Last Week’s U.S. Dollar Recap:
The Greenback had a mixed week against the other major currencies, losing significant ground against the NZD and CAD, falling a bit against Sterling and rising against both the Euro and Yen. The United States seems to be furthering its recovery somewhat, as was pointed out by U.S. Treasury Secretary Geithner after the G-20 meetings held last week in Washington D.C.
Another main issue discussed at the G-20 meeting involved a possible Chinese Yuan revaluation against the U.S. Dollar. The United States has been pushing for this revaluation lately, and the idea is now also receiving support from India, Brazil and European Union financial officials, as well as the IMF. Nevertheless, the risk of rising inflation in the United States continues to persist. Thisfact was highlighted in Thursday’s PPI release which showed the headline number
rose 0.7% month-on-month versus the market’s consensus for a 0.4% rise. Still, the core PPI number remained in line with the market at 0.1%. With respect to the U.S. housing market, Thursday’s Existing Home Sales also showed some improvement, coming in at 5.35M versus the 5.28M expected and the 5.01M reading seen the previous month. Friday’s New Home Sales number also improved, showing a 411K versus the 326K expected and the previous number of
324K that was revised up from 308K. With that said, house prices continued to fall last month as sellers became more realistic about the current level of prices and mark their properties lower, as was shown by the House Price Index which fell 0.2% month-on-month.
Friday’s Durable Goods Orders showed an impressive rise in the core number of 2.8%, versus the consensus of 0.7% and the previous 1.7% print that was revised upwards from an initial 0.9%. Nevertheless, this improvement was offset by the fall in non-core Durable Goods Orders of -1.3% versus the 0.2% rise expected, and the upward revision of 1.1% to the previous month versus its original 0.5% print.
This Week’s U.S. Outlook:
The U.S. economic calendar has another important week coming up after the biannual IMF Meeting in Washington D.C. concludes on Sunday. The U.S. data releases start on Tuesday with the S&P/CS Composite-20 HPI (1.4%Y/Y), CB Consumer Confidence (53.7), and testimony by Fed Chairman Bernanke in Washington D.C. before the National Commission on Fiscal Responsibility and Reform and the Richmond Manufacturing Index (7). On Wednesday, the key FOMC Statement and Fed Funds Rate announcement is expected to leave the rate unchanged at <0.25%. Thursday has Initial Jobless Claims (442K), while Friday features Advance GDP
(3.4% and 0.9% Price Index Q/Q), the Employment Cost Index (0.6% Q/Q), Chicago PMI (60.0), Revised UofM Consumer Sentiment (71.2) and Revised UofM Inflation Expectations (last 2.9%). Saturday has a speech by FOMC Member Duke scheduled in Philadelphia.
Some sweets from Forex Blog.In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking and on a report that home prices growth is slowing showing signs that the previous five rate hikes have been helping to allow growth to proceed moderately.
Loonie (CAD): The Loonie is higher this morning on risk-taking as oil is higher to just above $84. The BOC Governor Carney will be testifying today and the market may be concerned that he may attempt to further squash hopes of a rate hike in a follow up to yesterday’s quote about nothing being “pre-ordained”. The Loonie is getting an added boost from the New Zealand decision to keep rates stable.
Kiwi (NZD): The Kiwi is higher on risk-taking as well despite the fact that the RBNZ maintained rates at a record low 2.5% citing “elevated risks” in the marketplace. Future rate hikes will be forthcoming down the road provided a broad-based recovery continues. In addition, trade balance figures came in better than expected, showing signs that indeed recovery is taking place.
Euro (EUR): Unemployment figures came in much better than expected, and Euro zone confidence figures came in better than expected despite all of the problems related to the Greek debt crisis. I wrote a while back that the term “Chermany” was going to be important in the global economy in the near future. China is to the US what Germany is to the rest of the EU. They export goods and encourage debt. China has prospered due to its currency peg; and Germany due to its EU participation. If Germany continues to drag out this bailout process, they may ultimately be responsible for the Euro’s demise.
Pound (GBP): The Pound is higher this morning as UK home prices advanced the most since 2007, halting a two-day decline as risk appetite returned to the market. Expect the Pound to continue to trade sideways until after the outcome of the next week’s elections.
Dollar (USD): The Dollar is lower this morning as the Fed left rates unchanged yesterday and continued with the “extended period” language. They also signaled that sustained job gains would be necessary to consider moving on rates. Initial jobless claims figures dropped 11K to 448K, but don’t let the “Lamestream” Media fool you into believing that the jobs picture is getting better. This is most certainly a case of “less bad” and at this pace the Fed will be keeping rates low for a very LONG “extended period”.
Yen (JPY): The yen is lower on a resumption of carry trades as yield-seeking is taking place.
Within the next two weeks, we should have a good idea of what level of risk there is in the marketplace. There are two major elections occurring over that time span, one in the UK, the other in Germany.
If the current regime in Germany can maintain its power in the May 9th elections, than expect a resolution to happen rather quickly despite its unpopularity. If the balance of power should shift, then there could be further delays which could cause problems with Greece’s next debt payment due in mid-may.
So until these elections pass, I expect some range-bound trading. We will certainly have days of different measures of risk based on economic data points, but the election and subsequent resolution to the EU debt crisis is paramount.
So my bias is toward risk appetite, with a quick trigger to get out if risk-aversion should heat up. In other words, I am keeping my trading short-term and taking what the market gives me, rather than trying to guess what will take place. I advise traders out there to do the same.