Forex:ECB: Rates to Remain Steady by Angelo Airaghi

ECB: Rates to Remain Steady by Angelo Airaghi
[Guest Analyst] 10/5/2009(www.forexnews.com)

The unemployment rate remains high in the U.S and in Europe and could rise further over the short term. However, new orders are improving and a turnaround might be near. The European Central Bank (ECB) meets this week in Venice (Italy). Rates should remain steady, although an exit strategy for next year could be ready.

U.S.: Home prices to increase.
The U.S. economy is slowly moving out of the deep recession of the past two years, albeit the data remains volatile and unstable. Ups and downs are normal during turning points. Some sectors perform better than others, but an equilibrium should emerge as time passes by. The manufacturing industry, as an example, is performing again, since exports to major economies are increasing. In reality, the U.S. manufacturing ISM index declined to 52.6 in September, but it remains above the benchmark of 50 for the second straight month. In fact, 13 out of 18 industries registered some gains and improvements are broad-based among various economic sectors. The housing market remains nevertheless the leading force. Home inventories are declining and prices are beginning to rise. Current affordability and tax incentives are driving the market and the trend should continue in the coming months as well. However, the move could be subdued by the new saving mentality which focuses on reducing debt and improve personal finances.

In fact, the job market stays uncertain. In September, it shed another 263,000 jobs (-170,000 expected). The unemployment rate is now at 9.8% (the highest level of the past 26 years) from 9.7% in August. Nevertheless, the average monthly decline of the third quarter remains mild compared to the previous two quarters and part-time jobs are stabilizing. Consumers are still skeptical about current conditions and labor market prospective. Consumer confidence fell to 53.1 in September from 54.5 in August, but the index is way above the low of 25.3 registered in February. In effect, personal consumer spending rose 1.3% in August (+1.0% expected) on the top of July’s gain of 0.3%, marking the largest gain since October 2001. Both, durable and non-durable sales rose. However the cash-for-clunkers incentive program had an important role in August data (durable goods rose 5.3%) and numbers should again be checked in future to confirm the validity.

EUROPE: New orders rising.

Business and consumer confidence continue to improve in Europe, even though spending should remain mild for now, since the unemployment rate is at the highest level. In September, the Euro zone economic sentiment index moved up to 82.8 from 80.8 in August. However, the consumer confidence index stays negative at -19 from -22, as household finances remain tight. The Euro zone unemployment rate rose to 9.6% in August from 9.5% in July and 7.6% in August of 2008. There are now more than 15 million people without work in the 16 nations using the Euro and the trend might continue for the short term. Nevertheless, new orders are improving and a turnaround might be near, despite the domestic demand remaining weak. In fact, while export receipts hit a seven month high, imports fell to a four year low. With inflation low and growth still sluggish, the European Central Bank (ECB) should keep rates steady until the first part of next year. However, an exist strategy might be ready.

In September, the final Purchasing Manager’s Index for the manufacturing sector moved to 49.3 from 48.2 in August. It has been the second consecutive month of increase and the largest move since May. The output rose in France, Germany and the Italy. In Germany, the PMI reached 13 month high, although it still remains below the key benchmark of 50. The largest economy in Europe is moving out of the recession, but the recovery is bumpy and more work needs to be done. The German unemployment rate fell in September to 8.0% from 8.3%. Nonetheless, the decline might only have been inspired by seasonal factors. The job market is one of the greatest challenges for the Christian Democrat that won the general elections last week. Before cutting taxes, Chancellor Angela Merkel would possibly focus on reducing the huge federal deficit, which might be around 4.0% of the GDP next year.

Forex:Pound Gets Hammered by King by Korman Tam

The greenback climbed higher against the majors amid weaker US data and a pullback in commodities prices. The major stock indexes drifted lower, with the Nasdaq and S&P 500 sliding by over 1% and the Dow Jones drifting lower by 0.5%.

Weekly jobless claims improved from the previous week, declining to 530k from 545k. However, August home sales eased up, slipping 5.1 million units from 5.3 million units a month prior.

Sterling Dragged Lower by Jawboning


The pound sold off sharply in the Thursday session as government jawboning hammered the currency against the euro and the dollar. The sterling plunged to its lowest level in 6-months at 91.55 and a 2-month low against the dollar at 1.6020. The catalyst for the sharp sell-off was comments from Bank of England that suggested a weaker currency would be beneficial to stabilizing the economy. UK Prime Minister Gordon Brown echoed a similar tone, saying “all factors that make for a stable economy” are welcome.

Cable trades just above the 1.6060-figure with interim resistance starting at 1.6080, followed by 1.61 and 1.6130. Subsequent ceilings are eyed at 1.6170, backed by 1.62 and 1.6240. On the downside, support starts at 1.6040, followed by 1.60 and 1.5960. Additional floors will emerge at 1.5930, backed by 1.59 and 1.5870.

Euro Slumps against USD

he euro tumbled lower to the 1.4620 mark versus the dollar amid a general slump in commodities and equities in the Thursday session. Germany’s September Ifo sentiment survey missed consensus estimates, improving to 91.3 instead of forecasts for an increase to 92.0 from 91.3. The Ifo expectations component improved to 95.7 from 95.0 in August, albeit less than the expected improvement to 96.5 and the current conditions index improved to 87.0 from 86.1.

The calendar for the coming session is light, with just the release of August M3 money supply, seen declining to 2.7% from 3.0%.

EURUSD holds steady around 1.4650, with resistance seen at 1.4675 and 1.47. Additional ceilings will emerge near 1.4740, followed by 1.4770 and 1.48. Losses will be tempered at 1.4630, backed by 1.46 and 1.4550. Subsequent floors are eyed at 1.4520 and 1.45.

Forex:Greenback Slumps on Shift to Riskier Assets by Korman Tam

The dollar’s respite proved short-lived as traders resumed selling the currency in the Thursday session, pushing it to a fresh one-year low against the Australian dollar at 0.9088 and two-week low against the euro at 1.4816. The equity, commodity and energy markets were in lockstep as spot gold touch record high for its third consecutive session past the $1,055 per ounce level and crude oil edging back above the $70 per barrel level near $72. The major US equity bourses also climbed higher, with the S&P 500 and Nasdaq advancing by nearly 1% in the afternoon session.

The economic data released earlier in the session saw weekly jobless claims improve to 521k from 551k a week prior and the August wholesale inventories slip by 1.3% from a 1.4% decline in the previous month. Speaking earlier today was Richmond Fed President Lacker reiterated that the economic outlook remains unchanged from the previous FOMC meeting, adding that the risk of sliding into a recession again in 2010 has diminished substantially. He also quelled speculation of impending rate hikes advising that the Fed should not tighten policy today.

Euro Edges Past 1.48
The euro touched a two-week high at 1.4816 on the heels of the ECB monetary policy decision in morning trading. As expected the ECB left interest rates unchanged at 1.0%, but the focus largely hovered over the subsequent press conference from Bank President Trichet for a sense of whether the ECB follow the RBA in tightening monetary policy. Trichet said that current interest rates are appropriate and a return of inflation to moderate positive rates expected within coming months. He added that he expects to see a period of stabilization and gradual economic recovery. Moreover, Trichet suggested that the recent survey indicators support for the view the Eurozone economy is stabilizing. Although Trichet didn’t provide clear signals that interest rate increases were imminent, it can be interpreted that rates have bottomed and the next move by the Bank will rate hikes instead.

EURUSD holds steady near 1.48, with support seen at 1.4760, followed by 1.4730 and 1.47. Subsequent floors are eyed at 1.4650, backed by 1.46 and 1.4570. On the upside, gains will target 1.4830, followed by 1.4860 and 1.49. Additional resistance will emerge at 1.4940, backed by 1.4980 and 1.50.