Weekly Review and Outlook: USD Hit Record Lows, Six Central Banks & Load of Data to Shake …
USD Hit Record Lows, Six Central Banks & Load of Data to Shake the Markets
| Top 5 | Current | Last | Change (Pips) |
Change (%) |
|---|---|---|---|---|
| NZDJPY | 82.81 | 86.61 | -380 | -4.59% |
| USDCHF | 1.0409 | 1.0848 | -439 | -4.22% |
| USDJPY | 103.71 | 107.13 | -342 | -3.30% |
| GBPCHF | 2.0706 | 2.1339 | -633 | -3.06% |
| USDCAD | 0.9875 | 1.0127 | -252 | -2.55% |
| Dollar | ||||
| EURUSD | 1.5178 | 1.4826 | +352 | +2.32% |
| USDJPY | 103.71 | 107.13 | -342 | -3.30% |
| GBPUSD | 1.9890 | 1.9667 | +223 | +1.12% |
| USDCHF | 1.0409 | 1.0848 | -439 | -4.22% |
| USDCAD | 0.9875 | 1.0127 | -252 | -2.55% |
| Euro | ||||
| EURUSD | 1.5178 | 1.4826 | +352 | +2.32% |
| EURGBP | 0.7629 | 0.7538 | +91 | +1.19% |
| EURCHF | 1.5802 | 1.6088 | -286 | -1.81% |
| EURJPY | 157.45 | 158.86 | -141 | -0.90% |
| EURCAD | 1.4990 | 1.5016 | -26 | -0.17% |
| Yen | ||||
| USDJPY | 103.71 | 107.13 | -342 | -3.30% |
| EURJPY | 157.45 | 158.86 | -141 | -0.90% |
| GBPJPY | 206.28 | 210.72 | -444 | -2.15% |
| AUDJPY | 96.50 | 98.91 | -241 | -2.50% |
| NZDJPY | 82.81 | 86.61 | -380 | -4.59% |
| Sterling | ||||
| GBPUSD | 1.9890 | 1.9667 | +223 | +1.12% |
| EURGBP | 0.7629 | 0.7538 | +91 | +1.19% |
| GBPCHF | 2.0706 | 2.1339 | -633 | -3.06% |
| GBPJPY | 206.28 | 210.72 | -444 | -2.15% |
| GBPCAD | 1.9645 | 1.9920 | -275 | -1.40% |
Currency Heat Map Weekly View
| USD | EUR | JPY | GBP | CHF | CAD | AUD | |
|---|---|---|---|---|---|---|---|
| USD | |||||||
| EUR | |||||||
| JPY | |||||||
| GBP |
Bernanke’s semiannual testimony was the highlight from US last week. In the opening speech in semiannual testimony on the economy before the House Financial Services Committee, Bernanke affirmed the markets that Feb will "act in a timely manner" to "provide adequate insurance against downside risks" to the economy. Such risks include "the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further." He expects real GDP will grow only "sluggishly" in the coming few quarters even though the discussion of recession was avoided. Also, the housing market down turn is not expected to hit bottom soon. In the session with Senate, Bernanke mentioned that "there probably will be some bank failures."
Regarding inflation, Bernanke said that there are "slightly greater upside risks to the projections of both overall and core inflation" due to "further increases in the prices of energy and other commodities in recent weeks". However, in the Q&A session, Bernanke said he does not believe oil prices needs decline to reduce inflation pressures. Instead, prices just need to "flatten out." And he said that it’s unlikely that oil prices will climb faster than it did last year.
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Economic data from US were generally bad. Existing home sales fell by -0.4% in Jan, down from upwardly revised 4.91m to 4.89m. new home sales dropped more than expected by -2.8% from 604k to 588k in Jan, lowest since Feb 95. The S&P/Case-Shiller national house price composite index fell 8.9% yoy in Q4, accelerated from prior quarter’s 4.6%, and was the largest decline since the inception of the series in 1989 by some distance. The 10- and 20-city composites also worsened in Dec, posting record declines of -9.8% yoy in -9.1% yoy respectively. The Office of Federal Housing Enterprise report also showed nationally, prices were down 1.3% qoq. On a year-ago basis, the U.S. price was down by 0.3%, the first such decline in the index’s 16-year history.
US Conference Board consumer confidence fell sharply from 87.3 to 75.0, much worse than expectation of 82.0 and is the most pessimistic reading since the second invasion of Iraq in 2003. The sharp decline in consumer sentiment is viewed as being consistent with a mild recession. Looking at the details, the expectations component plunged further to 100.6, its lowest level since 1991. and suggests consumption growth this quarter will be very weaker based on historical correlation. Assessments of labor market conditions also fell sharply, with only 20.6% of consumers finding jobs plentiful, down 3.2% and at its lowest level since 04. Those rind jobs hard to get rose by 3.2% to 23.8%. The University of Michigan’s measure of consumer sentiment fell to 70.8 in Feb, lowest level since 1992.
Headline durable goods orders dropped most in a year by -5.3% in Jan, even weaker than consensus of -4.0%. Ex transport orders also dropped by -1.6% versus expectation of -1.4%. The contraction suggests that business are already starting to scale back capital spending due to tighter credit conditions. Chicago PMI came in at 44.5 versus the expected 50 for Feb, which is the worst since Dec 2001.
Jobless claims rose sharply from revised 354k to 373k. While the number may be inflated by President’s Day holiday, it’s not doubt that the trend is rising and the labor market in the US is loosening and remains fragile.
There was no revision to reported economic growth in the fourth quarter, with real GDP growth unchanged at an annualized 0.6% rate. Though personal consumption growth was revised down from 2.0% to 1.9%.
The only positive data last week was the December Personal Income and Spending report. Personal income rose 0.3% in Jan, while spending rose 0.4%. Both are better than consensus of 0.2% rise. Regarding inflation, headline PCE was up from 3.6% yoy to 3.7% yoy while core PCE was unchanged at 2.2% yoy. Both are also stronger than expectation.
On the other hand, data from Eurozone were solid. German Ifo business climate unexpectedly rose for the second consecutive month in Feb to 104.1, which was much stronger than expected to 102.4. Current situation component also improved from 107.9 to 110.3. The data suggests that the economic situation of German industry and trade remains robust. Germany Gfk consumer sentiment was unchanged at 4.5. Germany unemployment change beat expectation again by falling -75k. Unemployment rate also improved from 8.1% to 8.0%. Retail sales report in Germany was solid, showing 1.6% mom growth pushing yoy rate back to positive territory at 0.8%.
Eurozone HICP inflation was up from 3.1% yoy to 3.2% yoy. Unemployment rate edged down from 7.2% to 7.1%. Though, business climate and economic sentiment edges down slightly. Eurozone M3 month supply growth slowed from upwardly revised 11.6% yoy to 11.5% yoy but beat expectation of 11.3%.
From UK, Q4 GDP growth was unchanged at 2.9% yoy. However, both imports and exports fell more than expected by -0.5% and -1.2% respectively. Nationwide house prices deteriorated further by falling -0.5% mom in Feb, dragging yoy rate lower to 2.7%. Gfk consumer sentiments also deteriorated further to -17.
From Japan, CPI was unchanged at 0.8% yoy in Jan. Unemployment rate was also unchanged at 3.8%. Housing starts dropped -5.7% yoy in Jan, better than expectation of -12.3%.Construction orders fell -2.5%. Industrial production dropped -2.0% mom in Jan, missing expectation while retail sales was much stronger than expected by rising 3.8% mom in Jan. BoJ hawk Mizuno,said the effectiveness of any Japanese rate cut is uncertain even if the economy in Japan is now at a standstill.
From Swiss, KoF leading indicator continued the down trend and dropped from 1.70 to 1.65 in Feb, but was slightly better than expectation of 1.60.
From Canada, Q4 current account showed a deficit for the first time since 1999, at 513m. Industrial product prices rose 0.9% in January, a shade faster than market forecasts for a 0.8% rise.
Suggested Readings:
- This Week’s Market Outlook
- Weekly Focus: Short-term Relief for the Monoliners
- (FED) Ben S. Bernanke - Semiannual Monetary Policy Report to the Congress
- (FED) Donald L. Kohn - The U.S. Economy and Monetary Policy
- Bernanke Signals Further Rate Cuts In The Pipeline, Dollar Plunges
- FOMC: No New Signals from Bernanke
- FX Briefing: Divergent Monetary Policies Lift Euro Over 1.50
- Japan: Not as Bad as Feared
The Week Ahead
Six of the worlds major central banks are scheduled to meet this week. RBA is expected to raise rate by 25bps to 7.25%. On the other hand, BoC is expected to cut rates by 25bps to 3.75%. RBNZ, BoE, ECB and BoJ are expected to be on hold. However, attention will be specially on ECB press conference where new staff projections will be released. Probably, ECB will revise inflation projections up and at the same time revise growth projection down.
| Date | Central Bank | Current Rate | Expectation |
|---|---|---|---|
| Mar 4 | RBA | 7.00% | +25bps to 7.25% |
| Mar 4 | BoC | 4.00% | -25bps to 3.75% |
| Mar 6 | RBNZ | 8.25% | Unchanged |
| Mar 6 | BoE | 5.25% | Unchanged |
| Mar 6 | ECB | 4.00% | Unchanged |
| Mar 7 | BoJ | 0.50% | Unchanged |
A string of important economic data will be released this week which could strengthen the current trend in the forex markets. ISM manufacturing index from US is expected to dip into contraction region at 49. Non-farm payrolls is expected to show 35k growth after -17k contraction in Jan.
From Eurozone and UK, PMI manufacturing and and services will be closely watched which could further strengthen the trend in EUR/GBP in case of disappointments from the UK set of data. From Eurozone, Feb HICP flash, PPI, Q4 GDP, Jan retail sales will be released too.
From Switzerland, focus will be on SVME PMI, Feb CPI as well as Q4 GDP.
While BoC rate decision is the highlight of the week from Canada, focus will also be on Friday’s employment report which is expected to show unemployment climbing from 5.8% to 5.9%.
Aussie traders will also look into Jan retail sales as well as Q4 GDP report.
Suggested Readings:
- Economic Calendar Summary 2/25 - 2/29
- Economic Outlook: Will Trichet Charge the Gun?
- EUR/USD: Will ISM Manufacturing Tell Us Our Future?
- The Weekly Bottom Line
- $/Yen, Finally New Lows But…..
- Euro Ready to Plummet against Yen
- Technicals Redeem AUDCAD Range Trade From Looming Event Risk
- Gold and OIL as a Currency Hedge against the USD Drop
- Australian & New Zealand Weekly: RBA to Raise Rates by 0.25% - More to Come
- Can the New Zealand Dollar Sustain Its Rally Beyond A 22-Year High?
EUR/USD Weekly Outlook
EUR/USD finally broke out from a multi-month consolidation as well as prior high of 1.4966 last week, surging to new record high of 1.5238. From a short term angle, with 4 hours MACD dragged below signal line, an intraday high might be in place at 1.5238 on overbought condition. Below 1.5123 will confirm this case and bring pull back. Though, downside should be contained well by 1.4966 resistance turned support and bring rally resumption. Above 1.5238 will indicate rise has indeed resumed for next short term upside target of 61.8% projection of 1.3360 to 1.4966 from 1.4438 at 1.5431.
In the bigger picture, decisive break of 1.4966 and 1.5 key resistance (61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004) confirms that medium term up trend from 1.1639 has resumed. Also, regardless of internal structure, it is treated as resumption of long term up trend from 0.8223 (00 low) to 1.3668 (04 high). Further rally is now expected towards 100% projection of 0.8223 to 1.3668 from 1.7048.
Meanwhile, below 1.4778 will be the argue that rise from 1.4438 has completed. Though, below 1.4438 support is needed to indicate a medium term top is formed. Otherwise, medium term outlook remains bullish and the up trend is expected to resume even in case of a sharp correction.
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