Jan 29 2007
Daily Forex Analysis
USD
The data released on Friday, which bent expectations did not suffice, to boost the USD much. US Durable Goods Orders rose 3.1% MoM in December on consensus expectations of 3.0%, while orders ex-transportation rose 2.3% MoM on expectations of 0.5%. Underscoring these results was an upward revision to the prior month reading. On a yearly basis, durable goods have risen 2.0%, while orders ex transportation are up 3.5% and orders ex-defense are up 0.4%. An hour and a half later, New Home Sales came at 1.12 mln, beating expectations for a 1.053 mln reading. Despite this exceptionally good economic data, however, the dollar only managed to establish a spike low to 1.2887 vs. the EUR and 1.9557 vs. the GBP, closing the day at 1.2918 and 1.9590, respectively. Durable Goods Orders measures the total value of new purchase orders placed with domestic manufacturers for hard goods with a life expectancy of more than 3 years. A rising trend basically means that manufacturers will be busy in the upcoming months, as they work to fill orders. This, in turn, is positive for the labor market, and a strong labor market means consumers have more money to spend at the stores - consumption that will eventually boost growth.
Although the market’s tame reaction to these releases might suggest that the USD is running out of bullishness, it is a little bit early to conclude this. The week ahead is full of important economic data, including Q4 Gross Domestic Product, Personal Consumption Expenditure Index (a favored Fed inflationary gauge), The Federal Open Market Committee’s interest rate decision, ISM Purchasing Managers Index, and lastly, the highly anticipated Non Farm Payrolls release- the labor market report.
Today there are no releases due, so we expect the USD to continue hovering in a tight range against most counterparts around its current levels - 1.2900 vs. the EUR, 1.9590 vs. the GBP and 121.50 vs. the JPY.
EUR
M3 money supply growth accelerated in December to 9.7% year-on-year - its fastest pace since February 1990 - from 9.3% previously. The consensus forecast had anticipated a reading of 9.1% year-on-year. The faster than expected M3 growth, which is in fact an inflationary measure, reaffirms some hawkish comments made earlier last week by several ECB officials and increases the probability for a Q1 rate hike. This, however, was not enough to lift the EUR, mainly due to an over all bullish dollar sentiment. As in the US, there are quite a few important economic releases this week, but none of them is scheduled for today. This should make today’s market relatively calm, as market participants prepare themselves for EZ CPI and German Retail Sales on Wednesday and German CPI tomorrowÂ
JPY
Retail Sales in Japan dropped 0.3% YoY, slightly less than the 0.6% drop expected. Large Retailers’ Sales, however, dropped in a more substantial rate of 3.4%, far more than the -1.9% expected. As a result, the JPY weakened against its major counterparts, though not considerably. This follows the weak Consumer Price Index that was released on Friday, and provides more evidence that the Japanese economy find it difficult to recover. There are two things supporting the JPY, though, which are the approaching G7 meeting and the February BoJ interest rate decision. The recent JPY rally was mainly on the back of speculation that the G7 would criticize the recent JPY weakness, and this is probably what is still holding the JPY from depreciating further. However, it is unlikely that this support will continue holding for long, the same as it is unlikely that we will indeed hear such comments from the G7 meeting.
Analysis Curtesy of Forexyard.
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