Finotec News Archive - April 07 2008

Dollar weakening Expected

Tammy Wall
07 April 2008

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We have seen some big moves in the currency market this past week, important data releases were also a factor, such as the non-farm payrolls that came in at -80 from a previous -63, U.S central bank chairman Ben Bernanke conceded for the first time last Thursday that the American economy may slip into a recession. “Recession is possible”, Mr Bernanke said. “Our estimates are that we are slightly growing at the moment”. But there’s a chance that, for the first half as a whole, there might be a slight contraction. The weak jobs figures support the general view that the Fed will be forced to continue cutting interest rates to prevent the recession from becoming a severe one.

The fluctuations in the financial market last week should pale in comparison to the action that we expect to see in the next couple of days, as there will be a lot of economic data due for release from countries around the world, economic data such as the GCC Meeting where Finance officials and central bank governors from the six members of the Gulf Co-operation Council (GCC) will meet in Doha, Qatar to discuss the timetable for monetary union and other matters. There may be a press conference or comments from officials during the day. Comments from the GCC will be monitored closely as speculation over a possible move to break currency links with the US dollar has been important for US dollar sentiment. American Consumer Credit figures will also play a role in the currency market as traders observe the effects it will have on the greenback. Consumer Credit figures Measure the total value of outstanding consumer installment debt, such as credit cards and auto loans. A rising trend has a positive effect on the nation's currency because historically consumer borrowing and spending have a high degree of correlation.

The yen slumped this week as manufacturers' confidence dropped to a four-year low aimed weak consumer confidence in the U.S. ``Easing concern over credit-market losses are making it easy to buy the dollar,'' said Hideki Hayashi, chief economist at Shinko Securities Co. in Tokyo, an affiliate of Japan's third-largest bank. The yen traded at 102.82 against the dollar as of 8:00 GMT 4th of April from 101.85, when it reached 102.16, the lowest since March 12. Bank of America maintains its estimate for the yen to decline to 103 by the end of September and to 108 by year-end, Fujii said, head of economics and strategy for Japan at Bank of America in Tokyo.

The euro fell against the dollar on speculation the slowing U.S. economy will drag down growth in Europe, leading to a reduction in interest rates. ``The euro is poised to fall significantly,'' said Akira Takei, who helps oversee the equivalent of $32.9 billion as general manager of international fixed-income investment at Mizuho Asset Management Co. in Tokyo. ``A slowdown in the U.S. will eventually filter through to Europe. The ECB will be forced to cut.'' The Eur/usd currently stands at 1.5666. 8:00 GMT. Traders will be glued to their screens on Thursday 10th of April 12:45 GMT when the ECB will announce whether or not to cut the interest rate. A rising trend in interest rates has a positive effect on the nation's currency. Short term rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. High interest rates attract foreigners looking for the best "risk-free" return on their money, which can dramatically increases demand for the nation's currency.

While it’s difficult to predict the shorter-term swings in today's volatile markets with any degree of accuracy long-term we remain bullish on gold and Crude, as always when markets are bearish and economic turbulence is in the air investors embrace commodities especially the precious metal. Economists believe that the gold rush has started again and could hit the all time high of $1034 oz and beyond especially up and till June of this year. ``We still think the outlook for gold is outstanding,'' Gavin Wendt, analyst at Fat Prophets, said by phone from Sydney today. Bullish factors such as ``economic uncertainties and the U.S. dollar weakness won't change overnight,'' he added. Oil prices were steady on Tuesday the 1st after jumping more than $3 a barrel in the previous session after the U.S. government reported a larger than expected decline in gasoline stockpiles. Traders brushed aside a large increase in crude oil inventories reported by the U.S. Energy Department Wednesday the 2nd, focusing instead on the third straight week that gasoline inventories fell.

Finotec Analysis Team
07 April 2008

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Today's Economic Events

Time	Event	Currency	Period	Previous	Forecast	Significance	Actual
19:00	Consumer Credit	USD	Feb	6.9B	6.0B		5.2B
Measures the total value of outstanding consumer installment debt
12:30	Building Permits	CAD	Feb	-2.9%	1.0%		-1.0%
Measures the annualized number of new residential building permits issued during the previous month. A rising trend has a positive effect on the nation's currency because obtaining a permit is one of the first steps in the home construction process. Permits therefore act as a leading indicator for the housing market. A high level of housing activity signals that the construction industry is healthy and that consumers have the capital to make large investments. More importantly, new housing activity creates an economic ripple effect as home owners buy goods such as appliances and furniture for their homes, and builders buy raw materials and hire more workers to meet demand.
10:00	Industrial Production m/m	EUR	Feb	1.8%	-0.5%		0.4%
German Measures the total value of output produced by factories, mines, and utilities. A rising trend has a positive effect on the nation's currency because high levels of production are a sign of a strong economy. Industrial Production reacts quickly to the ups and downs of the business cycle and can be a leading indicator of manufacturing employment, average earnings, and personal income.
08:30	Sentix Index	EUR	Apr	0.4	-1.30		4.1
Measures investor confidence towards the Euro-zone economy.
06:45	Trade Balance	EUR	Feb	-3.4B	-3.4B		-2.8B
French Measures the difference in value between imported and exported goods and services. A positive Trade Balance indicates that more goods and services were exported than imported over a given period. A rising trend has a positive effect on the nation's currency. When higher levels of exports are sold to the world, demand for the nation's currency is elevated as foreigners convert their native currency to purchase the exports. The Trade Balance also has a sizable impact on GDP because high demand for exports creates increased employment and production, as domestic factories work to fill this demand.
05:45	Unemployment Rate	CHF	Mar	2.50%	2.50%		2.50%
Measures the percentage of the total work force that is unemployed and actively seeking employment. A falling trend has a positive effect on the nation's currency. Working people tend to spend more, and consumer spending is a major driver of the economy. However, unemployment usually draws little attention because traders view it as a lagging indicator.
05:00	Leading Index m/m	JPY	Feb	36.4			50.0
Measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices, and interest rate spreads. The index is published monthly by The Conference Board, a leading private US research group, but traders tend to pay little attention because the components that make up the index are reported at an earlier date.