Daily Report: Focusing Turning to UK CPI

The forex markets remain bounded in tight range today even though the greenback is mildly firmer on risk aversion. More noticeable movements are found in GBP/USD’s recovery as well as USD/CHF’s strength. Though, both are cross driven as sterling continues to recover after hitting record low of 0.8660 against Euro last week. Swissy also continues to retreat in EUR/CHF and GBP/CHF crosses after both hit record low earlier this quarter. Note that since Sterling’s recovery is corrective in nature, recent down trend is still expected in respective pairs. Swissy, only other hand, will likely remain the weaker one among European majors until it’s pullback in crosses completes. Elsewhere, crude oil is set to retest 55 level again while gold remains directionless in tight range.

Main focus in the European session will be consumer inflation data from UK. CPI is expected to moderate from 5.2% peak in Sep to 4.8% yoy in Oct. Core CPI is expected to be unchanged at 2.2%. RPI is expected to slow from 5.0% to 4.6% while RPI-X is expected to slow from 5.5% to 5.2%. BoE has noted that inflation risk has ’shifted decisively to the downside’ and justified the much larger than expected 150bps cut earlier this month. Today’s data might mark the turn of trend in inflation that support BoE’s cut. Also, any sign of steeper than expected fall in inflation will give room to BoE for carrying on the steep path of policy easing. Other data from Europe include Swiss retail sales.

US Treasury Paulson said overnight that financial markets distress will remain for “a number of months” even though fears of bank collapse subside. He also said that he’s not looking to start new lending program unless it’s absolutely necessary. The reserves, which are in excess of $400b, will be preserved for Obama administration. Markets focus will turn to TARP testimony of Fed Bernanke, Treasury Paulson and FDIC Bair. data from US is expected to show steeper moderation in PPI by -1.8% mom in Cot, brining yoy rate down from 8.7% to 6.2%. Though, core PPI is expected to be unchanged at 4.00% yoy. NAHB housing markets index is expected to be unchanged at 15 in Nov.

By ActionForex

Mid-Day Report: Dollar Weakens as Consolidation Continues, FOMC Minutes Next
Dollar is sharply lower against European majors in early US session as consolidation continues. Technically speaking, as discussed in our technical outlook reports, more upside is still expected in EUR/USD and GBP/USD. Meanwhile, USD/CHF retreats sharply after edging higher to 1.2082 earlier today. Dollar index’s dip below 4 hours 55 EMA argues that some more pull back should be seen before resuming recent rally. Elsewhere, Crude oil, rides on dollar’s retreat and rebounds strongly from intraday low of 53.66 to above 55.6. Focus will now turn to FOMC minutes for inspirations on further volatility. Though, ,markets are pricing in 90% chance of another 50bps cut from Fed on Dec 16 and the minutes will likely have little impact to this view based on current economic and inflation outlook. Read the rest of this entry »

Daily Report: A Busy Day Featuring BoE and FOMC Minutes

The forex markets are still bounded in tight range in generally as markets are still searching for a theme and direction. Meanwhile, as mentioned before, Swiss Franc remains the weaker one as driven by its pull back in EUR/CHF and GBP/CHF crosses. USD/CHF continues to climb higher. GBP/USD, on the other hand, loses momentum after hitting 1.5080 minor resistance. Dollar index continues to be bounded inside a triangle like consolidation pattern below 87.98. A number important events are scheduled today, including the release of FOMC and BoE minutes as well as US housing and inflation data, which could trigger some volatility in the markets.

BoE MPC minutes are expected to reveal a 9-0 vote for the surprised 150bps cut earlier this month. With core CPI having the steepest drop in at least 11 years and a clear sign of turnaround in inflation trend, markets expect that BoE is now free to have further steep rate cuts from BoE to avoid a prolonged recession in the UK economy. Indeed, markets are pricing in another 100bps cut over the next 12 months. The minutes are expected to affirm this view. But the impact on Sterling might be minimal.

FOMC minutes, on the other hand, is expected to elaborate on the perceived dovish bias of Fed and provide details of the discussions between board members, including those in the intermeeting cut before Oct 29. Markets are pricing in 90% chance of another 50bps cut from Fed on Dec 16 and the minutes will likely have little impact to this view based on current economic and inflation outlook.

Consumer inflation in US has peaked at 5.5% in Jul and is expected to continue the down trend in Oct. Headline CPI in US is expected to moderate drop sharply by -0.8% mom in Oct, with year-over-year rate steeply down from 4.9% to 4.0%. Core CPI is expected to rose 0.2% with year-over-year rate down to 2.4%, after plateau at 2.5% for three consecutive months from Jul to Sep.

NAHB builder confidence surprised the markets yesterday by plummeting sharply from then record low of 14 in Oct to new record low of 9 in Nov. Such pessimism is expected to be reflected in today’s new residential construction data too. Housing starts is expected to continue the down trend and drop from 0.82m to 0.78m annualized rate. Building permits is also expected to drop from 0.81m to 0.78m annualized rate.

The forex markets continue to stay in tight range today despite some big surprises from inflation data from US and UK. US PPI dropped sharply by 2.8% mom in Oct, biggest fall since the series began in 1947. Year over year rate was down from 8.7% to 5.2% versus consensus of 6.2%. Core PPI, though, rose 4.4% with yoy rate up to 4.4%. TIC capital flow rose to 66.2B in Sep. Focus will turn to testimony of Bernanke and Paulson.
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FOMC cut the federal funds rate by 50bps to 1.00% as widely expected. Discount rate was also cut by 50bps to 1.25%. The vote was unanimous. The wordings in the statement showed additional concern on downside risks to growth. Fed acknowledged that “the pace of economic activity appears to have slowed markedly” owing to weakened consumer spending, business spending, industrial production and foreign economies, with extra restraints from “intensifications of financial market turmoil.” Fed continue to adopt an easing bias as it pledged to “act as needed to promote sustainable economic growth and price stability”. Inflation is not much of a concern for the moment since recent decline in energy and commodity prices and weaker economy will moderate inflation in the coming quarters. In addition, Fed set $120b swap lines in emerging markets including the creation of temporary swap with central banks of of Brazil, Mexico, Korea and Singapore. RBNZ and Fed also entered into a $15b swap line.
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Mid-Day Report: Dollar Firm Despite Poor Data
Dollar remains firm in the US session after a bag of poor economic data. Consumer spending dropped more than expected by -0.3% in Sep while income grew more than expected by 0.2%. The drop in consumer spending is indeed the biggest in four years. Inflation continued to moderated with headline PCE dropping to 4.2% yoy in Sep while core CPI dropped to 2.4% yoy. Chicago PMI deteriorated more than expected to 37.8 in Oct, worst reading since 2001. U of Michigan consumer sentiment was finalized at 57.6, lowest since the 56.4 recorded in Jun. Employment cost index rose 0.7% in Q3.

Other data released today saw Canada GDP dropped -0.3% in Aug Swiss KOF leading indicator continued to the downtrend in Oct and fell from 0.52 to 0.35, the 15th consecutive month of decline and hit a five year low. Eurozone HICP flash moderated to 3.2% yoy as expected while unemployment was unchanged at 7.5%. Germany retail sales dropped more than expected by -2.3% mom in Sep. Gfk consumer confidence dropped more than expected to -36 in Oct, hitting the lowest level since at least 1974.
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Mid-Day Report: Markets Consolidate in Tight Range
The forex markets are basically staying in tight range in early US session. Rally in dollar and yen lost some steam after European stock markets recover some of the earlier losses. US stocks are mixed at open as market digests yesterday’s losses. Some more consolidation is expected generally in financial markets. US CPI was unexpectedly flat in Sep with yoy rate moderated more than expected to 4.9%. Core CPI was unchanged at 2.5% yoy as expected. Industrial production dropped sharply by -2.8% mom in Sep, largest fall since 1974, while capacity utilization dropped more than expected to 76.4%. TIC capital flow dropped to 14b. Jobless claims dropped to 461k. Philly Fed index dropped sharply to -37.5 in Oct.

SNB said that it will extend a maximum of $54b in loans to take over illiquid assets fro UBS so that Switzerland will be able to “weather the economic difficulties” as a result of global economic slowdown. Swiss retail sales was flat yoy in Aug. ZEW economic expectation deteriorated sharply to record low of -91.1 in Oct.

BoE announced to implement three major reforms to improved market operations. Standing Facilities will be replaced by Operational Standing Facilities starting Oct 20 to “absorb technical problems and imbalances” in money market operations. There will be a discount window facility established that would allow banks to borrow from the government to improve liquidity to commercial banks. A permanent long-term refi open market operations against a wider range of collateral classes will be introduced.
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Daily Report: Dollar and Yen Higher as Risk Aversion Fights Back

Recession concerns spread over from the US stock markets to the global stock markets today. Nikkei 225 had the biggest drop since 1987 and plunged over 11% to 8,445 today following the 733 pts fall in DOW. MSCI Asian index had a record decline of 8.4%. Major European indices open 3-4% lower too. Japanese yen and dollar are both generally higher on risk aversion while crude oil continues it’s decline and breaches $72 a barrel level. World leaders are still working on measures to fight the financial crisis. Leaders of G8 nations, including US, UK, Canada, France, Germany, Italy, Japan and Russia, said they will meet in the near future to discuss the current financial crisis and set forth a “concerted framework for individual and collective action.” EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord to prevent a repeat of the current credit crisis. French President Sarkozy emphasized the need for “refoundation of the international financial system.”.

Technically speaking, more upside is expected in the dollar and yen in the near term with major pairs and yen crosses heading to retest recent highs and lows in respective pairs. Though, there is no confirmation of resumption of prior trend until breaking of these levels. Also, as intermarket relationship continues to dominate, the key focus will remain on whether DOW could hold above recent low at 7,884. While yen crosses may extend lower, DOW’s break of this low is needed to confirm the strength of yen’s rally. Otherwise, markets are probably still in consolidation phase in general.

On the economic data front, main focus will be on US CPI which is expected to show moderation from 5.4% yoy to 5.0% yoy in Sep. Core CPI is expected to be unchanged at 2.5%. Other data from US include jobless claims, TIC capital flow, industrial production, Philly Fed survey and NAHB housing market index. In European session, Swiss retail sales rose 0.0% yoy in Aug, below expectation. Swiss ZEW economic expectation is expected to deteriorate further to -58.5.
By ActionForex

Mid-Day Report: Markets Lifted by US Bank Recapitalization Plan, BoJ & BoC Announced New Initiatives

Dollar and yen continue to pullback against major currencies in early US session as US stock markets open higher following announcement of further actions to stabilize the financial markets. As generally expected, Treasury Paulson confirmed that US will spend $250b into financial institutions, including using about half to buy preferred shares of nine of the largest banks. FDIC will begin guaranteeing most new debts and offer insurance on non-interest bearing accounts used by small business for payrolls. Fed also announced to buy commercial paper on Oct 27.
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Yen remains firm in early US session following lower open in the US stock markets. Investors continue to cautiously await conclusion of the rescue package but the debate will probably drag on for a while. US real GDP growth in Q2 was unexpectedly revised down from 3.3% to 2.8%. while consensus expected no revision. Looking into the details, there were downward revisions to exports, consumer spending and business investments and that offset upward revision to non-residential construction. In particular, personal consumption growth was revised down from 1.7% to 1.2%. Price index was revised up to 1.3%. Core PCE is revised up from 2.1% to 2.2% too.

Released earlier today, Swiss KOF leading indicators hit five year low of 0.62 in Sep. but was better than expectation of 0.56. Germany import price dropped less than expected by -0.8% mom in Aug, with yoy rate unchanged at 9.3%. New Zealand GDP dropped less than expected by -0.2% qoq in Q2 with yoy rate slowed less than expected to 1.0%. Japan CPI moderated unexpectedly to 2.1% yoy in Aug with core CPI flat.

by ActionForex