The Euro zone Lagging Behind
by Angelo Airaghi [Guest Analyst]
8/10/2009
The economic growth remains fragmented and volatile, as the recovery process is just in its early stage and consumes are low in the U.S. The U.S. dollar is rebounding from the lows and the trend might continue for the short/medium term.
U.S.: consumes still low
As the economy is slowing moving out the worst recession since WWII, data remains fragmented and volatile. In June, the personal consumer expenditure (PCE) rose 0.4% (+0.2% expected) from +0.1% in May following the surge in spending on non-durable products. Personal income, at the contrary, slumped 1.3%, as social security payments run out of steam. However, numbers should improve tangibly in 2010, albeit the recovery process could be the shortest of the past seventy years. In fact, some productive capacity might have been lost forever, while consumes could decline along with the rising saving rates. The job market remains weak overall. In July, 247,000 people (320,000 expected) were out of work. Nevertheless, the number of unemployed was less then June¡¦s 443,000 and May¡¦s 303,000. In addition, the hours worked are increasing and might anticipate some new hiring along the way. The work week hours rose to 33.1 from 33.0. In effect, an increase of the global trade will help the industries in the coming months. After four months of improvements, the U.S. ISM non-manufacturing index declined to 46.4 in July from 47.0. In reality, the contraction of the index was minimal overall. The trend still points toward a recovery for the sector, since factory orders rose 0.4% (-0.7% expected) after having moved up 1.1% in May.
EUROPE: rebound slow
As expected, the European Central Bank (ECB) left rates unchanged last week. In the conclusive speech, Mr. Trichet confirmed some improvements for the economy, but expects the recovery to take place only in 2010. In effect, the Euro zone real Gross Domestic Product (GDP) has declined almost 5.0% from the 2008¡¦s peak and the recovery should be slow, since the tight labor laws are making employer very prudent in their hiring process. In addition, the banking meltdown has been approached individually by each nation and the impact of the various interventions might have been less incisive than elsewhere. Growth remains subdued compared to other nations. German industrial production, as an example, fell 0.1% in June (-0.4% expected), after having increased 0.6% in May. During the same month, retail sales, declined 1.8% following a down move of 1.3% the previous month. In the Euro zone, retail sales slid 2.4% year-on-year in June after having slumped 3.0% in May. Nonetheless, some positive elements are already emerging. The final PMI manufacturing for the Euro zone increased to 11 months high of 46.3 in July from 42.6 in June. The service sector rose instead to 45.7 from 44.7. In Germany, factory orders jumped 4.5% month-on-month in June on the top of May +4.4%. Finally, the trade surplus is at Euro 11.0 billion from Euro 10.2 billion, as exports rose 7.0% and imports increased 6.8% month-on-month.
GBP/USD: Divergence points to a bearish correction.
EUR/USD: The Euro was unable to sustain the up move above key resistance levels at 1.4450 and could now correct to 1.4120, 1.40, 1.38.
GBP/USD: The market has found a strong resistance at 1.70 and could now correct to 1.62, 1.60. In fact, there is divergence between the Rsi indicator and the daily price. A decline below 1.60 would target 1.58.
USD/JPY: The U.S. dollar broke above the 100 MA and targeted the higher Bollinger band. A move above 98.40 would now lift the price to 99.00. A breakout failure would take the dollar to 96.00.
USD/CAD: The Canadian $ is bouncing off the support line of the past two years to target 1.0920/1.10, eventually 1.13.
EUROPE: rebound slow
As expected, the European Central Bank (ECB) left rates unchanged last week. In the conclusive speech, Mr. Trichet confirmed some improvements for the economy, but expects the recovery to take place only in 2010. In effect, the Euro zone real Gross Domestic Product (GDP) has declined almost 5.0% from the 2008¡¦s peak and the recovery should be slow, since the tight labor laws are making employer very prudent in their hiring process. In addition, the banking meltdown has been approached individually by each nation and the impact of the various interventions might have been less incisive than elsewhere. Growth remains subdued compared to other nations. German industrial production, as an example, fell 0.1% in June (-0.4% expected), after having increased 0.6% in May. During the same month, retail sales, declined 1.8% following a down move of 1.3% the previous month. In the Euro zone, retail sales slid 2.4% year-on-year in June after having slumped 3.0% in May. Nonetheless, some positive elements are already emerging. The final PMI manufacturing for the Euro zone increased to 11 months high of 46.3 in July from 42.6 in June. The service sector rose instead to 45.7 from 44.7. In Germany, factory orders jumped 4.5% month-on-month in June on the top of May +4.4%. Finally, the trade surplus is at Euro 11.0 billion from Euro 10.2 billion, as exports rose 7.0% and imports increased 6.8% month-on-month.
GBP/USD: Divergence points to a bearish correction.
EUR/USD: The Euro was unable to sustain the up move above key resistance levels at 1.4450 and could now correct to 1.4120, 1.40, 1.38.
GBP/USD: The market has found a strong resistance at 1.70 and could now correct to 1.62, 1.60. In fact, there is divergence between the Rsi indicator and the daily price. A decline below 1.60 would target 1.58.
USD/JPY: The U.S. dollar broke above the 100 MA and targeted the higher Bollinger band. A move above 98.40 would now lift the price to 99.00. A breakout failure would take the dollar to 96.00.
USD/CAD: The Canadian $ is bouncing off the support line of the past two years to target 1.0920/1.10, eventually 1.13.
Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.
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