Fundamental Analysis 23 October 08
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Analysis <23>: USD The USD continued its unrelenting upward movement against the GBP and the EUR in trading on Wednesday. In the face of stock market woes persisting after disappointing numbers on many 3rd quarter reports, the USD remained steadfast and showed no signs yesterday of giving ground. As the USD has regained its safe haven status the question has now become what is a fair valuation for the greenback compared to the other major currencies. The answer to this remains murky as investors debate not only how the financial crisis will be solved internationally but what affects the bailout packages will have long term on worldwide economies. As talk of a systemic recession grows louder, global investor sentiment has continued to sour and this has actually helped the USD. The U.S. released Crude Oil Inventory data yesterday and the numbers showed a jump of 3.2 million barrels compared to a forecast of 2.3 million. USD traders were little affected by these results. Today the U.S. will release it weekly Unemployment Claims figures and they are expected to show a number of 470K. While it is certainly true that USD investors are paying little heed to fundamental economic data, they may perhaps turn their eyes to employment data because it is an import psychological measure concerning the health of the U.S. economy. Tomorrow will see Existing Home Sales figures. These two combined reports will give investors a bit more insight into the looking glass as they try to decipher the long term. Thus, as a slowdown certainly looms in the U.S., investors certainly will try to gauge the size and scope of its impact. The Federal Reserve’s future actions in dealing with a recession will have to be dealt with monetary policy. With a very low rate of 1.50% currently, the Federal Reserve has little room for mistakes. The USD has remained strong the past few days and its strength will continue to test the GBP and EUR today.
EUR The EUR was besieged once again on Wednesday as it lost ground to the major currencies. The European Union is grappling with negative economic data coming from many fronts and an onslaught of news from its financial sector which still seems to be reporting poor developments from its banking industry on a daily basis. Italian Retail Sales were released yesterday and they came in with a minus -0.5% result, which was worse than the projected 0.1% rise. Today the French will publish their Consumer Spending numbers, the monthly figure is forecasted to show a drop of -0.1%. Also, the Europeans will release their broad Current Account figures and it is expected to be minus -5.0 billion. Tomorrow a large amount of PMI data will come from across Europe. Investors will look to the above numbers but they are certain to continue to brace themselves for results from their equities markets which until now have been spurring on negative sentiment as the poor numbers have been solidifying the belief that the European Union is headed for a recession. The ECB like their counterparts worldwide must face hard realties. The EUR is likely to continue to face downward pressure today. GBP The Sterling had yet another day of volatile trading yesterday as it continues to look for solid footing. The MPC Meeting Minutes produced little fanfare as all of its members voted in favor of the coordinated rate cut. However, the report produced little in the way of information about coming monetary policy. Today the U.K. will release their Retail Sales figures and they are expected to be minus -0.8%. Also, importantly the BBA will publish their Mortgage Approval figures and they are expected to show a result of 20.5K. The economy of the U.K. faces a variety of problems and this was expressed by BoE Governor King a couple of days ago when he spoke about the possibility of a prolonged recession. The BoE is certainly under pressure to create some type of stimulus for the U.K. and politicians are leading this call in many cases. Investors are carefully appraising and anticipating the Bank of England’s monetary policy and its next move. The Sterling will be tested further today.
JPY The JPY continued to be the strongest of the major currencies on Wednesday as it continued to pick up ground on the USD as global equity markets struggled once again. It has also become apparent that currency pairs from emerging markets with the JPY are being unwound and this is helping power the Japanese currency further. The JPY has clearly been a benefactor as investors have become increasing risk adverse in these chaotic markets.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
EUR The EUR was besieged once again on Wednesday as it lost ground to the major currencies. The European Union is grappling with negative economic data coming from many fronts and an onslaught of news from its financial sector which still seems to be reporting poor developments from its banking industry on a daily basis. Italian Retail Sales were released yesterday and they came in with a minus -0.5% result, which was worse than the projected 0.1% rise. Today the French will publish their Consumer Spending numbers, the monthly figure is forecasted to show a drop of -0.1%. Also, the Europeans will release their broad Current Account figures and it is expected to be minus -5.0 billion. Tomorrow a large amount of PMI data will come from across Europe. Investors will look to the above numbers but they are certain to continue to brace themselves for results from their equities markets which until now have been spurring on negative sentiment as the poor numbers have been solidifying the belief that the European Union is headed for a recession. The ECB like their counterparts worldwide must face hard realties. The EUR is likely to continue to face downward pressure today. GBP The Sterling had yet another day of volatile trading yesterday as it continues to look for solid footing. The MPC Meeting Minutes produced little fanfare as all of its members voted in favor of the coordinated rate cut. However, the report produced little in the way of information about coming monetary policy. Today the U.K. will release their Retail Sales figures and they are expected to be minus -0.8%. Also, importantly the BBA will publish their Mortgage Approval figures and they are expected to show a result of 20.5K. The economy of the U.K. faces a variety of problems and this was expressed by BoE Governor King a couple of days ago when he spoke about the possibility of a prolonged recession. The BoE is certainly under pressure to create some type of stimulus for the U.K. and politicians are leading this call in many cases. Investors are carefully appraising and anticipating the Bank of England’s monetary policy and its next move. The Sterling will be tested further today.
JPY The JPY continued to be the strongest of the major currencies on Wednesday as it continued to pick up ground on the USD as global equity markets struggled once again. It has also become apparent that currency pairs from emerging markets with the JPY are being unwound and this is helping power the Japanese currency further. The JPY has clearly been a benefactor as investors have become increasing risk adverse in these chaotic markets.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
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