Where Do We Go From Here?
There's a few theories concerning the $ weakness last week. Interest rate expectations, thin trading, automatic stops etc, but the question is where to now? It's kind of a chicken-egg thing-yes the "automatic stops" got triggered, but what was it that pushed the Euro to those stops in the first place? For my money it's the diverging interest rate expectations. No doubt the absence of Asian and NY traders allowed Europe to push the Euro higher, but might not NY jump on the bandwagon Monday? There's just no data indicating the Fed is going to do anything but hold, especially as they see core CPI "moderating" while housing is remaining weak, while the expectation everywhere is for the ECB to hike the rate, given that they see inflation staying above their desired level.
If you look at a chart-the $ weakness really began in the London sesssion the day after the last core CPI reading, which confirmed the Fed's outlook in the November minutes (for the time being) as to the direction of the core CPI. It got confirmed in NY after the weak housing data later that day.
Speaking of housing, there's serious debate as to where the bottom is really gonna be (and to what level GDP will be affected), but there's a few things to be aware of:
The baby boomers are aging out of the housing market and there's less of a population to buy new housing. Almost 70% of the US population already owns housing. Housing retailers like Home Depot and Lowes are not doing so well. Inventories remain very high. At these price levels, the affordability still remains out of reach for many of the fewer young buyers in the market. Any way you look at it-for the foreseeable future there are less buyers available and an absence of any indicators showing a bottom.
There's plenty of factors present for arguing either way for the $: Fed rate cuts and ECB rate increases for $ weakness. NY could jump on the bandwagon and go with European traders; The ECB doesn't want the Euro going higher, traders taking profits and the $ is at oversold levels for $ strength...definately not an easy enviorment.
Then we had this German trade minister saying German businesses were happy with the Euro rise-why wouldn't they be? With all the wealth in London, NY and China-I'm sure the market for high-end BMW's and MB's won't dry up if the Euro appreciates a bit...
I'll tell you a funny coincidence though-some of these "automatic stop levels" matched where I had some orders to buy the Euro. I booked 2/3 of my profit as of Friday afternoon, so I still have 1/3 of my Euro long position. Maybe the same thing will happen in general...
Seriously though, if you're still Euro long, I would consider further reducing the position. I want to watch the Asian open for clues, then see how it trades in London, then see if NY appears to be going with the European traders. No prediction either way really, but after I've had a big gain (and price is at a level not seen for a long time) I prefer to take profit, then sit back and observe. I felt very certain about direction a couple of days ago and now, I feel like I don't. I want to try and gauge further market sentiment before taking another position. If you have a clear idea, more power to you.
The US data is kind of light until GDP which is forecasted between 1.5 and 1.9. Perhaps that does portend to some further $ weakness as there's no strong data available to change overall opinion...we'll see. The following chart is from ISR and lists the IFR estimate, followed by the previous number, consensus and consensus range.
DATE EST RELEASE PER IFR EST LAST MIED RANGE ]<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>
28Nov <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /><st1:time Minute="30" Hour="8">08:30</st1:time> Durable Goods %m/m Oct -5.1 8.3 -5.1 -6.3 -3.0<o></o>
28Nov <st1:time Minute="30" Hour="8">08:30</st1:time> ex Transportation %m/m Oct 0.1 0.5 0.1 -0.3 0.8<o></o>
28Nov <st1:time Minute="0" Hour="10">10:00</st1:time> Cons Confidence Idx Nov 105.0 105.4 105.8 105.0 110.0<o></o>
28Nov <st1:time Minute="0" Hour="10">10:00</st1:time> Existing Home Sales k,AR Oct 6140 6180 6140 6000 6250<o></o>
29Nov <st1:time Minute="30" Hour="8">08:30</st1:time> GDP %,AR pQ3 1.5 1.6 1.8 1.5 1.9<o></o>
29Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Chain Wgt Pr Idx %,AR pQ3 1.8 1.8 1.8 1.8 1.8<o></o>
29Nov <st1:time Minute="0" Hour="10">10:00</st1:time> New Home Sales k,AR Oct 1050 1075 1050 1000 1070<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Initial Claims k 11/25 315 321 314 310 330<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Cont Claims k 11/18 2455 2454 2428 2400 2455<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Personal Income %m/m Oct 0.4 0.5 0.5 0.4 0.5<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Consumption %m/m Oct 0.1 0.1 0.2 -0.1 0.2<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Core PCE Deflator %y/y Oct 2.3 2.4 2.3 2.2 2.3<o></o>
30Nov <st1:time Minute="0" Hour="10">10:00</st1:time> <st1:City><st1lace>Chicago</st1lace></st1:City> PMI Idx Nov 54.0 53.5 54.5 53.0 56.0<o></o>
01Dec <st1:time Minute="0" Hour="10">10:00</st1:time> Construction Spendi %m/m Oct -0.5 -0.3 -0.3 -0.5 0.0<o></o>
01Dec <st1:time Minute="0" Hour="10">10:00</st1:time> ISM Index Idx Nov 52.5 51.2 52.1 51.0 54.0<o></o>
01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Domestic Vehicle Sl m,AR Nov 12.5 12.3 12.5 12.3 12.8<o></o>
01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Car Sales m,AR Nov 5.3 5.0 5.3 5.2 5.3<o></o>
01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Truck Sales Light m,AR Nov 7.2 7.3 7.4 7.1 7.5<o></o>
There's a few theories concerning the $ weakness last week. Interest rate expectations, thin trading, automatic stops etc, but the question is where to now? It's kind of a chicken-egg thing-yes the "automatic stops" got triggered, but what was it that pushed the Euro to those stops in the first place? For my money it's the diverging interest rate expectations. No doubt the absence of Asian and NY traders allowed Europe to push the Euro higher, but might not NY jump on the bandwagon Monday? There's just no data indicating the Fed is going to do anything but hold, especially as they see core CPI "moderating" while housing is remaining weak, while the expectation everywhere is for the ECB to hike the rate, given that they see inflation staying above their desired level.
If you look at a chart-the $ weakness really began in the London sesssion the day after the last core CPI reading, which confirmed the Fed's outlook in the November minutes (for the time being) as to the direction of the core CPI. It got confirmed in NY after the weak housing data later that day.
Speaking of housing, there's serious debate as to where the bottom is really gonna be (and to what level GDP will be affected), but there's a few things to be aware of:
The baby boomers are aging out of the housing market and there's less of a population to buy new housing. Almost 70% of the US population already owns housing. Housing retailers like Home Depot and Lowes are not doing so well. Inventories remain very high. At these price levels, the affordability still remains out of reach for many of the fewer young buyers in the market. Any way you look at it-for the foreseeable future there are less buyers available and an absence of any indicators showing a bottom.
There's plenty of factors present for arguing either way for the $: Fed rate cuts and ECB rate increases for $ weakness. NY could jump on the bandwagon and go with European traders; The ECB doesn't want the Euro going higher, traders taking profits and the $ is at oversold levels for $ strength...definately not an easy enviorment.
Then we had this German trade minister saying German businesses were happy with the Euro rise-why wouldn't they be? With all the wealth in London, NY and China-I'm sure the market for high-end BMW's and MB's won't dry up if the Euro appreciates a bit...
I'll tell you a funny coincidence though-some of these "automatic stop levels" matched where I had some orders to buy the Euro. I booked 2/3 of my profit as of Friday afternoon, so I still have 1/3 of my Euro long position. Maybe the same thing will happen in general...
Seriously though, if you're still Euro long, I would consider further reducing the position. I want to watch the Asian open for clues, then see how it trades in London, then see if NY appears to be going with the European traders. No prediction either way really, but after I've had a big gain (and price is at a level not seen for a long time) I prefer to take profit, then sit back and observe. I felt very certain about direction a couple of days ago and now, I feel like I don't. I want to try and gauge further market sentiment before taking another position. If you have a clear idea, more power to you.
The US data is kind of light until GDP which is forecasted between 1.5 and 1.9. Perhaps that does portend to some further $ weakness as there's no strong data available to change overall opinion...we'll see. The following chart is from ISR and lists the IFR estimate, followed by the previous number, consensus and consensus range.
DATE EST RELEASE PER IFR EST LAST MIED RANGE ]<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>
28Nov <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /><st1:time Minute="30" Hour="8">08:30</st1:time> Durable Goods %m/m Oct -5.1 8.3 -5.1 -6.3 -3.0<o></o>
28Nov <st1:time Minute="30" Hour="8">08:30</st1:time> ex Transportation %m/m Oct 0.1 0.5 0.1 -0.3 0.8<o></o>
28Nov <st1:time Minute="0" Hour="10">10:00</st1:time> Cons Confidence Idx Nov 105.0 105.4 105.8 105.0 110.0<o></o>
28Nov <st1:time Minute="0" Hour="10">10:00</st1:time> Existing Home Sales k,AR Oct 6140 6180 6140 6000 6250<o></o>
29Nov <st1:time Minute="30" Hour="8">08:30</st1:time> GDP %,AR pQ3 1.5 1.6 1.8 1.5 1.9<o></o>
29Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Chain Wgt Pr Idx %,AR pQ3 1.8 1.8 1.8 1.8 1.8<o></o>
29Nov <st1:time Minute="0" Hour="10">10:00</st1:time> New Home Sales k,AR Oct 1050 1075 1050 1000 1070<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Initial Claims k 11/25 315 321 314 310 330<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Cont Claims k 11/18 2455 2454 2428 2400 2455<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Personal Income %m/m Oct 0.4 0.5 0.5 0.4 0.5<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Consumption %m/m Oct 0.1 0.1 0.2 -0.1 0.2<o></o>
30Nov <st1:time Minute="30" Hour="8">08:30</st1:time> Core PCE Deflator %y/y Oct 2.3 2.4 2.3 2.2 2.3<o></o>
30Nov <st1:time Minute="0" Hour="10">10:00</st1:time> <st1:City><st1lace>Chicago</st1lace></st1:City> PMI Idx Nov 54.0 53.5 54.5 53.0 56.0<o></o>
01Dec <st1:time Minute="0" Hour="10">10:00</st1:time> Construction Spendi %m/m Oct -0.5 -0.3 -0.3 -0.5 0.0<o></o>
01Dec <st1:time Minute="0" Hour="10">10:00</st1:time> ISM Index Idx Nov 52.5 51.2 52.1 51.0 54.0<o></o>
01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Domestic Vehicle Sl m,AR Nov 12.5 12.3 12.5 12.3 12.8<o></o>
01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Car Sales m,AR Nov 5.3 5.0 5.3 5.2 5.3<o></o>
01Dec <st1:time Minute="45" Hour="15">15:45</st1:time> Truck Sales Light m,AR Nov 7.2 7.3 7.4 7.1 7.5<o></o>