Fundamental Report for the Week of June 18, 2010

Monday, June 14, 2010

The market continued trading in the direction of last week’s closing momentum, but since there hasn’t been any catastrophic news the gains seem to be mostly on an increase in risk appetite.

I was watching the NZD/USD for a reaction to a predictably declining Retail Sales number as predicated by their declining Visitor Arrivals and Credit Card spending.  But the Kiwi held its ground, even climbed on what seemed to be a larger market willingness to invest in the recently raised interest rate on the New Zealand Dollar.  With no news to sustain it, however, the USD recovered a bit of the loss sustained and merely brought the pair back to consolidation.

The EUR/USD nudged back up to the middle of its previous consolidation area, giving me reason to believe it has reset the game as far as overall opinion and momentum.  The EU’s MoM Industrial production was cut in half, moving from 1.6% in March to .8% in April.  Interestingly last week’s anomalous divergence with the YoY data has occurred here, as well, showing an almost two point increase, from 7.7% to 9.5%.  What that divergence signals, I’m not sure, but it may mean that revisions are coming.

The GBP flirted with recent highs again.  Without any supporting news out of Britain it could merely risk on the increased risk appetite, however Tuesday’s Retail Price Index (RPI) and Consumer Price Index (CPI) numbers, could be market moving enough to move it outside of the range it has found today.  The market is expecting a decline in both which be bad news in the short term (as the market is looking for a reason to consider and interest rate hike), but good news in the long term as declining prices would help the already strapped British consumer to buy with cash and not on credit.

The USD/CAD is stuck, ranging and consolidating.  With no news to push it along until tomorrow afternoon it is likely to stay range bound at least until then if not longer since their Leading Indicators report doesn’t come out until Friday.

Late day news that Greece’s credit rating was drastically cut to non-investment grade by Moody’s may be tipping the market back into some risk aversion into Asian session and later Euro-session considering they’re the second investment house to downgrade the floundering nation.

Tuesday, June 15, 2010

Non-Resident bond holdings gave a short term lift to the Kiwi, but not enough to create any real volume as it quickly retraced and sat around twiddling its thumbs all day.

The EU actually posted some not-as-bad news with a rise in Italy’s Trade balance from -1342 to -829, but for a report that isn’t really all that market moving it seems that the Euro was simply gaining on one more reach in the market’s risk appetite.  Later it was hit with a dismal 1.8B Trade balance showing a decrease by 2.7B over March’s numbers.

The GBP experienced a quick rise in value as the market tried to priced in a decrease in costs of goods as represented by the decrease in the RPI and CPI.  It seems the market wound up being disappointed overall, however as there had been pre-announcement talk of how an increase in both numbers would indicate that inflationary pressure on the British economy might preempt a rise in interest rates.  But that sentiment seemed to die quickly with an actual decrease in the MoM (from .6% to .2%) and YoY (3.7% to 3.4%) CPI data as well as a decrease in the MoM (1% to .4%) and YoY (5.3% and 5.1%) RPI data.

The CAD continues to consolidate as well, even with some bad news coming from their Labour Productivity and Manufactuting Shipments, indicating a possible pullback in their Employment and Production numbers.

The risk pairs, particularly the EUR/JPY and GBP/JPY, continued to consolidate as well as they relationship with the JPY has yet to be flushed out since the Hatoyama resigned.

Wednesday, June 16, 2010

During the Asian/European Session overlap Russia announced that it is considering adding the Aussie and the Loonie to its reserves for the first time ever.  While they’re still deliberating over the AUD (expressing concern over liquidity), they have confirmed that they will buy CAD, however they haven’t begun doing so quite yet.   There may be an opportunity to buy the rumor on this soon.

Italy’s news was stable in all announcements lending confidence to the market place and allowing it to stabilize near the same supply/demand zones as Tuesday for the tail end of the European session and through most of the NY session.  Late day USD news and renewed fears on Spain’s outlook did drive the EUR/USD back a tad, however before Asian session buying sentiment picked up again on the overall vote of confidence with stable numbers and discussion of big money’s (primarily the International Monetary Fund (IMF) and the U.S.) willingness to extend a loan to the battered Spanish.

Similarly, the GBP experienced the same dip, then climb experience on what seemed to be overall market enthusiasm.  However, Britons have reason to feel wishy-washy on mixed news considering that retails sales are slowing while jobs are improving possibly indicating that consumers prefer savings (or debt payment) over new purchases.  Good news for the citizens of Great Britain, but it muddies the waters for the economy on the whole.  Did they really think it was the consumers’ jobs to fix this mess?  Perhaps, but market stabilizing spending cannot be sustained long-term.

Late US Session brought a slight surprise with an increase in Production Prices and a decrease in Housing Starts and Building Permits.  This could be the pullback that is due for the recent climb in U.S. economic data.  The bright spot was the increase in Industrial Production (up to 1.2% from.8%) and Capacity Utilization (up to 74.7% from 73.70%) indicating that the U.S. is still producing and therefore growing.  Slow and steady will win this race.  This good news was able to infuse some confidence back into the market and provide a USD selloff.

Thursday, June 17, 2010

Though the line of credit to Spain rumors were denied, the Spanish bond auctions were a surprise success (selling $4.3B of debt) that infused enthusiasm into the buy side of the EUR/USD, nudging it off of recent support and to slightly higher highs back to around the 1.24 mark.  My issue with this recent rise in confidence in Spain, and by extension the Euro, is that Spain’s treasury debt comes due in July…to the tune of a near 25 BILLION Euros.  Without some line of credit or rescue plan it could get hit very soon and very hard.

The Cable rebounded on a surprise increase in Retail Sales (MoM increase of .3%, YoY .4%) but struggles near its new favorite resistance level, 1.4830.

The United States may be seeing signs of relief from an inflationary standpoint with a decrease in their Consumer Price Index.  That news couldn’t really help the USD over the large dip in the Philadelphia Fed Manufacturing Survey, plummeting from 21.4 to 8.  It has been clear that the climbing GDP and jobs numbers were due for a pullback, especially after some large jumps – and this may just be evidence of that pause.  However, a jittery market may assign more meaning and the largest economy in the world pulling back could trigger fear-based trading once again.

Friday, June 18, 2010

Mixed signals on Italy and Germany’s Industrial Orders and Producer Prices has kept the Euro ranging on the week’s last trading day with a slight end of day/week whipsaw at support levels.  The rally for the Euro seems to be over as big decisions look primed to be made over the weekend regarding bailouts and bond holdings so we may experience some “when in doubt stay out” kind of sentiment early next week while the market cleans up the edges of its decision making.

Correlating with the Euro once again, the GBP’s good news/bad news situation created similar pricing into the GBP/USD.  Big news facing the GBP next week will be BP’s own $20B rescue fund – if those numbers affect the British oil industry as a whole, the London market may see a hit early next week as it assesses the financial damage.

The USD stayed tight as the equities market toyed around within its range and sent no clear message to the market makers about direction or intention.  Part of this action is due to expirations on derivatives, and part of it is seems to be a certain calm relating to a contained European debt crisis.

The only major that seemed to move on anything was the Loonie on a late NY session release that showed stabilized Leading Indicators (at .9%) and increase in international Securities Transactions, from -.0.616B to 12.38B.  That will be the number to watch once Russia institutes it’s CAD buying strategy.

Next Sunday:

NZD Visitor Arrivals

Next Monday:

Nada

Next Tuesday:

NZD Credit Card Spending

CHF Trade Balance – I don’t normally watch this, but I want to keep an eye on it for the next few months since the SNB has announced it will curtail its FX purchasing habits that were meant to counter deflationary pressure on the CHF.

CAD CPI

USD Richmond Fed Manufacturing Survey

Next Wednesday:

EUR German Consumer Confidence

EUR Germany Services and Mfg PMI

GBP BoE Minutes

CAD Retail Sales

USD FOMC Rate Decision

NZD GDP

Next Thursday:

USD Durable Goods Orders

NZD Trade Balance

Next Friday:

USD GDP

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