Jan 30 2007
Daily Forex Analysis
USD
Yesterday’s US economic calendar was devoid of any meaningful events, and nonetheless the USD devaluated against most counterparts, a devaluation that was mainly prompted by a sharp drop in oil and energy prices. The USD thus gave back some of the gains it had made the previous week and returned to trading above the 1.2950 level against the EUR and 1.96 level against the GBP. This, however, signals no more than a repositioning for dollar traders, ahead of this week’s tons of data USD traders await tomorrow’s GDP and Fed interest rate decision, as well as important inflationary data in the figure of the PCE (Personal Consumption Expenditure) and the Employment Cost Index. Today is thinner on US releases and the only one scheduled is the Conference Board’s Consumer Confidence, which is expected to hit a 5 year high. Lower Energy costs, tiding stock markets, and a strong labor markets are among the reasons that could drive such a rise in Consumer Confidence, which, in turn, is positive for the USD because optimistic consumers tend to spend more at the stores, consumption that eventually leads to economic growth. Although we expect the figure to come as strong as, and maybe even stronger than consensus estimates, the market’s reaction might prove to be somewhat restrained due to the far more important data due out in the upcoming days. A downside surprise, however, might aggravate USD declines, though probably not too strongly.
EUR
On a calendar also empty of meaningful events, the EUR found support in hawkish rhetoric by ECB officials that has been later confirmed in a speech made by the European Central Bank governor Trichet. Trichet commented on the accelerating money supply growth and the still-existing upside risks for inflation. By doing so, the governor signals the markets on a Q1 interest rate rise in the Euro Zone, a rise that can take place even as soon as February. Today’s most significant data release from Europe will be the German Consumer price Index that is expected to bounce back above the ECB comfort zone. On an annual basis, the CPI is expected to come at 2.2%.
In the UK, the GBP was weaker against the majors after one of the BoE members said that the soft labor market can push wage growth lower and cool inflation pressures. Even the firm CBI trade survey yesterday wasn’t good enough for the GBP as both the ECB and Federal Reserve are likely to be hawkish in their upcoming statements. However, the strong survey suggests that the retail sector is still holding up to the economy and raising rates is still part of the shrug equation.
JPY
Yesterday, the JPY was trading around a 4 year low against the USD as consumer spending in Japan came out weak, raising more doubts about whether the Bank of Japan will lift interest rates next month. Domestic spending has long been one of Japan’s biggest problems because even though corporate profitability has increased, there has been minimal wage growth; keeping prices unchangedMeanwhile, Japanese household spending fell a surprisingly big 1.9% in December, casting some doubt on whether consumption recovered in the fourth quarter as much as economists had originally expected. JPY weakness is therefore likely to continue today as well, with the currency’s only hope being the Manufacturing Purchasing Managers Index scheduled later today.
Curtesy of Forexyard
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