The Forex Daily Digest – October 19, 2009
The USD advanced against the EUR and JPY at the end of last week as data showed gains in foreign funds coming to the U.S. and frailty in consumer confidence encouraged selling of stocks. The USD and GBP rebounded from recent lows scored the previous day as traders reversed bets that the USD will fall even more, and U.S. stocks declined, easing pressure to continue selling the dollar.
The GBP was stronger against the EUR, poised for its biggest weekly gain in more than four months; on speculation the economy is showing adequate signs of recovery for policy makers to pause asset purchases. Sterling also increased to the highest level in more than three weeks against the USD. Data in the coming week may show the U.K. economy came out of its recession in the third quarter and retail sales rose in September.
The CAD fell, moving away from parity with the USD, as a drop in U.S. stock-index futures and Bank of America Corp.’s third-quarter loss reduced demand for currencies of commodity producers. The CAD also weakened as Statistics Canada said the consumer price index fell 0.9 percent last month from a year ago after a 0.8 percent decrease in August. The Canadian currency and the U.S. dollar last traded on a one-for-one basis in July 2008.
Dallas Federal Reserve President Richard Fisher said short-term changes in the USD should not disguise its role as the world's safe haven during the economic crisis but its long-term performance now depends more on good policy. Fisher said that he felt this was the correct way to drive economic recovery -- not through foreign exchange adjustments -- but cautioned against fretting too much about short-term changes in currency markets.
Former Fed Chairman Paul Volcker said last week that the massive amounts of liquidity forced into the U.S. financial system by the Fed are not inflationary "at the moment" but he believes that it will become so at some point in the near future. Volcker, now an economic adviser to the Obama Administration, said that even though it is problematic, it is also essential to begin draining the billions of dollars in liquidity, even while unemployment rates remain high as the U.S. battles its way out of recession.
The Asian Development Bank cautioned the U.S. Treasury Department after it criticized the Chinese currency’s lack of flexibility. Treasury also stated that China would risk instability by allowing the yuan to appreciate excessively. China’s yuan has held steady against the USD since July 2008, assisting exporters as the financial crisis cut demand, after a 21 percent appreciation in the previous three years. The yuan is allowed to fluctuate on 0.5% on either side of the official daily rate.
China, which holds the world's largest foreign reserves, saw them increase even further to $2.273 trillion as of the end of September. Backed by such huge foreign currency reserves, China has been swallowing up international energy and metal resources. Reports also say that China’s foreign reserves are expected to surpass $3 trillion by the middle of next year.
The Treasury Department said that foreign investors' hunger for U.S. securities bounced back in August after four consecutive months of net selling. Net overall capital inflows into the U.S. were up to $10.2 billion in August from a revised outflow of $107.7 billion the previous month. The department originally reported outflows of $97.5 billion for July.
On the economic calendar this week: Building Permits, the Producer Price Index, Housing Starts, Leading Indicators, the Fed Beige Book, FHFA Housing Price Index and Existing Home Sales.
This week’s major earnings calendar will include Apple, Gannett, Caterpillar, DuPont, Pfizer, State Street, the Coca-Cola Company, UAL Corp, Yahoo, Altria Group, eBay, Boeing, 3M, American Express, AT&T, Bristol-Myers Squibb, UPS, Delta Air Lines, Fifth Third Bank, and Xerox.
Happy Trading,
James Dicks
The GBP was stronger against the EUR, poised for its biggest weekly gain in more than four months; on speculation the economy is showing adequate signs of recovery for policy makers to pause asset purchases. Sterling also increased to the highest level in more than three weeks against the USD. Data in the coming week may show the U.K. economy came out of its recession in the third quarter and retail sales rose in September.
The CAD fell, moving away from parity with the USD, as a drop in U.S. stock-index futures and Bank of America Corp.’s third-quarter loss reduced demand for currencies of commodity producers. The CAD also weakened as Statistics Canada said the consumer price index fell 0.9 percent last month from a year ago after a 0.8 percent decrease in August. The Canadian currency and the U.S. dollar last traded on a one-for-one basis in July 2008.
Dallas Federal Reserve President Richard Fisher said short-term changes in the USD should not disguise its role as the world's safe haven during the economic crisis but its long-term performance now depends more on good policy. Fisher said that he felt this was the correct way to drive economic recovery -- not through foreign exchange adjustments -- but cautioned against fretting too much about short-term changes in currency markets.
Former Fed Chairman Paul Volcker said last week that the massive amounts of liquidity forced into the U.S. financial system by the Fed are not inflationary "at the moment" but he believes that it will become so at some point in the near future. Volcker, now an economic adviser to the Obama Administration, said that even though it is problematic, it is also essential to begin draining the billions of dollars in liquidity, even while unemployment rates remain high as the U.S. battles its way out of recession.
The Asian Development Bank cautioned the U.S. Treasury Department after it criticized the Chinese currency’s lack of flexibility. Treasury also stated that China would risk instability by allowing the yuan to appreciate excessively. China’s yuan has held steady against the USD since July 2008, assisting exporters as the financial crisis cut demand, after a 21 percent appreciation in the previous three years. The yuan is allowed to fluctuate on 0.5% on either side of the official daily rate.
China, which holds the world's largest foreign reserves, saw them increase even further to $2.273 trillion as of the end of September. Backed by such huge foreign currency reserves, China has been swallowing up international energy and metal resources. Reports also say that China’s foreign reserves are expected to surpass $3 trillion by the middle of next year.
The Treasury Department said that foreign investors' hunger for U.S. securities bounced back in August after four consecutive months of net selling. Net overall capital inflows into the U.S. were up to $10.2 billion in August from a revised outflow of $107.7 billion the previous month. The department originally reported outflows of $97.5 billion for July.
On the economic calendar this week: Building Permits, the Producer Price Index, Housing Starts, Leading Indicators, the Fed Beige Book, FHFA Housing Price Index and Existing Home Sales.
This week’s major earnings calendar will include Apple, Gannett, Caterpillar, DuPont, Pfizer, State Street, the Coca-Cola Company, UAL Corp, Yahoo, Altria Group, eBay, Boeing, 3M, American Express, AT&T, Bristol-Myers Squibb, UPS, Delta Air Lines, Fifth Third Bank, and Xerox.
Happy Trading,
James Dicks
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