FOREX Weekly Report for June 13, 2008

Here is the weekly FOREX wrap-up for the week ending on June 13, 2008. The United States greenback had its best week in 3 years rallying all five days of the week as market expectations regarding US interest rates changed dramatically. The dollar continued its strong run this week after US inflation figures were seen to have risen sharply, fueling further expectations of a rate hike in the world’s largest economy. Fed Chairman Bernanke made some extremely hawkish remarks last week. He has spent the last 18 months fighting the negative economic effects of the subprime housing crisis and credit crunch by lowering rates from 5.25% to 2.00%. Apparently the Fed now feels that inflation is a bigger problem than growth for the US economy and plans on raising rates.

Inflation is of course being driven by oil prices and the Fed has suggested that US monetary policy will become restrictive in order to restrain the rising prices of the commodity. This weeks G8 Summit also addressed the issue with member nations providing a strongly worded document asking oil producers to increase output. In response, Saudi Arabia, a key swing OPEC state, indicated it has agreed to pump out an extra 500,000 barrels of oil per day. If this manages to push oil prices below $130 per barrel, the greenback should strengthen even further, perhaps even at the start of trading next week.

This coming week, the US economic calendar contains only 2nd tier economic data, so the factors that drove trade last week will probably continue to play an important part this week. Obviously all eyes will be focused on oil prices and the US dollars response. The greenback has had a powerful shift of late, and unless US data produces major negative surprises in the less important industrila data due this week, it appears the EUR/USD combo will move towards the dollar gaining more ground on the euro.

The dollar’s gains were also aided by some of the euro’s problems. In spite of an impressive week of economic data, the euro lost ground again. This was exacerbated by the fact that Ireland rejected the Lisbon Treaty required to ratify the EU Constitution. Other states have rejected the proposed EU Constitution Treaty in the past, but it still does not put the European Monetary Union at risk. The Euro did lose ground, but most have realized that the single EU currency is here to stay because the EU can still function under its existing member agreements. However, the political break that is developing in the EZ between Northern and Southern member state economies is creating doubt about a possible ECB rate hike next month.

And like US the economic calendar for this coming week, the EZ calendar is virtually void of any meaningful data. More euro selling could occur as FOREX traders may start to discount President Trichtet’s hawkish talk from two weeks ago.

On another note, the British pound dropped sharply over the course of the week as mixed UK economic data could not stave off the drop and help the currency fight a significant rally by the US dollar. It seems to be proving out that downside risks for the UK economy are high, and with price pressures building rapidly, the Bank of England has little to no room to cut rates.

In the USD/JPY currency pair, the bullish sentiment for the dollar along with a slowing Japanese economy helped the dollar to gain slightly on the yen. There was diminishing sentiment for Japanese economic merchants for a second straight month as rising inflation continues to lower consumer’s purchasing power. The Japanese economy is already seeing a slowdown from declining US demand and may not be able to depend on domestic spending to pump up the economy. Growth was slowing due to rising fuel and raw material costs.

The Swiss franc had a relatively quiet economic calendar last week, but the currency was nonetheless brought to the edge of a technical cliff as a strong US dollar countered fading risk sentiment for USDCHF. The New Zealand Dollar fell sharply for the second consecutive week of trading, as bearish momentum against it built and worsening interest rate differentials brought it to five-month lows against the US dollar. And finally the Autralian dollar shed recent gains as the domestic economy finally took toll on the currency. June’s Westpac Consumer Confidence contracted sharply to -5.7% versus May’s 2.7% number. This was the lowest level in nearly 16 years as consumers wavered in the face of rising food and energy prices. The RBA has also effectively ruled out monetary easing. They have decided to stay hawkish for now as inflation is expected to exceed the target 3% level. May’s employment data which came out Thursday was also no help. Economists were expecting the economy to add 13,500 jobs, but were sorely disappointed as Australia lost 19,700 jobs instead. This ended a record 18 months of steady job growth and was the biggest monthly decline since September of 2005.

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FOREX Weekly Report for June 6, 2008

Here is the MTF FOREX weekly wrap up for June 6, 2008.

The US dollar fell on Friday as an unexpected surge in the US unemployment rates revived fears of a prolonged economic downturn in the US economy. Some feel this diminishes the chances of a Federal Reserve interest rate hikes by years end which many have been hoping for. This occurred even after a gain earlier in the week as the dollar rose based on Wednesday’s economic data which suggested a glimmer of hope for the world’s biggest economy.

The ADP employment data for May rose by 40,000 while the previous month’s figure was revised and changed to show a 13,000 gain rather than the 30,000 drop which was listed previously. Friday’s non-farm payrolls had been predicted to show another fall, but instead, US non-farm productivity was revised up to a 2.6% growth in the first quarter.

The day’s other US data came in fairly strong as well. Productivity has been revised up to a 2.6% increase in the first quarter, up from the previous estimate of 2.2%, as output was higher than previously predicted. Unit labour costs which are considered to be a gauge used to measure inflationary pressures, rose 2.2% in the first quarter, as previously estimated. This is 0.7% above the first quarter rate of 2007 which shows the lowest year on year increase in labour costs since 2004. The US ISM non-manufacturing composite index managed to hold on to most of April’s gain, falling back only slightly to 51.7 in May, from 52.0, while the prices paid index also climbed higher to 77.0, from 72.1. This reflects the latest increases in the price of oil, which hit a record of over $138 dollars a barrel this week, and other commodities as well.

European Central Bank officials appeared to leave little doubt that euro zone rates were set to rise next month, helping to set up the dollar for its worst weekly loss against the euro since late March. Pressure on the US currency was fueled by the dramatic jump in oil prices to this weeks record highs. There are some fears that soaring oil prices could further hamper the U.S. economy, while simultaneously fueling inflation.

Japan’s foreign exchange reserves dropped slightly to $996.98 billion at the end of May, falling below the $1 trillion level for the first time in four months due largely to declines in U.S. Treasury bond prices. Japan’s FOREX reserves, which are the second-largest in the world after China’s, sank $6.86 billion from late April for the second straight monthly slide, but the reserves still stood at the fourth-highest level on record at the end of the month. This is after hitting a record-high of $1.015 trillion in late March.

That’s the FOREX news for this week. Stay tuned for more to come in the following days.

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