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- Sterling Trading Higher After GDP Data as All Eyes Turn To Bernanke
- Euro Zone Industrial Orders Fall Short of Expectations
- Expecting Weakness from the US Dollar
| Sterling Trading Higher After GDP Data as All Eyes Turn To Bernanke Posted: 27 Apr 2011 06:39 AM PDT
The pound is the best performer on the day after the Q1 GDP data while the yen is down. All this leads up to the US interest rate announcement and the inaugural Fed press conference with Chairman Ben Bernanke to follow. Following the release of UK Q1 GDP numbers the pound traded higher with sterling the best performing currency so far today. The release was in line with market expectations of 0.5% and stands in stark contrast to the Q4 2010 numbers that showed the UK economy contracted by -0.5%. The GBP/USD jumped higher to 1.6580 before trading back to 1.6550. A rebound in UK growth should support sterling in the short term and a GBP/USD target still remains at the 2009 high of 1.7040. Support comes in today at 1.6420 near the upper channel line from the consolidation pattern of late last week. The yen is on its back foot across the board as recent gains in the Japanese currency are being unrolled. The cause of today's JPY declines is the S&P cut to the sovereign rating outlook due to increased costs from the earthquake and tsunami. The rising cleanup and recovery costs do not come as a surprise, but nevertheless the announcement by S&P helped to trigger a yen reversal. Recent yen strength has been apparent since mid-April after traders who were long on the JPY have recovered from the hit they took following the unilateral intervention to weaken the JPY. The USD/JPY is trading higher at 82.30 and the momentum of today's move could carry the pair higher to the 83.00 level. All eyes now turn to the Federal Reserve as today will mark the first quarterly news conference by the Fed Chairman. Prior to the press conference the Fed Funds Rate will be released and no changes are expected. This mantra goes as well for the QEII program as most Fed watchers forecast the US central bank to carry out the full $600B of bond purchases. The accompanying FOMC statement may indicate a slight improvement in the US economy as growth looks to have picked up and inflationary pressures have increased but are still below a level that would prompt any withdrawal of the loose monetary policy that helps to support the economic recovery. Volatility in the dollar may increase given the new Q&A session Bernanke will endeavor upon. He should face questions not only pertaining to monetary policy and unemployment rates but also the weakness in the dollar will likely be addressed. The new format may not increase transparency into the Fed's future actions but market volatility should be increased. |
| Euro Zone Industrial Orders Fall Short of Expectations Posted: 27 Apr 2011 05:32 AM PDT
In continuing a trend seen around the world this past week, the euro zone has also published an industrial new orders report which fell short of expectations. The effect at this point is unknown given that most traders are focused on the Fed's rate statement. Yesterday a similar report was published by Great Britain which revealed a sharp decline in industrial order expectations. The diminished sentiment pulled down on the pound in the short-term and may have longer lasting effects if other economies experience a similar lag in industry. Today's report out of the euro zone partially confirms the fear that the industrial sector is faltering worldwide. Part of the explanation could be the downturn we've seen since the earthquake in Japan, combined with a slow-down in trade resulting from soaring oil prices. But industrial orders are also associated with consumer and producer sentiment towards the economy. This report highlights the more sinister aspect of rising pessimism among the industrial sector. Should such an outlook become more pronounced the engine of the global economy could start to falter as well. In viewing today's figures out of the euro zone, traders should try to gauge what impact it will have once the fervor over today's Fed statement runs out. The loose monetary policy of the US Federal Reserve is cause for concern among dollar traders, but the global decline in industry may have a greater effect in the long run. |
| Expecting Weakness from the US Dollar Posted: 27 Apr 2011 05:21 AM PDT
Many investors watching the news out of the United States and Europe have begun to anticipate a rapid downturn in US dollar values in the immediate future, it appears. Commentary on the disparity between the monetary policies of the Atlantic countries has begun to turn investors in favor of the euro. Indeed, the looseness of US interest rates makes the dollar appear much less attractive than its main currency rivals amid the current market environment. But statements from the Fed support this laxity, a move which some have said represents a push to perhaps weaken the USD intentionally. This is also a notion strengthened by the relatively high numbers of pensioner and other fund managers selling US bonds and notes in exchange for its European counterparts. Whether the move is intentional or simply a side-effect of the current monetary environment is a question for economic historians. What is relevant for us, today, is that the US dollar is bearish. Traders who expect a sudden rebound in USD values may be acting against the common wisdom of the day. Anyone following the Fed's recent statements would be hard pressed to convince anyone that a strong dollar is desired at the moment. |
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