Global Economies Recouple

Daily Forex Fundamentals | Written by The LFB-Forex.com | Aug 02 08 18:25 GMT |

Overall: It's become apparent that a fairly widespread global slowdown will occur as the world's economies recouple, with recessionary risks seen for the U.S., U.K., Canada, Japan, Italy, Spain, Ireland, Portugal and New Zealand along with sharp growth deceleration for France and Germany. And with the advanced economies slowing or entering recessions the idea that China, India and other emerging markets can remain immune from these recessionary or sharply slowing economies is probably not realistic. Twenty two ut of the 23 components of the global MSCI equity index are already into bear territory (with a fall of 20% or worse) with the only exception being Canada, which probably will also fall into the same condition soon enough. The myth of economic de-coupling can now be laid to rest as the economic story for H2 2008 into at least H1 2009 will be global recoupling to the U.S. slowdown. The euro fell 40 pips overnight after a bigger than expected drop in German retail sales, which fell 1.4% in June and 3.9% (in real terms) from June 2007. Traders may look to stay short on the euro as long as it continues to close below the July 7 low on 1.5611. Should the pair decline further, the next level of support is seen on 1.5460, a break of which could see a test at the channel low on 1.5290. Oil seems destined to decline on speculation that demand will wane, but any hint of geo-political turmoil is sure to cause its price to spike up on the risk to supply. The pound continued its decline from the break of channel support on July 29. There was more bad news for the British economy, which now seems destined to enter a recession--The CIPS index of manufacturing dropped to 44.3, the lowest since December 1998 while the prices for goods charged by factories rose to 63.1, the highest since that series started in November 1999. A gauge of input prices increased to 82.4, the most since records started in 1992. The BoE still may raise interest rates (as suggested by the NIESR)--Timothy Besley, one of the Bank of England's nine rate setters, said in an interview with the Daily Telegraph this week that "more activism in policy now means one can afford to be less active later." The aussie fell for the eighth time in ten days, falling below the important support level on .9325 as gold and other commodities fell on Friday. The idea of parity, once seen as all but certain, now seems like a distant memory as a daily close looks to open the way to a test of .9000 on speculation that slowing economic growth will prompt the RBA to cut interest rates. The cad continued to rise Friday after Thursday's GDP report showed that Canada's economy contracted for the third month in four in May. A break and close above the highs of April 1 and June 10 likely opens the way higher as traders start to price in a rate cut from the bank of Canada. The swissy continued to rise even as U.S. equity markets declined on Friday, making its highest close since May 29. The Swiss PMI for July will be released Monday at 03:30 EDT. The jpy declined as the S&P lost nearly 0.5% on the day, but the suspicion is that the Japanese Central Bank will come under corporate pressure to allow the yen to depreciate after a report on car sales showed that Toyota's July sales in the U.S. declined 12%. The LFB-Forex.com