Weekly Forex Fundamentals | Written by Global Forex Trading | Jun 23 08 14:45 GMT |

The US currency was hit last week, and the easy explanation is that the US economy is on pretty bad shape. The economy is going to get in much worse shape, but the correlation with the dollar is not all that high. The European currencies remain in a tight trading range, while dollar/yen is stubbornly high. The dollar should indeed weaken, but getting married to your position may be dangerous to your health.

This Week's Data and Events

United States

The US economic calendar will start on Tuesday with the release of the consumer confidence report for June.

On Wednesday, the FOMC will not result in a rate hike - the economy is not strong enough for a tightening of the borrowing costs.

The same day, be on the look out for the new home sales report for May and for the volatile durable goods orders report for May.

Thursday will see the existing home sales report for May, the real GDP report for the first quarter, and the price index report for the first quarter.

The core PCE deflator report for May, the personal spending and income reports for May, and the final University of Michigan survey for June are due on Friday.

The Eurozone

The Eurozone economic calendar will start on Monday at full blast. The headline report is Germany's IFO business climate, current assessment and expectations reports for June. In addition, there will be the regional PMI Services and PMI Manufacturing reports for June.

Tuesday will be another busy day. It will feature Germany's CPI report for June and the GfK consumer confidence report for July, the French business survey for June and consumer spending report for May, and the Italian consumer confidence index for June.

The French consumer confidence and the Italian business confidence reports for June are due on Thursday.

The final French GDP for the first quarter is due on Friday.

Japan

The Japanese economic calendar will open on Wednesday with the trade balance report for May.

Friday will see the CPI national report for May, the Tokyo CPI report for June, and the unemployment rate and the industrial production reports for May.

The UK

The UK calendar will begin on Wednesday with the release of the CBI distributive trades survey for June.

The final Business investment report for the first quarter is due on Thursday.

Friday will see the release of the final GDP and of the Balance of Payments current account report for the first quarter.

Canada

There are no economic events scheduled for release in Canada this week.

Past Week's Data and Events

United States

The dollar closed the week lower amid a very strong oil price and a very weak stock market. “Experts'” voices are starting to sound weaker about the silly notion that the US economy will recover in the second half of the year. If we get lucky, that we'll happen in the second half of 2009 - of we are that lucky.

I'm not sure how many ways we can say stagflation, or how many times I can say without getting bored. But that's what it is, even though it's not the same as in the early 80s. But remember, the only way to get out of it is by accelerating the recession.

The US was basically bad last week.

The New York Fed's "Empire State" general business conditions index fell to minus 8.68 from minus 3.23 in May. The index was down in four of the past months - not so good, is it?

Foreign buying of U.S. financial assets rose by a net $115.1 billion in April to an 11-month high from $79.6 billion the previous month, the Treasury Department said.

There was little reaction to the US data on Tuesday.

The producer price index surged 1.4 percent in May following an unrevised 0.2 percent increase in April. The core PPI slowed to 0.2 percent in May from +0.4 percent in the previous month.

Housing starts fell 3.3 percent to a seasonally adjusted annual rate of 975,000 units in May from a downwardly revised rate of 1.008 million units in April. Housing starts contracted 32.1 percent on a yearly basis. Meanwhile, building permits fell 1.3 percent to 969,000.

Industrial production unexpectedly fell by 0.2 percent in May as output at utilities shrank, while capacity utilization fell to 79.4 percent, the lowest since September 2005, from 79.6 percent.

The current account deficit widened to $176.4 billion in the first quarter from a downwardly revised $167.2 billion in the fourth quarter.

Initial jobless claims fell 5,000 to 381,000 in the week ended June 14 from an upwardly revised 386,000 (initially 384,000) the prior week. So, no big real change. The total number of people collecting benefits dropped 76,000 to 3.06 million for the week ended June 7.

The Federal Reserve Bank of Philadelphia's manufacturing index fell further to -17.1, a seventh month of contraction, from -15.6 in May.

Of less importance, the Conference Board's index of leading economic indicators climbed 0.1 percent, matching April's gain, the first back-to-back monthly increases in a year and a half.

The Eurozone

The euro/dollar made a half hearted recovery last week, but while this should continue, there is no momentum. The ECB should hike rates next week - but only once.

The Eurozone final inflation figures for May were revised upward to 3.7 percent, the highest since June 1992,from the original 3.6 percent, and from April's 3.3 percent. Core inflation edged up to 1.7 percent from 1.6 percent.

The euro/dollar fell on Tuesday on news that the German ZEW index of investor and analyst expectations fell sharply to -52.4 in June from -41.4 in May. The current conditions index fell to +37.6 from +38.6.

German PPI slowed to 1 percent in May from 1.1 percent but rose 6 percent on a yearly basis from 5.2 percent. Excluding energy, producer prices have risen 2.9 percent.

Elsewhere, Italy's total trade deficit narrowed to 1 billion euros in April from 1.28 billion euros in the previous year. Exports rose 18.8 percent and imports climbed 17 percent.

Italy's unemployment rate unexpectedly rose to 6.5 percent in the first quarter from a revised 6.2 percent the previous quarter.

Japan

Dollar/yen made a weak pullback last week, and the risk is on the downside.

Japan's tertiary index rose in 1.8 percent April after being unchanged the previous month.

The UK

The sterling/dollar encountered very choppy waters last week, but ended way up - if within recent ranges.

Cable crashed on Tuesday after the open letter from the Governor to the Chancellor in response to UK rise in inflation to 3.3 percent in May was not as hawkish as expected. This eased concerns that the next move in UK interest rates will be up.

The CBI trends survey showed only a small decline in the prices expectations balance to +28 in June from +30 in May.

The pound then exploded higher on Thursday on news that UK retail sales surged a mammoth (and record) 3.5 percent in May, after falling 0.3 percent in April. On a yearly basis, sales ballooned 8.1 percent. The number is absurd, it will probably give it all up and more next month, but the damage was done.

As widely expected, Bank of England's Monetary Policy Committee voted 8-1 to keep the benchmark rate at 5 percent, minutes of the June 5 decision showed.

Canada

Dollar/Canada fell last week - not that much given where the energy prices are.

Canada's index of leading economic indicators rose 0.2 percent in May, as expected. This was the first increase in four months. Seven of the index's 10 components rose.

Consumer prices rose 1 percent in May, the most since January 1991, and 2.2 percent from a year earlier, the fastest pace since January. The upmove was generated by surging energy prices. The Bank of Canada unexpectedly (but correctly) left its benchmark interest rate at 3 percent this month after energy costs as inflation rose.

Retail sales rose 0.6 percent in April on clothes and gasoline, after stalling in March (after the initially reported 0.1 percent advance). The report suggests domestic consumer demand continues to offset a slump in exports to the U.S., Canada's main market. Dollar/Canada spiked lower on the data and then registered a vicious recovery. Long live the fundamentals!

Switzerland

Dollar/Swiss franc slipped last week, but the pair remains in a trading range.

The Swiss National Bank left its three-month LIBOR target at 2.75 percent, the mid-point of the 2.25-3.25 percent band, as I expected. This confirms that the SNB will defer to the big-brother ECB's likely rate hike in July. The next SNB meeting is in September.

Australia

The Australian dollar ended the week higher, but got stuck in an inside range.

The RBA's minutes suggested the central bank will leave the benchmark rate at 7.25 percent this year, after four increases between August and March. The borrowing costs at a 12-year high will probably be enough to cool demand and curb inflation.

Cornelius Luca
http://www.gftforex.com

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