Weekly Currency Report 16-11-07
Posted by ~Ray @ 2007-11-27 21:47:48
The US Fed announced that it would now publish more frequent (four times yearly rather than twice yearly) and more detailed economic forecasts. A key development this week that will act the focus on credit worries is a new accounting command from the US that may demand banks to announce further large write downs due to a requirement to record prices for "aim 3" assets that are illiquid. This command went into effect on Thursday. US sell Sales data were disappointing but considering the go in gasoline and food prices of the measure year these figures may be weaker than the headlines reveal. For discretionary items we are probably seeing an outright recession in consumer spending right now and there is speculation on whether we will see GDP growth at all in Q4 in the US. Goldman Sachs claimed that it was weathering the subprime debacle quite come up (the merchandise decided to cerebrate on this good news at least as there were negative announcements elsewhere and Goldman itself said it expected that the ascribe crisis would worsen) but this gave a bring up to the US equity markets. Wal-Mart earnings were exceed than expected and their pass outlook is far more positive than the merchandise has feared. This combined with a very large sell-off in crude and the market had plenty of reason to toss worry aside for the moment and merge. Shopping centre data released showed the lowest evaluate of YoY growth since 1995. The risk to calling a lower be is that higher gasoline spending from elevated prices sometimes obscures weakness in discretionary consumer spending areas. As desire as the market continues to be for a December cut from the Fed (fully priced in) the USD will have a hard time sustaining a rally unless equities sell-off again and even more importantly advance out unless there are further signs of weak data elsewhere.
The euro has remained perhaps a bit too elevated; as normally it's relative movements to the USD have been tightly correlated with other currencies' movements versus the greenback. Although credit worries are grabbing the headlines there seems to be a growing noise level on the prospects of a global growth slowdown which means that other currencies' send expectations have advance room to go analyse to the expectations for the US economy which are already very low.
The RICS housing data was out change surface worse than expected and this was the catalyst to the weak GBP furnish. The very dovish BoE quarterly inflation inform yesterday finally gave the merchandise what it wanted as Mervyn King and company signalled a loosening of monetary policy in 2008 something the merchandise has been pricing in for some measure. The contradict Retail Sales reading pushed GBP:USD below the 2.0500 aim and the pair could be set to evaluate the next key support area at 2.0000 with 2.0500 serving as resistance now. Credit worries accelerated suddenly again with Barclays write-off rumors swirling and the news of a blown up CDO coordinate sending red flags up everywhere. This saw the broad-based risk aversion trade resuming in force with equities seeing a large sell-off to end the week on an ugly note and yields diving lower
A rare bout of good news from Japan as the GDP numbers came out better than expected on exceed than expected consumer spending. Still exports which are vital for lacquer's growth showed worrying signs of slowing. With the furnish of assay aversion re-established and Asian equities suffering another go of losses the yen rose on Friday's trading recovering from earlier losses. Risk premiums in the financial sector undergo been pushed to preserve high levels as for the first time. Risk aversion is supporting JPY. The emerging markets are amazingly resilient as not all of the panic buttons undergo been pressed and there's always the risk of "one more round" of short-term optimism or the risk that the market gets over positioned in the short-term. Carry trades rallying as strength in equities continues. It looks like getting desire the JPY though recent volatility shows how dangerous this can be for the short-term.
With a more than 30-dollar drop in gold prices and copper prices breaking to new lows this morning there is a huge question as to why the AUD is not weaker. One possible reason AUD is finding support is continued capital flows and the fact that the arouse rate believe for Australia hasn't seen any downward adjustment thus far. act an eye on AUD as a global growth slowdown should be devastating for AUD.
Canadian dollar was the biggest beneficiary among the G10 currencies of the global growth theme then prevalent. Is USD:CAD is at a crossroads here? Will we get another dose of optimism higher commodity prices and a stronger CAD here short-term or does this move in assay aversion have advance to increase? The December US oil future is rolling off and the market has shown a lot of volatility on expiry for several months. Any big sell-off in crude crude could put further compel on CAD.[ADVERTHERE]Related article:
http://personalfinance.iii.co.uk/articles/articledisplay.jsp?article_id=8431862§ion=ForeignExchange
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