Back to NFP and Monetary Easing

Focus this week happened to be on what was occurring across the pond. Stateside data had limited direct influence on the big dollar, that was left up to the EU summit outcome. The Euro relief or short covering pain is beginning to find some hidden support that is expected to carry into next weeks holiday shortened trading week in the US. Do not be surprised to see Euro skepticism making a return soon. Analysts suggest that the EU may still not have achieved its TARP moment because of the “persistent doubts about where the combined EFSF/ESM mega funds to backstop both banking and periphery bond markets are to come from.” Underlying sentiment remains vulnerable, evidenced by market reaction post the Fed’s extension of Operation Twist. Uncertainty on Greece hasn’t receded completely, despite the successful formation of a new government.

Below are some other highlights of the week:


AMERICAS

  • USD: US New Home Sales jumped last month (+369k) from April’s static print (+343k). Last month was the fastest pace of sales in two years. Back then, sales were supported by the homebuyer tax credit program. Analysts note that inventories seemed to have bottomed out, having set a string of new record lows. Month’s supply of homes has dropped from 5 to 4.7 (the lowest level in five years). Prices have also slipped with the average falling from +$283.9k to +$273.9k and the median edging down from +$236k to +$234.5k.
  • USD: US consumer mood on the economy soured this month for the fourth consecutive time. The preliminary consumer confidence index slid to 62 from 64.4 last month. Digging deeper, the present situation index stood at 46.6, from 44.9 the prior month, while the expectation index slid to 72.3 vs. 77.3. If this continues, expect spending to be constrained in the short term.
  • USD: Durable good orders (longer lasting items) posted its first gain in three-months (+1.1% seasonally adjusted to +$217.15b) in May this week. The gain was lead by stronger demand for machinery, defense equipment and cars. However, job creation in the sector has slowed along with the broader economy. Last months US payroll figure (+69k) was the weakest this year. Ex-transport, goods grew +0.4% while ex-defense, durables were +0.7% higher.
  • USD: Data this week suggests that there is a sign of a bottom in US housing. Pending home sales jumped +5.9% in May. Note, the index measures contracts signed and not closed. This headline equals March’s print, which happened to be the highest level in two-years.
  • USD: The number of US workers filing initial applications for unemployment benefits fell last week (-6k to a seasonally adjusted +386k), but remained high, again signaling muted job growth. The number of workers requesting UI was equivalent to +2.6% of employed workers paying into the system.
  • CAD: The Canadian economy kicked off Q2 with the largest monthly output gain in six months (+0.3%), as activity in the mining and oil and gas sector bounced back and wholesale trade grew.
  • FED: St. Louis President, Bullard believes that the Fed policy is well adjusted to deal with current economic troubles. However, we must be cautious not to let the 1970s inflation genie out of the bottle.

 

EUROPE Week in FX

ASIA Week in FX

 

WEEK AHEAD

  • AUD, GBP and EUR Cbanks deliver their rate and QE recommendations
  • Sales data is presented by CHF and AUD
  • GBP and USD release some manufacturing reports
  • Building and construction data is announced by AUD, GBP and CAD
  • Inflation and PMI reports are presented by GBP, USD, CHF and CAD
  • Employment landscape is analyzed by USD and CAD
  • Demand for Spanish product is tested again after the release of AUD trade

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell