Past Week's Data and Events
The dollar is getting little respect these days and nothing seems to be able to prop it up. It looks like it??™s already Christmas time and the US currency is getting trashed around with little regard. With the subprime mortgage castle of cards crumbling and with (untold) billions of dollars leaving top financial banks there is an uneasy feeling of crisis out there; the oil price is galloping comfortably to $100/barrel, the gold is flying high, many equities are taking a reality check, and jobs are only starting to get wiped out. On this bleak milieu, the unsustainable strong US unemployment report carried little weight and the dollar crumbled.
United States
It??™s odd when a country with the population of Manhattan (New Zealand) has a currency that surged substantially versus the currency of the entire United States, while our (only) neighbor to the North, which has the population of a medium sized European country has a currency that has a currency at a 130-year high versus ours! Washington doesn??™t care much about it, and our new found friend in France, President Sarkozy, couldn??™t convince his political fr??res to take a stand against the now almighty euro! Apparently a weak buck helps our (limited) exports and raises the prices of the BMW & Co; but we don??™t care much about luxury imports, and cheaper imports from China will get only limited impact if our consumption slows down. So, ride the dollar down unless you are told otherwise??¦
The dollar recovered on temporarily on Friday on news that the non-farm payrolls surged surprisingly by 166,000 in October, twice the expectations. The revisions of the previous two months showed September down to 96,000 from 110,000 and August up to 93,000 from 89,000. The unemployment rate was unchanged from September at 4.7 percent. 190,000 jobs were created in service industries, 24,000 were lost in the goods-producing, business services added 65,000 jobs, leisure and hospitality industries hired 56,000 more, and manufacturers cut 21,000 jobs, and construction industries reduced payrolls by 5,000.
Real gross domestic product expanded at an annual rate of 3.9 percent in the third quarter from 3.8 percent in the second quarter.
The Employment Cost Index slipped to 0.8 percent in the third quarter from 0.9 percent the previous quarter. Wages and salaries were up 0.8 percent, matching the gain in the second quarter, while benefit costs slowed to 0.8 percent from 1.3 percent.
The Chicago Purchasing Management index of Midwest business activity fell in October to 49.7 from 54.2 in September.
Construction spending surprisingly rose 0.3 percent in September, but the prior month was revised downward to -0.2 percent from +0.2 percent.
The dollar flipped-flopped after the Federal Reserve met the market expectations and cut its benchmark interest rate by 25 basis points to 4.5 percent and signaled reluctance to cut borrowing costs further.
The Institute for Supply Management??™s manufacturing index fell to 50.9 in October from 52.0 in September.
Meanwhile, personal incomes grew at a 0.4 percent annual rate in September, matching the prior month's gain, and spending rose at a 0.3 percent rate, down from 0,5 percent, while disposable income slipped to 0.4 percent from 0.5 percent.
The initial claims for state insurance benefit totaled 327,000 in the week ending October 27 after an upwardly revised 333,000 the prior week (from 331,000).
Factory goodsorders surprisingly rose 0.2 percent in September, while the August orders were revised downward to -3.5 percent from -3.3 percent. Transportation equipment orders fell 6.2 percent, while civilian aircraft orders expanded 18.1 percent.
The Eurozone
The euro/dollar surged to a new lifetime high and there is little reason will back down without (some sort of) intervention.
German unemployment rate fell to a 14-year low of 8.7 percent in October, the lowest since May 1993, from 8.8 percent last month.
Consumer confidence in France fell to -22 in October, a seven-month low, from minus 21 in September.
The Eurozone inflation accelerated to 2.6 percent in October, the highest in two years, from 2.1 percent in September. Meanwhile, an index of executive and consumer sentiment fell to a 19-month low of 105.9 in October from a revised 106.9 last month.
Japan
Dollar/yen made a weak and unconvincing recovery last week as the Asian currency remains a funding vehicle for carry trades.
Japanese retail sales fell a more than expected 1.5 percent in September. However, on a yearly basis retail sales rose 0.5 percent, the same pace as in August.
The jobless rate rose unexpectedly rose to 4.0 percent in September from 3.8 percent in August and a nine-year low of 3.6 percent in July.
Meanwhile, the household spending rose 3.2 percent in September from a year earlier
Housing starts fell 44.0 percent on a yearly basis after dropping 43.3 percent in August, while construction orders fell 16.3 percent on a yearly basis in September on top of -14.2 percent in August.
The Purchasing Managers Index for manufacturing, slipped to 49.5 in October from 49.8 in September.
The Bank of Japan board members voted 8-1 to hold the key overnight lending rate at 0.5 percent, the lowest among major economies, as expected. The central bank forecast slower economic growth and gave up a forecast for higher consumer prices this year.
The UK
The pound continued to defy gravity last week. Do I hear $2.10? Going once, going twice??¦
House prices fell 0.1 percent in October, the first decline in two years, according to research group Hometrack. And they slipped to 4.4 percent on a yearly basis in October from 5.0 percent.
However, the Nationwide Building Society??™s house prices rose 1.1 percent in October and 9.7 percent on the year from 9.0 percent.
Canada
The Canadian dollar surged to its highest level since the late 1800s last week on ongoing demand for commodities and on more evidence of a strong economy.
Canadian PPI contracted by a more-than-expected 0.9 percent in September because the strong Canadian dollar and a U.S. economic slowdown helped lower prices of vehicles, some metals and forestry products. On a yearly basis the PPI edged up 0.1 percent after falling 0.6 percent in August.
The economy grew by a stronger-than-expected 0.2 percent in August. The increase was helped by strong retail trade and crude oil production while utilities declined and manufacturing stagnated.
The Canadian economy added 63,000 jobs, or six times the expectations, in October and wages climbed 4 percent on the year. Because of this, the unemployment rate fell to a 33-year low of 5.8 percent from 5.9 percent in September.
Switzerland
Dollar/Swiss kept on digging last week and this weakness should continue, despite the franc being a funding currency for carry trades.
Australia
The Aussie/dollar made only a temporary pause last week as the market attempted to scare away itself out of solid carry trade. But the Halloween is over!
Australia's retail sales climbed 0.8 percent in September, matching the revised August gain.
This Week's Data and Events
United States
The US economic calendar will begin on Monday with the release of the US ISM non-manufacturing report for October.
The third quarter productivity report is due on Wednesday.
Friday will see the release of the trade balance report for September and of the University of Michigan survey for November.
The Eurozone
The Eurozone economic agenda will open on Tuesday with the release of the Eurozone and its members??™ PMI Services report for October. Tuesday will also see the regional PPI for September, retail sales for September and the German factory orders report for September.
The German industrial production report for September is due on Wednesday
Germany??™s trade balance for September is due on Thursday.
Also on Thursday, the ECB will leave rates unchanged at 4.0 percent.
Finally, the French and Italian industrial production reports for September will be released on Friday.
Japan
The Japanese economic calendar will start on Tuesday with the release of the Leading and Coincident indices for September.
The Machinery orders report for September is due on Wednesday.
Finally, the volatile industrial production and capacity utilization reports for September will be seen on Friday.
The UK
The UK economic agenda will begin on Monday with the release of the PMI Services report for October and of the Industrial production report for September.
Tuesday will see the release of the BRC Retail Sales report for October.
The Nationwide Consumer Confidence report for October is due on Wednesday.
On Thursday, the BoE will leave rates unchanged.
The Halifax house price report for October and the trade balance report for September are due on Friday.
Canada
Canada??™s economic agenda will begin on Tuesday with the release of the Ivey Purchasing Managers report for October.
The New Housing Price report for September is due on Thursday.
Friday will see the release of the Trade Balance report for September.
Overview
Euro/dollar
Last week's range: 1.4375 ??“ 1.4527 (Up)
Previous range: 1.4126 ??“ 1.4395 (Up)
Euro/dollar rallied for the fourth consecutive week and for the ninth week out of the past 11 to reach yet a new lifetime high. The pair is massively overbought, but stay with it until there is some proof it will go south.
Immediate resistance is seen at 1.4533. Above it, strong resistance is seen at 1.4580. Next resistance is at 1.4665. Distant resistance follows at 1.4765.
Immediate support is at 1.4455. Below 1.4405, euro/dollar still has support at 1.4315. Only a break below 1.4195 would signal a more sustained decline toward the distant support at 1.4015. This is unlikely.
NEAR-TERM:Slightly bullish
MEDIUM-TERM:Bullish
LONG-TERM: Bullish
Dollar/yen
Last week's range: 114.02 ??“ 115.93 (Mixed)
Previous range: 113.26 ??“ 115.03 (Mixed)
Dollar/yen closed the week marginally higher after last week. It??™s the only currency (that matters) that remains relatively soft against the dollar as it is one of the two ingredients in carry trades. Expect mixed trading to persist.
Above 115.05 there is strong resistance at 115.50 from another 50-point pivot, which targets 115.00 and 116.00. Distant resistance now follows at 116.85 from another 50-point pivot that targets 116.35 and 117.35.
Initial support comes at 114.20 from a 50-point pivot that targets 113.70 and 114.70. Below 113.20, strong support is at 112.90 from a 50-point pivot that targets 113.40 and 112.40. There is a distant pivot low at 111.60 which is also a 50-point pivot, which targets 112.10 and 111.10.
NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Bearish
Sterling/dollar
Last week's range: 2.0531 ??“ 2.0897 (Up)
Previous range: 2.0259 ??“ 2.0573 (Mixed)
Sterling/dollar exploded higher last week to a 26 ??-year high of 2.0573. The pair is severely overbought, but no one is batting an eye. So hold long positions with a tight stop, as when the end will come, will be vicious.
Initial resistance is at 2.0915. The next level is 2.1025. Distant resistance is now perched at 2.1210.
Immediate support is seen at 2.0840. Next level is at 2.0755. Below 2.0660 there is distant support at 2.0525.
NEAR-TERM: Slightly bullish
MEDIUM-TERM:Slightly bullish
LONG-TERM:Bullish
Dollar/Swiss franc
Last week's range: 1.1493 ??“ 1.1672 (Down)
Previous range: 1.1602 ??“ 1.1787 (Down)
Dollar/Swiss closed the week down after sinking to another over 2 ??-year low of 1.1493. Hold short positions in this oversold pair until there is a confirmed bottom.
Below 1.1493, support is at 1.1455. Below 1.1410, there is support at 1.1365. Distant support follows at 1.1260.
Initial resistance is at 1.1590. Above 1.1655, there is resistance at 1.1740. Distant resistance is at 1.1894.
NEAR-TERM: Mixed with downside bias
MEDIUM-TERM:Bearish
LONG-TERM: Bearish
Dollar/Canada
Last week's range: 0.9327 ??“ 0.9628 (Down)
Previous range: 0.9591 ??“ 0.9824 (Down)
Dollar/Canada made yet another collapsing decline and now reached a near 130-year low??¦ What else is there to say? Hold short positions with a tight stop.
Below 0.9275, there is support at 0.9240. Next level is 0.9175. Distant support follows at 0.9075.
Initial resistance is at 0.9415. The next cap is at 0.9525. This is followed by 0.9590. Distant resistance is pegged at 0.9630.
NEAR-TERM: Bearish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Euro/yen
Last week's range: 164.30 ??“ 167.26 (Up)
Previous range: 160.50 ??“ 164.56 (Mixed)
Euro/yen closed higher last week, as expected. The upside is only mildly favored now, as the downside risk is increasing.
Above 167.40, the euro/yen faces resistance at 167.72. The next level is 168.95. The cross then has distant resistance at 171.30.
Immediate support is seen at 165.30. This is followed by 164.25. The next level is now seen at 163.25. Distant support is at 160.50.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Slightly bullish
LONG-TERM: Bullish
Euro/sterling
Last week's range: 0.6920 ??“ 0.7020 (Down)
Previous range: 0.6937 ??“ 0.7018 (Up)
Euro/sterling fell from a five-week high and formed a bearish reversal formation. Mild weakness is now likely.
Strong support is seen at 0.6920. A break below 0.6910 would signal an aggressive downmove to 0.6867. Below 0.6810, distant support comes at 0.6775.
Initial resistance is at 0.6970. Above the strong pivot at 0.7028, resistance is still seen at 0.7045 and 0.7075. If the cross manages to close above this level, then expect a test of the distant resistance at 0.7118.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Slightly bullish
LONG-TERM: Bullish