Dollar Recovery On Dow Fall – But How Tempo rary Investor Review

FinGad is a Place to Review Strategies With Fellow Investors
Not a member yet?

Denese's review
Investment Sector: Currencies
Submitted by Denese

10 months ago
Add Tag

Vote

Dollar Recovery On Dow Fall – But How Tempo rary [ Login to Propose An Edit ]

/images/0000/0451/21-1-8_EURUSD_jpeg.JPG

The dollar sank briefly on Tuesday following a string of weak data, but has generally made an aggressive recovery against the European currencies. The dollar gained 100 pips against the Euro, while, and perhaps because, the Dow continued to free fall, losing nearly 500 points for the week. The strength in the dollar is certainly not indicative of sound economic data. It is in fact the opposite and will be short lived. The equities have fallen and the Dollar has become a temporary refuge until the liquid cash is reinvested. Particularly since a 50-basis point rate cut and possibly even 75 basis point cut is expected at the end of the month to help support growth. The economic stimulus package announced by President Bush, equal to about 1 percent of U.S. GDP, and endorsed by Federal Reserve Chairman Bernanke was dismissed as insufficient in the light of the weak data. · Retail sales declined 0.4 percent in December, while November's sales were revised down to +1 percent from 1.2 percent. On a yearly basis sales expanded 4.1 percent. Ex-autos, sales fell 0.4 percent. But on a yearly basis retail sales slowed to + 4.2 percent, the weakest annual gain since a 2.4 percent rise in 2002. · The manufacturing index fell to 9.03 in January from a revised 9.80 in December, which was originally reported as 10.31. · The producer prices declined by 0.1 percent in December· Core inflation rose by 0.2 percent. The mild pullback is just a natural occurrence after the mammoth increase in inflation the previous month. On a yearly basis, PPI expanded 6.3 percent, the largest increase since a 7.1 percent advance in 1981. · Consumer prices rose 0.3 percent in December on top of +0.8 percent in November. It surged 4.1 percent in 2007 from 2.5 percent increase in 2006. This is the largest increase since a 6.1 percent increase in 1990 Core CPI rose 0.2 percent in December after +0.3 percent in November. On a yearly basis, core CPI were up 2.4 percent following +2.6 percent in 2006. · Industrial production was flat in December after a 0.3 percent rise in November. On a yearly basis, production expanded 2.1 percent, the slowest growth since a 1.1 percent gain in 2003. The December capacity utilization rate was 81.4 percent versus 81.6 percent in November.· Housing A soft report didn’t help much. Home starts contracted 14.2 percent to 1.006 million pace in December, the lowest pace since the May 1991. The 1.354 million units started in 2007 was the lowest total since 1.288 million units in 1993. Building permits fell 8.1 percent to an annual rate of 1.068 million, the slowest pace since a 1.056 million unit rate set in March 1993.
On the plus side, · capital inflows into the United States surged to $149.9 billion in November, from a revised $92.2 billion in October.· Business inventories rose 0.4 percent, while sales jumped 1.6 percent in November. For the upcoming week the US calendar is nearly barren with only Existing Homes on the docket. The news is not expected to be good. Monday is a holiday and Friday’s slate is empty. The market will therefore not be driven by event risk but rather by risk aversion. Central Bank statements will be the influencing factors. If equities continue to decline, expect the dollar to strengthen further unless policy makers hint at the larger 75bp rate cut.

Did you find this article useful?

Add Review to:

Please Login or Register to comment

Read about it? Trade it!

Sphere: Related Content

Sponsors Links