Money Trading with FOREX

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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Greetings MTF readers. Here is the weekly FOREX wrap up for the week ending on Friday May 30th 2008. The US dollar continued it’s rise against the euro for the second consecutive month now. It did fall a bit on Friday against the euro as some investors sold the US currency after the string of recent gains. This was the first back to back monthly gain since January 2007 for the dollar. The euro zone common currency headed for a second consecutive month of declines against the greenback.

Demand for the US greenback has increased recently as oil prices eased from record highs and US government data showed only minor inflation. A government report on Friday showed US personal spending rose for the month of April in line with forecasts. Data also revealed that inflation in the Euro zone rose to a historic peak of 3.6 percent in May. German retail sales also fell in April fell for the second month in a row.

The dollar has had two good months of gains versus the euro. It’s gain slowed at bit on Friday as there was some selling off. This may be due to some investors wanting to sell to cash in on gains after a good run for the US currency. The dollar attracted broad support this week from a further retreat in oil prices from last week’s record of $135 per barrel. The personal income and spending report fits well with recent data reflecting a bottom has been reached for the dollar. Many feel that the focus for the greenback is now on oil prices. Overall, this seems to be good news for the dollar. Based on the data, it shows definite signs of a stabilizing economy.

In an interview published on Friday, European Central Bank President Jean-Claude Trichet said that the central bank will do everything it can to preserve price stability and reinforce expectations of low inflation. Whether or not this can be accomplished remains to be seen as the euro is no different than any other currency. It too must overcome slowing growth and rising inflation. The euro/dollar currency pair may settle into a range bound movement as the market is still not certain about the interest rate trend in Europe.

Some feel that higher inflation in the euro zone may lead to a more hawkish monetary policy stance, while others feel that a possible emerging weakness of the economy in the zone may require a rate cut. Inflation may well be likely to remain above the ECB’s target in the near term, but against the backdrop of slowing growth, the ECB may also be unlikely to increase interest rates for the rest of the year.

Against the Japanese yen, the dollar was nearly flat for the day at around 105 yen, but still within sight of a three-month high of 105.87 hit on Thursday. The dollar has strengthened versus the yen on the back of weak economic data out of Japan including a larger than expected rise in unemployment and a drop in industrial production. The US dollar went slightly lower against other major currencies after touching near three-month highs against the Japanese currency overnight. The dollar strengthened in New York trading overnight following data that the US economy grew faster than previously estimated in the first quarter. The GDP data helped ease concerns about the US economy while boosting expectations that the Federal Reserve may raise interest rates this year.

There are now expectations that the Fed has finished with its rate cutting cycle and will most likely start raising rates from abnormally low levels as the US economy starts to benefit from the previous fiscal and monetary measures. Even among fears of inflation, this echos Dallas Federal Reserve President Richard Fisher’s comments that he would expect a change in course for the Fed if inflationary expectations continue to worsen, even in the face of an anaemic economic scenario. These comments helped to boost the dollar.

Rate hikes would be a large change in the Fed’s recent monetary policy stance. Growing sentiment of this expectation seemed to strengthen after the Commerce Department said the US economy grew 0.9 percent in the first quarter based on revised data. This was higher than the government’s previous estimate of 0.6 percent growth, helping to ease worries about a recession. The closely eyed ISM survey on the US manufacturing and service sector is scheduled for release next week. Concerns over inflation are also affecting US Treasury prices, forcing the long end of the yield curve higher and lending support to the dollar. The yield of the 10 year Treasury note, which moves in the opposite direction to its price, rose to 4.08 percent in late trading from 4.01 percent Wednesday.

The more optimistic outlook for Fed expectations may also be helping to fuel a growing view that the euro zone economy may suffer concomitantly with the US economic fallout and beginnings of rebound. And if oil prices continue to ease, the recent euro/dollar currency pair rate move trend could gain momentum.

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Well, happy Memorial Day everyone! As you can see this weekly wrapup was delayed a few days, but take a quick look for review anyway. Here is the end of week FOREX update for May 23, 2008 on Money Trading FOREX. The dollar saw its sharpest decline in 2 months today against other major currencies due largely to record high oil prices leaving the U.S. economy vulnerable to slower growth and rising inflation. This exacerbates the fact that the US consumer market is already under stress from the housing crunch. Interest rates will likely remain low in the U.S. for the time being despite rising inflation, and that may be a likely indicator that the dollar will remain weak.

The dollar pared losses against the yen on Friday after slightly better than expected U.S. existing home sales data for April. The U.S. dollar was trading slightly weaker in mid-morning trade in Sydney on Friday. There was an overnight dollar rally on stronger job numbers and falling oil price, but that ran out of steam rather quickly.

The euro barely escaped losing ground and remained mostly stable despite data showing tepid growth in the euro zone’s manufacturing and services sectors. Analysts feel that despite the slowdown, the economy is still strong enough to allow the European Central Bank to focus on restraining price pressures. Euro zone PMI figures counter 1Q GDP and show the slowest rate of growth in five years. While in the United Kingdom there is no revision to headline UK growth figures. Even so, consumer spending has risen to an 8 year high while business investment sunk to a 4 year low.

It’s been a very big week for the British pound, which rallied more than 300 pips against the US dollar. There were some upswing surprises in economic data and some rather hawkish comments from the latest monetary policy meeting which may signal that it could well be months before FOREX traders see another rate cut from the Bank of England.

Rising commodities have been the story of the week helping to take the Australian, New Zealand and Canadian dollars higher. The Australian dollar rose to a 24 year high, setting itself within an arm’s length of hitting parity with the US dollar. On a similar note, rising inflationary pressures and stronger economic data suggests the RBA is much closer to an interest rate hike than any of the other major central banks.

Also as has been the trend lately, FOREX reserves in India have risen by over 1 billion dollars.

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