Dollar Index And The Financial Sector

Daily Forex Fundamentals | Written by TheLFB-Forex.com | Aug 14 08 20:59 GMT |

Dollar Index: The index continued to strengthen Thursday despite the fact that new claims for unemployment are averaging well over 400k per week. The connection between the unemployment report, oil and the dollar might appear a bit convoluted, but would seem to make sense on closer examination. Weak employment figures indicate “demand destruction,” an obvious negative for oil which declined by 1.9% about an hour before the NYMEX close. With EUR/USD (43% of the index) correlating around .90 with oil, the net effect was a further appreciation of the index towards 77.00. On the daily chart, we note that a trend line of resistance extending from October 12 2006 through June 14 and Aug 16 2007 was breeched on Monday, was support on Tuesday's close and served as support for Thursday's low. On the day, the index rose 0.465 (0.60%) to 76.669.

The Financial Sector: Shares of the GSE's were helped when the Securities Industry and Financial Markets Association said larger loans financed by the two companies will be allowed in the main market for mortgage bonds and the positive news regarding mortgage financing was good news for firms with large exposures to the housing market. PMI Group, the second-largest U.S. mortgage insurer, rallied 49.46% on its plan to raise cash by selling businesses. Also helping the beaten down financial sector look attractive were Friday's options expiries, and Wednesday's move to the downside might also have been a bit exaggerated with thinner summer trading. JPMorgan Chase (JPM) gained 2.44%, Merrill Lynch (MER) rose 1.48%, and Wachovia (WB) moved 6.75% higher as Fannie Mae (FNM) and Freddie Mac (FRE), gained 7.72% and 7.03% respectively. The XLF closed on 21.21 after gaining 0.64 point (3.11%) on relatively light volume of 129,452,256, against the daily average of 177,480,000. Volume in the XLF has increased over 70% on a daily basis since the beginning of July.

U.S. Session Wrap A confusing, but positive day

It was a tricky day in the equity markets, as quickening inflation and bad news on unemployment figures initially sent markets lower. The sentiment changed quickly as oil declined on speculation that slowing global growth would continue to curb demand and traders moved into financial stocks. Markets finished off their highs on what might have been profit taking. From a technical viewpoint, the S&P found support on a well-established trend line and did manage to close above the .382 Fibonacci retracement of the May to July sell off.

At the close of floor trading on the NYSE, the DOW was on 11,615.93 after gaining 82.97 (0.72%). The S&P closed on 1292.93, up 7.10 (0.55%) while the NASDAQ finished trading on 2453.67 with an increase of 25.05 (1.03%). Treasuries were higher even as traders moved into equities on speculation the economy would slow in the second half of the year. The two-year note yield fell 4.2 basis points to 2.426%. The benchmark 10-year note lost 4.4 basis points to yield 3.891%. The dollar was mixed during N.Y. trading; gaining on the euro (0.73%) and pound (0.17%) while trading a bit lower against the yen (0.12%).

In other news, billionaire investor T. Boone Pickens said on Thursday that oil would probably not fall below $100 per barrel, because the U.S. imports so much of its oil. "I don't think it'll drop below $100," Pickens told Reuters in a telephone interview. "I would say $110 is where it might go, something like that." While we have all the respect in the world for Mr. Pickens' opinion, the New York Post reported that his $7 billion hedge fund, BP Capital, lost just over a third of its value in July as oil fell from its peak on $147 per barrel.

There was more news the housing market does not seem to be improving. The National Association of Realtors (NAR) said today that in the second quarter, existing U.S. sales of single family homes and condominiums fell by 16% to an annual rate of 4.913M, a ten year low, and that the median price for a single-family house fell 7.6% to $206.5k from 223.5k. A third of all sales in the quarter were foreclosures in which lenders took a loss, the NAR said. RealtyTrac said that bank repossessions nearly tripled in the year to July. RealtyTrac's executive vice president for marketing said that “the number of properties that have been foreclosed on by the banks and still haven't sold is the highest we've ever seen."

Crude oil for September delivery fell 99 cents (0.9%) to $115.01 a barrel on speculation that global demand will slow as more economies contract.

Gold futures for December delivery fell $17 (2.0%) to $814.50 an ounce as the dollar appreciated on speculation the Fed may be closer to raising interest rates after yearly CPI rose 5.6%, the fastest rate of inflation since January 1991.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.