Fundamental Report for the Week of May 16, 2010

Monday, May 17, 2010

There was no economic reason for the Euro to pullback, though it was due for a pause after last week’s emotional sell off.  It didn’t hesitate to push through old lows, however and stayed below the highly psychological level of 1.25 giving more reason to believe the market was on board for further selling.  It did flirt with intra-day highs however as it crept through the Asian session.

The USD held its ground against the Cable, the Kiwi and the Aussie as the market was willing for some correction on less volatile economies.  However Asian session news (particularly NZD Producer Price Index (PPI)) injected some short lived enthusiasm into the NZD and a bit of a pause for the AUD.   Those higher PPI numbers may hinder a leading indicator for the Kiwi by making Retail Sales more expensive, so I’ll be watching that (along with Visitor Arrivals and Credit Card spending) as a predictive measure for further NZD Selling.

The standout was the USD/JPY which continued to sidestep market emotion and merely trotted sideways, staying well within its range between 92 and 93 as Japan noted a bit of a dip in their service sector output as measured by the Tertiary Industry Index, going from -.2% down to -3%.

The USD Empire State Manufacturing Survey took a big hit, but it was due for a pullback, as it swung from 31.86 to 19.11 in May.  This didn’t affect the dollar directly, but I’ll be watching to see how other Manufacturing Surveys turn out as an indicator of a possible pullback in the ever growing Gross Domestic Product numbers in the U.S.

Tuesday, May 18, 2010

Euro session printed some positive numbers for the EUR and the GBP.  Most notably, the Trade Balance number for a hard hit Italy were a lot less negative, going from -2332 in Feb to -1342, indicating that the trade deficit may be receding a bit.  Germany surprised everyone with a temporary ban on naked short selling that sent the EUR to new depths, maintaining the dive below the 1.24 mark.

Britain saw an increase across the economic news for consumers with their Consumer Price Index (CPI) and Retail Price Index (RPI) on the rise.  This is a good sign for potential growth in the UK economy, but without steady increase in employment it seemed to be viewed as merely making goods more expensive for the already strapped UK consumer.  Not to mention the election hullabaloo where the dust hasn’t really settle yet after an upset in power.  However, both the Euro and the Pound crumbled under more USD buying pressure as the NY session hit its stride in an uncharacteristic mid-day rally.

Though there was no New Zealand or Australian news to foster the move, both currencies faltered under the risk averse market place as the U.S. dollar strengthened.

Wednesday, May 19, 2010

The European Central Bank (ECB) and the Swiss National Bank (SNB) are thought to have taken (rumors are yet to be confirmed) bold measures to bolster the EUR with an unscheduled meeting today where it is thought they may buy their own holdings artificially inflate the Euro’s worth.  (Pure speculation at this point…no meetings have been confirmed by either institution.)  If this is the case, and if they want it to be more than the equivalent of using bubble gum on a dam break they’ll need foreign support.  I’ll be listening closely to hear of any support from sovereign wealth funds or the UK, the two most likely resources to lend that kind of support.  Perhaps the US may be interested in increasing the cost of German exports as well, but I expect that will be a tougher sell.

The Bank of England (BoE) has kept interest rates steady at .5% citing a probable decline in exports as a significant reason to keep funds cheap, as the strained European economy, their main trading partner, continues to struggle.

The USD still has reason to smile with a decrease in the Consumer Price Index (CPI) from .1% to -.1% on the MoM data and an additional .1% decrease on the YoY data it seems that good are becoming slightly more affordable while employment and GDP are on the rise.  The Federal Reserve seems to agree as it has decided to keep interest rates steady at .25% and don’t seem interested in raising them any time soon.

Canada saw a nice jump in their March Wholesale Sales, climbing from -1.2% to 1.4%.  Though that good news wasn’t reflected in Wednesday’s CAD consolidation, it may be a better indicator of an upcoming positive Retail Sales that could give the Loonie a boost.

Thursday, May 20, 2010

The charts were as back and forth all day as the news was and with risk comes USD and JPY strength.  This was especially true for the Japanese Yen where it found a new consolidation 90 and 89.  Though the JPY did have reason to strengthen on its own posting a 1.1% increase in their YoY Industrial production, the market is still abuzz with speculation on ECB/SNB intervention so found it best to buy back the low interest rate currency.

The USD did pull back against Wednesday’s gains a bit on a decrease in CPI.  With the US experiencing positive GDP, positive job growth and a decline in the cost of consumer goods, this opens the door to more potential spending/saving/investing from the American consumer.  Overall this is good news and likely to play into a longer term USD bullish perspective.  It is of particular interest to see the Fed hold interest rates seemingly through at least the summer, if not longer.  It may play well for them to hold that last card until the USD needs an intrinsic boost – maybe as job growth plateaus or some other reason to keep a strong dollar.

An additional bright spot for the U.S. dollar is the Philadelphia Fed Manufacturing Survey posted positive growth for the fourth month in a row.  This isn’t surprising considering most of the manufacturing surveys across the country have done the same over the past several months. This is not only good news on its own, but should bode well for next week’s GDP and next month’s Non Farm Payroll report as well.

The USD couldn’t hold gains through the closing bell, however, due to further losses in America’s stock market.  S&P 500 Index alone fell a whopping 3.9%.  Some of this volatility can be explained by the upcoming options expiration date on Friday, however there has to be some risk aversion in reaction to financial reform progression as well.

The Canadian dollar slipped further on a slight dip in their Leading Indicators.  The British Pound saw a dip in their Retail Sales numbers, but it didn’t do much to swing the currency either direction definitively as it is still range bound near psychological levels.  This could spell trouble for the currency considering Canada is experiencing its own employment slowdown and increased CPI.  Long-term, however, as the United State’s largest trading partner they may be able to steady out as the U.S. increases buying power over time.

Friday, May 21, 2010

The late Asian session overlap posted negative numbers for the NZD Credit Card Spending with a dramatic decrease in their YoY data going from 6.3% to 1.9%.  This is an important indicator the small economy in terms of what it may do for their Retail Sales numbers next month.  For now, however the news hasn’t been market moving…merely something on my radar.

Germany’s GDP stays steady as their Private and domestic consumption grows, stabilizing the Euro for now.  However it could be a volatile NY session for the Euro as U.S. market makers respond the U.S.’s financial reform bill being passed which may send shockwaves through the financial markets.

Though the Euro could be aided by the U.S. financial reform, the decrease in IFO Expectations and IFO Business Climate Survey may be telegraphing more decline in Retail Sales overall.  Additionally the decline in PMI for Manufacturing may be a precursor to further employment problems, which leads me to keep further Euro shorting opportunities after the whipsaw expected today.

The GBP stays in its consolidation area due to fickle news throughout.  Preliminary numbers for Total Business Investment is way up, going from a -4.3% to 6% (good news), Preliminary numbers for Money Supply dipped in both the YoY and MoM data by .2% (bad news), but the Public sector borrowing has dropped considerably from 23.5B to 10B (good news).  So, the GBP, like the EUR may rely on some USD volatility to bump it out of its range over the course of the day.

The relationship between Canada’s Wholesale Sales and Retails Sales didn’t hold up this go-round as they printed positive retail sales numbers for the fourth month in a row.  The CAD rebounded a bit on the good news, but low volume kept the pair somewhat range-bound throughout the day, as it did to all of the majors.

Something to consider before we enter into next week:  As the dust settles from Wall Street’s new reform and the Euro has overextended itself, there are big market makers looking for an affordable buy on the EUR/USD.  However, overall risk aversion from a changing market place may make the buy side difficult, especially when paired with a JPY instead of a USD.  I’m not expecting the buy side to be as easy a trading scenario as the sell…and I’m not totally convinced that the rally will last for long.  So, I’ll be trading more cautiously than usual next week.

Next Monday:

• USD Existing Home Sales (Consumer Confidence)
• JPY BoJ Monthly Report

Next Tuesday:

• GBP Preliminary GDP
• EUR Industrial Orders
• USD Richmond Fed Manufacturing Survey (GDP
• USD Consumer Confidence

Next Wednesday:

• USD Durable Goods Orders (GDP)
• NZD Trade Balance

Next Thursday:

• USD GDP

Next Friday:

• USD Personal Spending (Retail Sales)
• USD Chicago PMI (GDP)

• Recommend on Facebook
• Buzz it up
• Tweet about it