Fundamental Analysis 17 October 08
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Analysis <17>: USD The USD had an inconsistent day of trading on Thursday following the lead of the global equity markets which continue to suffer from volatile sentiment. By the end of the day the USD lost ground to the GBP and EUR but this was not without a fight and a broad trading range. Economic releases, the foundation of many investor’s whims, have taken a backseat to the ongoing sentiment being generated daily by the financial crisis. Concerns about liquidity and their affect on credit lines for trading have placed a great amount of strain on investors as they find themselves confronting fast changing equity and commodity markets. The first two economic releases published yesterday in the U.S. provided fair results as the Core CPI came in with a 0.1% result, barely missing the 0.2% expectation. Weekly Unemployment Claims produced a 461K number, which was better than the projected 469K. However, the next two key reports were negative, the TIC Net Long Term Transaction figures had a drop to 14.0 billion from the previous figure of 28.0 billion. The most disappointing news was from the Philly Fed Manufacturing Index which had a startling drop to minus -37.5, miles below the expected reading of -9.0. Today in what typically would be considered huge data, Building Permits figures will be released and are forecasted to be .84 million compared to the previous number of .86 million. This will be followed by the University of Michigan Preliminary Consumer Sentiment numbers which are estimated to be 66.0 after a reading of 70.3 before. Given that the Empire State Manufacturing Index and the Philly Fed’s Manufacturing reports have provided such negative data the past two days, investors will watch the results of the Consumer Sentiment numbers closely. Whether traders use these numbers is another matter, as the market is still reacting to ‘outside risk events’ coming from government pronouncements. Speculation is rife regarding all the major central banks and their monetary policies. The U.S. does appear on the cusp of a recession per most economic data, certainly the pressures inflicted from the developing financial crisis will not help the situation. The Federal Reserve’s next interest rate meeting is scheduled for the last week of October and there is a large debate among economists and investors as to what the Fed’s next move should be. The USD will find itself tested today in what may be a consolidated range.
EUR The EUR picked up some ground against the USD in rather unspectacular fashion on Thursday. The EUR seems to be settling into an uncomfortable range against the USD as the financial crisis is digested by more investors and as they watch various governments and officials step up to the microphone and offer their opinions on how best to deal with the meltdown. Yesterday the Italian’s released their trade balance figures and they had a minus -2.12 billion result, which was below the expected minus -1.20 billion. Today the Europeans will release their broad Trade Balance data, the number is expected to be minus -5.4 billion, lower than the previous result of minus – 6.4 billion. The trade balance numbers today will not have a spectacular affect on trading unless they miss their estimate by a very large margin. Investors will be paying more attention to the ongoing meetings and statements concerning the financial crisis. The ECB will also continue to be monitored regarding any opinions it offers. While the EUR may trade in a dollar centric fashion, it is more apt to say that investors will be affected by the ongoing developments that abound.
GBP The GBP found firmer ground on Thursday against the USD on a day that the U.K. produced no major economic releases, today will also be void of data. The U.K. government is under a profound amount of pressure from its constituents to act as consumers face the perils of a recession. Because of this, elected officials have been vocal about their beliefs concerning what actions the Bank of England should be undertaking with their monetary policy. The interest rate of the U.K. remains the highest of the major central banks at 4.50% and many investors believe that the BoE should act sooner rather than later to provide economic relief. If and when that is going to happen - is providing much of the trading impetus for the Sterling presently. Expect the GBP to continue to trade under pressure as traders have their sentiment tested.
JPY The JPY lost ground to the USD on Thursday as global equity markets regained their composure and rebounded. Risk appetite which has been dormant to a large degree made an appearance. This was highlighted perhaps by the continuing weakness in the price of gold which dropped dramatically once again on Thursday. Equity markets will continue to provide clues to the direction of the JPY.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
EUR The EUR picked up some ground against the USD in rather unspectacular fashion on Thursday. The EUR seems to be settling into an uncomfortable range against the USD as the financial crisis is digested by more investors and as they watch various governments and officials step up to the microphone and offer their opinions on how best to deal with the meltdown. Yesterday the Italian’s released their trade balance figures and they had a minus -2.12 billion result, which was below the expected minus -1.20 billion. Today the Europeans will release their broad Trade Balance data, the number is expected to be minus -5.4 billion, lower than the previous result of minus – 6.4 billion. The trade balance numbers today will not have a spectacular affect on trading unless they miss their estimate by a very large margin. Investors will be paying more attention to the ongoing meetings and statements concerning the financial crisis. The ECB will also continue to be monitored regarding any opinions it offers. While the EUR may trade in a dollar centric fashion, it is more apt to say that investors will be affected by the ongoing developments that abound.
GBP The GBP found firmer ground on Thursday against the USD on a day that the U.K. produced no major economic releases, today will also be void of data. The U.K. government is under a profound amount of pressure from its constituents to act as consumers face the perils of a recession. Because of this, elected officials have been vocal about their beliefs concerning what actions the Bank of England should be undertaking with their monetary policy. The interest rate of the U.K. remains the highest of the major central banks at 4.50% and many investors believe that the BoE should act sooner rather than later to provide economic relief. If and when that is going to happen - is providing much of the trading impetus for the Sterling presently. Expect the GBP to continue to trade under pressure as traders have their sentiment tested.
JPY The JPY lost ground to the USD on Thursday as global equity markets regained their composure and rebounded. Risk appetite which has been dormant to a large degree made an appearance. This was highlighted perhaps by the continuing weakness in the price of gold which dropped dramatically once again on Thursday. Equity markets will continue to provide clues to the direction of the JPY.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
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