Fundamental Report for the Week of August 8, 2010
Monday, August 09, 2010
I really expected some correctional moves after last week’s volatile Non-Farm Payroll (NFP) report. However, most pairs merely consolidated near last Monday/Tuesday resistance levels.
The Euro and Pound did weaken, mildly, on a strong equities market that is gaining strength on assumptions that a weak jobs report will be cause for another round of stimulus.
This big winner on this assumption, however, is the weakening Japanese Yen as it retraced deeply on the presumption that further infusions from the U.S. are in order.
Tuesday, August 10, 2010
The Euro, Pound, Kiwi and Loonie all lost traction against the Greenback in the early part of the NY Session. Since there wasn’t much in the way of the economic calendar to create the pullback it seems to be due, in most part, to highly overbought conditions on these currencies.
However, the Federal Open Market Committee’s (FOMC) announcement to try and regain some footing in economic growth by purchasing long-term Treasury instruments came as a big surprise to investors. The market responded with a very quick, highly emotional USD selloff across the board.
The Federal Reserve’s goal is to meet the recent economic slowdown with a stop-gap measure on interest payments – similar to a consumer’s effort to pay down principal debt in order to create more room in the household budget sooner, rather than later.
The additional liquidity to the USD is likely to be short lived, however. We will need to see a rise in treasury rates in order to sustain any kind of financial benefit from this perfunctory measure, but with more signs of growth around the corner (remember those manufacturing signposts I talked about last week) that may not be entirely out of the question.
Wednesday, August 11, 2010
I couldn’t think of a better way to explain it so I’m quoting directly from the Dow Jones Newswires: “European stocks fell sharply Wednesday after the Federal Reserve’s cautious comments on the U.S. economy, weak Chinese data and a cut by the Bank of England in its economic growth forecast, which also sent sterling tumbling and U.K. government bonds jumping.”
As shown by the USD and JPY buying frenzy, this overall time of uncertainty is creating a risk-averse market reaction. In all of the major pairs, except the USD/JPY, the USD has come out strong. Highly overbought conditions in the Euro and the Sterling has made them take the hardest hit in the non-USD selloff.
The overall view seems to be that the Fed’s move on Tuesday and the slowdown in growth for the major economies is proof that we’re not out of the woods yet and a double-dip recession is still a good possibility.
Thursday, August 12, 2010
More bad U.S. jobs news (484K lost) slowly pushed the USD to the wayside in the NY session as the USD bulls took their money and went home.
The Euro, Pound and Loonie all made small gains on the USD weakness, bringing prices to relatively small pullback levels across the board.
In light of recent growth slowdowns for major economies across the board have begun a real doom and gloom outlook for global recovery.
The technical pullback away from the USD trend-side lines the market up nicely for some risk aversion type trading to the USD and JPY side next week.
Friday, August 13, 2010
The Euro posted preliminary Gross Domestic Product numbers for Germany indicating and increase in production, (from .2% to 2.2%). This strong of an increase helped contribute to the EZ’s positive trade balance, moving from -3.4B to 2.4B. This shows strong growth and further growth opportunity for the European Union, even though it didn’t translate into Euro strength today.
The Pound and the Loonie are suffering from lack of news syndrome as they both consolidate at yesterday’s levels.
U.S. Dollar gets a confidence boost today from an increase in the Consumer Price Index (CPI). At first glance it may not make sense that a currency would strengthen from higher consumer prices, especially with so many employment losses reported yesterday. In this case, however, an increase in prices gives some confidence to the market as a marker for decreased deflation risk. Deflation is simply a drop in consumer prices due to a drop in money or credit supply. The reason that is such a scary subject to some is that, prolonged over time, it could mean to more job losses. People stop earning, they stop buying, the stores stop selling so they do more firing. The cycle goes on. So, in this case an increase in prices is a bit of delay off of the first half of the year’s strong hiring and acts as a natural check and balance to the inflation/deflation cycle.
Now you couple that with the news that U.S. Retail Sales have actually increased in July you get good news for the USD.
All eyes turn to the Japanese as they threaten, once again, to intervene on behalf of their ever-strengthening currency. This could be a difficult for Japan at this point without some kind of loosening among other major economies, but that doesn’t mean that they won’t try manipulating the perception of the market with tough talk and at least the perfunctory filing of paperwork and legal action. Even if it stagnates there it could be enough to hold off further JPY buying for the time it takes for a second recovery stage to take hold.
Triffany Hammond helps traders of all levels, gain the tools, resources and guidance necessary to build on their strengths and work around their weaknesses so that they can make the best possible decisions for themselves in the Forex Market. Triffany is a regular speaker and contributor at 
