Short Term Rebound for the U.S. Dollar?
by Angelo Airaghi [Guest Analyst]
8/17/2009
The U.S. dollar is gaining momentum over weak economic data. The trend should continue over the short/medium term. However, the longer term picture stays bearish for the greenback
The FOMC meeting of last week was basically a non-event, since the Fed reiterated the need to keep rates low for an extensive period of time, albeit it sees the U.S. economy stabilizing. Rates should again rise in the second part of next year, despite expectations mounting for an increment in December. In fact, after WW2, the Federal Reserve started to increase rates six months following the top in the unemployment rate, which, at present time, might happen sometimes this year or at the beginning of the next. Finally, the Fed has apparently no intention of expanding the purchase of USD 300 billion of longer-term U.S. bonds after the October’s target. With inflation so low, the consumer price index was down 2.1% year-on-year in July, a “wait and see” approach could be the best solution. In reality, economic data remains volatile.
For the first time since December 2007, the US industrial production rose 0.5% in July (+0.4% expected) after having declined 0.4% in June. The increase in motor vehicle production supported the industrial output. Nevertheless, capacity utilization stays near the lows at 68.5%. During the same month, retail spending fell 0.1% (+0.9% expected) versus June +0.8%. The decline was broad-based with the exception of the motor vehicle component which rose 2.8%. However, consumer spending might move higher in the second quarter, after having declined 1.2% in the first quarter. Lastly, higher oil prices drove the US trade balance wider in June to USD 27 billion (USD 29 billion expected) from USD 26 billion in May. Both imports (+2.3%) and exports (2.0%) rose. The trade balance is expected to rise further in the medium/long term, as demand for imports will improve along with the economic recovery.
EUROPE: Awaiting for the German’s traction
Inflation stays near the lows in Europe, in July it declined to 0.7%, and the European Central Bank (ECB) should keep rates accommodative for this year and the first part of 2010 as well. In effect, the economic data is still fragmented and it swings from the positive to the negative of the weekly basis. In June, the Euro zone industrial production fell 17% year-on-year after having declined 17.6% in May. On a monthly basis, the decline was 0.6% compared to the increase of 0.6% registered the previous month. Some nations are lagging behind. As an example, Italy and Spain showed sharp losses during the month. Nonetheless, despite imports remaining low, exports are mildly increasing in the Euro zone. As a result, the German Gross Domestic Product (GDP) rose 0.3% in the second quarter (-0.2% expected) and the French GDP rose 0.3% as well (-0.3% expected). The coming months will be crucial for the Euro-zone, since the global economic recovery should help German exports to climb substantially from current levels. An improvement of the German output will be beneficial for the entire European continent.
GBP/USD: Divergence points to a bearish correction.
EUR/USD: The market is testing the important support at 1.4040. A decline below 1.3950 would target 1.3850.
GBP/USD: A move below 1.6260 would target 1.62, eventually 1.5940, if 1.6040 is broken.
USD/JPY: The yen is dancing on the support line at 94.50. A move below 94.25 would target 93.80.
USD/CAD: A move above 1.1160 would target 1.1270.
For the first time since December 2007, the US industrial production rose 0.5% in July (+0.4% expected) after having declined 0.4% in June. The increase in motor vehicle production supported the industrial output. Nevertheless, capacity utilization stays near the lows at 68.5%. During the same month, retail spending fell 0.1% (+0.9% expected) versus June +0.8%. The decline was broad-based with the exception of the motor vehicle component which rose 2.8%. However, consumer spending might move higher in the second quarter, after having declined 1.2% in the first quarter. Lastly, higher oil prices drove the US trade balance wider in June to USD 27 billion (USD 29 billion expected) from USD 26 billion in May. Both imports (+2.3%) and exports (2.0%) rose. The trade balance is expected to rise further in the medium/long term, as demand for imports will improve along with the economic recovery.
EUROPE: Awaiting for the German’s traction
Inflation stays near the lows in Europe, in July it declined to 0.7%, and the European Central Bank (ECB) should keep rates accommodative for this year and the first part of 2010 as well. In effect, the economic data is still fragmented and it swings from the positive to the negative of the weekly basis. In June, the Euro zone industrial production fell 17% year-on-year after having declined 17.6% in May. On a monthly basis, the decline was 0.6% compared to the increase of 0.6% registered the previous month. Some nations are lagging behind. As an example, Italy and Spain showed sharp losses during the month. Nonetheless, despite imports remaining low, exports are mildly increasing in the Euro zone. As a result, the German Gross Domestic Product (GDP) rose 0.3% in the second quarter (-0.2% expected) and the French GDP rose 0.3% as well (-0.3% expected). The coming months will be crucial for the Euro-zone, since the global economic recovery should help German exports to climb substantially from current levels. An improvement of the German output will be beneficial for the entire European continent.
GBP/USD: Divergence points to a bearish correction.
EUR/USD: The market is testing the important support at 1.4040. A decline below 1.3950 would target 1.3850.
GBP/USD: A move below 1.6260 would target 1.62, eventually 1.5940, if 1.6040 is broken.
USD/JPY: The yen is dancing on the support line at 94.50. A move below 94.25 would target 93.80.
USD/CAD: A move above 1.1160 would target 1.1270.
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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