continued to pick up a bit of ground on Wednesday as world equity markets plummeted, once again leaving JPY carry traders skittish about risk appetite. The JPY has been a particularly stable currency the past few weeks as the financial crisis has deepened as risk adverse investors have perhaps used the currency as a safe haven. If the global stock markets continue to face pressure, the JPY should continue to show strength.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
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