Forex Trading TV Video Blog

The US dollar continued to trade on a slippery slope and it got even weaker since the Fed cut the interest rates by a larger-than-expected half percentage point last week. Regarding yesterday’s trading day it lost some ground against the Japanese Yen and reached a record low against the EUR on the basis of different assumptions whether the Federal Reserve will decide to cut borrowing costs for a second time this year, a fact which probably will make U.S. assets less “eye-catching” and which could place the US economy in even a more fragile state.

Yesterday the New Home Sales index was published and we noticed a significant drop from last July when 870,000 were reported, in relation to this month where sales rapidity was very sluggish and only 793,000 were reported, New-homes sales dropped in August to the lowest level in seven years. Total existing homes sales fell 4.3 percent in August to an annual rate of 5.5 million units from July. The new-homes sales report, combined with other up to date economic reports showed a sharp drop in demand in August, suggesting that the economy is losing momentum as it heading into the fall.

Also yesterday the Unemployment Claims index was published and on the basis of these results the greenback recovered to some extent. Fewer people signed up for unemployment benefits last week, this fact is a little bit encouraging due to the recent weakness in the US labor market. Jobless claims fell 15,000 to 298,000 in the week ended Sept. 22 — the lowest level since May.

Due to these facts there have been lately many warning signs of a weakening US economy and many investors and traders still believe that the bearish trend of the USD should continue for a while.

The greenback fell to a new all time low of 1.4160 against the EUR on the back of continued aggravation in the US economy. It seems that everybody is selling dollars as the outlook for consumer spending becomes gloomy with each passing day. Consumer confidence dropped to a 2 year low in the month of September when sales of existing homes fell to a 5 year low. The deterioration in the labor markets, tight credit conditions and rising energy prices were the major reason for the last market figures.
The drop in confidence and home sales only reinforces the need for the Federal Reserve to continue lowering interest rates. We expect another 0.25% - 0.50% of easing by the end of the fourth Quarter followed by another 50bp before the middle of next year.
The next Non-Farm payrolls report is not expected to be “flattering” either. On top of the layoffs that have already been announced in the financial sector, workers at General Motors held their first nationwide strike in 25 years in addition 73,000 workers have been displaced and 30,000 are expected to be fired.
If this is not resolved soon, it will have a meaningful impact on non-farm payrolls which will naturally dovetail into further weakness for the US economy which only will weaken the USD even more than it has already.
We think that in this case a recession is only a matter of time until we will see it on the statistics figures and the US economy won’t be able to avoid this unpleasant situation.
Meanwhile the only piece of good news was the Richmond manufacturing index which jumped from 7 to 14 in the month of September to the highest level since April 2006. The manufacturing sector is expected to be one of the biggest beneficiaries of the dollar weakness which is why today’s durable goods may not be as bad as analysts are currently predicting thanks to the weak USD which will make the US exports more attractive then ever.