Sunday, May 25, 2008

Dollar Broadly Lower on Record Oil Prices

Market Overview | Written by ActionForex.com | May 24 08 16:47 GMT |

Weekly Review and Outlook

Top 5 Current Last Change
(Pips)		 Change
(%)
USDCHF 1.0240 1.0475 -235 -2.29%
CHFJPY 100.89 99.32 +157 +1.56%
NZDUSD 0.7849 0.7736 +113 +1.44%
EURUSD 1.5761 1.5575 +186 +1.18%
GBPUSD 1.9796 1.9570 +226 +1.14%
Dollar
EURUSD 1.5761 1.5575 +186 +1.18%
USDJPY 103.34 104.07 -73 -0.71%
GBPUSD 1.9796 1.9570 +226 +1.14%
USDCHF 1.0240 1.0475 -235 -2.29%
USDCAD 0.9895 0.9990 -95 -0.96%
Euro
EURUSD 1.5761 1.5575 +186 +1.18%
EURGBP 0.7960 0.7953 +7 +0.09%
EURCHF 1.6142 1.6319 -177 -1.10%
EURJPY 162.89 162.11 +78 +0.48%
EURCAD 1.5597 1.5561 +36 +0.23%
Yen
USDJPY 103.34 104.07 -73 -0.71%
EURJPY 162.89 162.11 +78 +0.48%
GBPJPY 204.58 203.69 +89 +0.44%
AUDJPY 99.12 99.46 -34 -0.34%
NZDJPY 81.09 80.51 +58 +0.72%
Sterling
GBPUSD 1.9796 1.9570 +226 +1.14%
EURGBP 0.7960 0.7953 +7 +0.09%
GBPCHF 2.0274 2.0502 -228 -1.12%
GBPJPY 204.58 203.69 +89 +0.44%
GBPCAD 1.9591 1.9554 +37 +0.19%

The greenback continued to be pressured by another week of rally in commodity prices and weakness in the US stock markets and was sent lower against most majors currencies last week. Oil soared to new record high above $135 a barrel and settled to close at $132. Gold also rebounded further to above $934. The Aussie was boosted partly by strength in Gold and partly by hawkish RBA minutes and made new 24 years high against the dollar. FOMC minutes did confirmed markets' expectation that Fed is going to pause in June but did little to support the dollar. Commodity prices will likely continue to be the main driver behind dollar's movements.

FOMC minutes released last week basically confirmed market's expectation that Fed will pause in Jun and hold interests rates unchanged at 2.00% for a considerable amount of time. The committee members said that the decision to cut rates by 25bps in the Apr 29-30 meeting was a "close call". Interest rates is now at a relatively low level by historical standard and should be enough to promote moderate growth in the economy. The two dissenter Fisher and Plosser said that the committee should " put additional emphasis on its price stability goal at this point, and they believed that another reduction in the funds rate at this meeting could prove costly over the longer run." Forecasts for real GDP in 2008 was lowered from 1.3% - 2.0% to 0.3% to 1.2%, reflecting deeper housing correction, slower consumer spending, weaker labor market, and more intense fallout from financial market turmoil. On the inflation front, core PCE forecasts was revised upward fro 2.0-2.2% to 2.2-2.4% yoy in 2008, with headline PCE up from 2.1-2.4% to 3.1-3.4%.

On the economic data front, Leading Indicators unexpectedly rose +0.1% in Apr. Headline PPI moderated from 6.9% yoy to 6.5% yoy and core PPI climbed from 2.7% yoy to 3.0% yoy. Jobless claim report which dropped from upwardly revised 374k to 365k. Existing home sales from US was a touch better than expected, dropping -1% to 4.89m annualized rate in Apr.

Worse than expected Germany ZEW Economic Sentiment, which deteriorated from -40.7 to -43.6 versus expectation of -37.5 was overshadowed by ZEW President Wolfgang Franz's comments that he expected ECB to raise rates in the near future to fight inflation. The Germany Ifo business climate index improved to 103.5 in May comparing to consensus of further deterioration to 102.0. Improvements are also seen in the Current Situation Component as well as the Business Expectations Component, with the former rising to 110.1 from 108.4, and the latter rising to 97.3 from 96.8 in April. Eurozone manufacturing PMI fell to 50.5 as expected. Services PMI dropped sharply from 52.0 to 50.6, much worse than expectation of 51.7.

BoE minutes released last week showed the bank opted to keep rates unchanged earlier this month by an 8-1 vote, same as market expectation. Just one member, David Blanchflower, voted for a cut to 4.75%. Apr retail sales dropped -0.2% mom versus expectation of -0.5%. Year-over-year came in at 4.2%, inline with consensus. CBI industrial trend survey improved from -13 to -10 in May, also beat expectation of -12. Rightmove house price index from UK unexpectedly recorded a mom rise in Apr by 1.2%, pushing the yoy rate a bit up from 1.3% to 2.2%. Second estimate of UK Q1 GDP was unchanged at 0.4% qoq, 2.5% yoy.

BoJ left rates unchanged at 0.50% as widely expected. Economic assessment was left unchanged. Mild recovery in is seen in housing investment. Production is seen flat. CPI will likely move4 higher into positive territory. Uncertainties in global economy and market still poses a risk to the economy of Japan. Japanese all industry index rose 0.5% in Mar, beating expectation of -0.2%. Trade surplus shrank to 485b on much stronger than expected import growth.

Swiss Combined PPI beat expectation by rising 0.7% mom, 3.6% yoy in Apr, though moderated from 3.9% yoy in Mar.

Canadian headline CPI climbed to 1.7% yoy in Apr versus expectation of unchanged ar 1.4%. Core CPI also climbed to 1.5% versus expectation of being unchanged at 1.3%. While another 25bps could still be seen from BoC in Jun, markets are speculating that could be the last cut in the current easing cycle. Though, retail sales report showed a mere 0.1% mom growth in Mar with ex auto sales flat. Wholesale sales rose 0.6% mom in Mar. International securities transactions rose to 5.3b.

RBA minutes of the May 6 meeting showed that the board member were concerned with the uncomfortably high inflation in Australia. More importantly, the minutes said that 'members spent considerable time discussing the case for a further rise in the cash rate' even though the final decision was to on hold due to uncertainty surrounding the outlook.

Kiwi extended recent rebound after Finance Minister Michael Cullen announced a tax cut plan that reduces the odds that RBNZ will need to cut rates to support growth in the economy.

Suggested Readings:

The Week Ahead

US and UK markets will be on holiday on Monday, but the economic calendar will be more busy as the week goes.

From US, Conference Board consumer confidence, S&P/Case-Shiller house price index and new home sales will kick of the economic calendar on Tuesday, to be followed by durable goods orders, Q1 GDP, Apr PCE, Chicago PMI and U of Michigan Survey afterwards.

Eurozone CPI, M3 money supply, economic sentiments and unemployment rate will be featured with data from Germany including Q1 GDP, retail sales and unemployment and Gfk consumer confidence.

A number of important data from Japan are scheduled on Friday including Apr CPI, industrial production, household spending, housing starts as well as May PMI manufacturing.

From UK Gfk consumer confidence will be released too. From Swiss, main focus is on May KOF leading indicators. From Canadian Mar GDP will be closely watched.

But after all, the forex markets will probably be mostly affected by movements in the commodity markets, in particular, will listen to the strength in oil prices.

Suggested Readings:

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