Fundamental Report for the Week of August 15, 2010
Monday, August 16, 2010
The U.S. Dollar and the Japanese Yen increased in late Euro Session to early NY session on what seems to be simple risk aversion as U.S. Treasuries rally (on yield decreases) and Gold climbs.
From the economic calendar there is little to report.
The Euro Zone posted a decrease in their MoM Consumer Price Index (CPI) (by -.3%) yet an increase in the YoY data (up by .3%). The mixed data seemed to turn the market’s attention to other indicators for cues. Mainly, weak Gross Domestic Product (GDP) out of Japan, nudging China into the place of second largest economy in the world, and slower consumer spending in three major economies, Europe, Britain and the U.S.
On a bright note, the industrial signposts are starting out positive with the Empire State Manufacturing Survey out of the U.S. posting an increase by 2.02 points. While it’s not a stellar number it is still an increase in the first of many similar reports to come.
Tuesday, August 17, 2010
The Euro got a boost, extending yesterday’s pullback, with positive current account (similar to Trade Balance) numbers (going from -16.7B in May to 1B in June). Germany also posted a large increase (29.7 points) in the ZEW Survey (measuring investor/analyst sentiment for the next 6months) lending some confidence to the market about the Euro’s stability even in the midst of an overall slowdown.
The GBP didn’t fare so well, however with today’s Euro-Session news with a decrease in Consumer and Retail prices it looks like the U.K. will face its own threat of deflation unless there can be a natural supply and demand shift in the next month or two. (See last week’s Fundamental report for more information regarding deflation.) Deflation concerns aren’t enough for a major pullback to the Sterling just yet, however, so there is still room to move to the GBP side of this week’s trading – especially if the market’s overall fear can simmer for a day or two.
Speaking of deflation, last week the U.S. saw some relief on that front in the form of higher Consumer Price Index (CPI) numbers and this week there is an additional boost from the Producer Price Index (PPI) report with an increase from 2.8% to 4.2% in the YoY data and an rise from -.5% to .2% in the MoM report. The decrease in deflationary pressures on the Fed coupled with increased Industrial Production (up to 1% from .1%) have eased concerns, for the moment, regarding the global economic slowdown just enough to pick up some volume and sell off some USD.
Wednesday, August 18, 2010
The Euro toyed with the 1.29 level through the Euro/NY overlap after seeing some pullback during yesterday’s Asian session with early NY session sentiment giving it a boost above that level. With no market moving news on the calendar to continue that momentum, price merely simmered, possibly waiting for more PPI news out of the EZ.
The Cable, however, received a quite a turn around in sentiment after yesterday’s selloff which seemed to telegraph the market’s negative expectations ahead of the Bank of England’s Wednesday meeting. The BoE has a majority vote to keep quantitative easing at 200B pounds, the lone dissenter being Andrew Sentence once again. Encouraged by a lack of policy shift the Pound rose back above Monday’s levels and looks like there will be good reason to keep price above those levels with the threat of further stimulus having passed.
The Canadian Dollar also saw strength during the early NY session a rally in the U.S. index futures signaled a possible extension of yesterday’s gains. Strong U.S. signals strong trading for Canada. That seems to be enough for today as there isn’t much else to drive the Loonie either on the economic calendar or in Oil.
Thursday, August 19, 2010
Even an Asian session Euro selloff couldn’t nudge the Euro out of its range as the market continues to express confusion over market data. Germany posted its own mixed news with a decrease, by .1%, in Producer Prices in the MoM report and a significant increase, 2%, in the YoY report. The news merely moved the Euro back to the top of its range at 1.29.
The Pound, also range-bound, experienced similar price action based on its convoluted Money Supply issue, with preliminary numbers showing a MoM increase of .4% and the YoY numbers expressing a .7% decrease. Bad US news aids the GBP, however and it is able to stay near the highs of the consolidation area with little movement.
Not often talked about here, the Swissie came out strong on their own Trade Balance news which came in very strong with an increase of 1.12B accompanied by huge rallies in both exports and imports (-6.4% to 20.6% and -9.9% to 36.1% respectively). With the next key level at 1.02 the USD/CHF could be headed to parity soon after.
The U.S. has posted some devastating job loss numbers (500K) for August. The sigh of relief over curbed deflation may soon turn into a sigh of exasperation if the American consumer cannot buy at the current, increased prices.
All major economies will rely heavily on consumerism for the next leg of the recovery and if jobs and retail sales don’t at least stay steady we could see risk aversion run high.
By late New York session, all non-USD currencies gave back their gains in favor of mid-August, late week, end of the day, profit taking blahs. Unless there are more cues to take from the Equities market short term close outs, I expect that Friday will be quiet after this kind of action.
Friday, August 20, 2010
Well, so much for an undecided market that would quiet down on the last trading day of the week! Late Euro session saw a quick shift in overall sentiment from plain old “blah” to fear as the U.S. Dollar strengthened across the board.
Germany’s council member to the European Central Bank (ECB), Axel Weber, recommended that the quantitative easing (QE) for banks stay in place until first quarter 2011. This has sparked some fear driven trading because the market has hoped to loosen QE measures simply as a sign of confidence in the recovery. The idea that banks, European in this case but certainly isn’t limited to Europe, may need additional time with QE funds fuels the fear that the global recovery isn’t going so well.
QE is merely the idea of figuratively “printing money” or creating money supply through additional Treasury instruments, or sometimes just the creative use of existing Treasury instruments. The idea is to give lenders capital to lend – or invest – to keep them solvent as well as to ensure that the banks, in turn, will actually lend out the money to people and businesses who need it.
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 
