Fundamental Report for the Week of May 30, 2010
Monday, May 31, 2010
Low volume created quiet conditions for most of the day as the USD recovered a bit from last week’s selloff.
The Loonie was the market’s biggest winner, however as it pulled back to its old support and resistance zone between 1.05 and 1.04 based on positive numbers throughout its new releases. While their rise in the Industrial Product Price Index (PPI) (from -.4% to .3%) and the increase in Raw Materials (from .8% to 1.7%) may spell out increased pressures on consumers for now it is the Gross Domestic Product (GDP) and the Quarterly GDP numbers that have garnered much of the CAD buying attention. Rightfully so, since positive GDP for a country generally garners positive jobs as well.
The USD/JPY stayed tight as the political scene in Japan overshadowed any economic news as Japanese Prime Minister Hatoyama faces pressure to quit amidst concerns that he is not doing enough to curb their own debt crisis. Political crisis equals political risk and could send the JPY and the USD climbing again soon.
The EUR gave back some of its gains as news stayed neutral for the continent with a good news/bad news see-saw throughout the Euro session.
Tuesday, June 01, 2010
More good news/bad news throughout the Euro session kept the EUR/USD range bound. Germany’s increase in Manufacturing PMI = good news, Euro Zone’s higher unemployment = bad news. Germany losing 23,000 fewer jobs this month = good news, decline in Germany’s YoY Retail Sales = bad news. With no clear outlook for stabilization the market continues to show indecision on the world’s largest traded currency pair.
The Cable is flirting with an uptrend based on a better than expected Manufacturing PMI (market expected 57.8, UK delivered 58). This is possible indication of stabilization for Britain but will need to see supporting releases, primarily GDP and positive employment, to quell a jittery marketplace.
The most interesting thing for the USD is the retracement of the Dallas Fed Manufacturing Activity. Not market moving in itself, but its severe decline, from 21.1% down to 2.9% may be telegraphing a dip in jobs for next month’s jobs report.
The Loonie saw further gains on the Bank of Canada’s decision to raise interest rates from .25% to .5%. Being the first of the Big 7 to do so and coupled with a slight rise in Oil prices and their GDP, a tightening policy seems wise to curb any further inflation as well as signaling economic confidence to investors and consumers alike.
Wednesday, June 02, 2010
Big news today is the official resignation of the Hatoyama, the former Prime Minister of Japan. Surprisingly the JPY weakened, rather than strengthened on this political risk, which may be signaling a decoupling from risk sentiment, at least in the short term.
The Kiwi is range bound by a decrease in ANZ Commodity Prices, dipping from 4.9% down to 2.5%. This may mean good news in terms of leading to a decrease in Producer’s Prices (and if Producers are paying less, that will lead to more affordable goods for consumers), however it may negatively affect their Trade Balance as their exports become cheaper. New Zealand is also facing some political pressure to increase their rates. Now that their sister economy, Australia, has put a moratorium on interest rate hikes and the BoC has already resumed those reigns the market’s eyes are turned to New Zealand to see if they will entertain an interest rate hike to counteract increasing consumer prices. Though I don’t expect New Zealand to act until there is proof from China that it will not tighten its monetary policy in the wake of their own declining production numbers and inflationary pressure.
The CAD continued making gains, presumably on further increases in Oil.
With tightening consolidation areas on so many of the pairs the market, in general, seems to be stalling in anticipation of the US job’s report on Friday.
Thursday, June 03, 2010
Germany’s, as well as the EuroZone, Purchasing Manager Index (PMI) for Services bumped up to 54.8 from 53.7 and 56.2 from 56. It’s not a major announcement, but I like to watch all sectors of the PMI to see if it is showing signs of growth at all. This can be important for both GDP and Employment numbers down the line. That small positive sign wasn’t enough to counter negative numbers from France and Italy however and merely served to stall the pair’s selling activity. Honestly, even if Italy and France had posted positive numbers the EZ would still be hard pressed to overcome market fear from their debt crisis.
The British Pound also saw positive growth in Services PMI moving from 55.3 to 55.4. Though the positive news wasn’t enough to fully boost the Cable it did keep the USD/GBP above the psychological 1.42 level and could be telegraphing an overall shift in sentiment toward the GBP over the EUR for a longer term decoupling of the two economies.
The United States signaled more positive signs of growth with an increase in April’s factory orders by a mere .1% bump. The market was expecting a .4% jump, however, so the good news didn’t lead to much USD buying over the course of the day. Leave the majors fairly silent, and waiting for the real jobs numbers on Friday.
Friday should be fairly volatile as we not only will have U.S. Employment numbers, but a meeting between Trichet and Xuren (China’s Finance Minister), along with other G-20 participants. It will be interesting to see if China continues to deny a willingness to reassess their Euro debt holdings. If their wording is at all ambiguous, we could see a new swelling of risk aversion in the marketplace. I’m VERY interested to see what that next wave of fear does with the Japanese Yen. Will it prove to have decoupled from risk perception altogether? With their own political problems in trying to find a new Prime Minister (possibly their Finance Minister Naoto Kan), their economy may start to behave like any other and rely on its own fundamentals as a driving force. At least until the global economy stabilizes and the carry trade is everyone’s favorite.
Friday, June 04, 2010
The Euro’s steady MoM GDP numbers weren’t enough to keep it stabilized against the USD as the market keeps its eye on the larger issues facing the EuroZone, specifically their debt crisis.
Though the United States’ employment report fell short of market expectations the 431K increase still drove investors into the USD as the currency strengthened in every major pair, except against the JPY. With Average Earnings and Average Weekly Hours increasing and the Unemployment Rate decreasing the USD seems to be showing strong, consistent signs of recovery and growth. It is important to remember, however, that some of the recent employment numbers have been temporarily increased due to the U.S. census hirings, so it may be time for a pullback in some of that growth by the time July/August numbers come out. But overall, the USD has more reasons to stay strong through the course of the year than any other currency at the moment.
Canada also saw additional jobs in May, increasing employment by 24.7K and keeping their unemployment rate steady at 8.1%. Though May showed a significant difference from April’s 108.7K positive job growth is positive job growth and Canada is bound to see in an increase in economics simply based on their trading relationship with the US, so it is likely that it will stabilize against non-USD currencies fairly well.
Canada also reported positive Ivey PMI numbers for the 6th month in a row. This bode well, for their own employment outlook and should go a long way toward strengthening their economy.
Next Monday:
- EUR Germany’s Factory Orders (GDP)
- NZD Manpower Survey (Employment)
Next Tuesday:
- EUR Germany’s Trade Balance
- EUR Germany’s Industrial Production (GDP and Employment)
- BRC Shop Price Index (CPI and Retail Sales)
Next Wednesday:
- USD Wholesale Inventories
- USD Fed’s Beige Book
- NZD Rate Decision
- NZD Business Performance of Manufacturing Index
- NZD Credit Card Spending
Next Thursday:
- EUR Germany’s CPI
- GBP Rate Decision
- EUR Rate Decision
Next Friday:
- GBP PPI
- GBP Manufacturing Production (GDP and Employment)
- USD Retail Sales
- USD Business Inventories (GDP)
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 
