Forex Week in Review May 22-27

The dollar has given up all of its hard earn gains and then some this week. Investors seem to be happy selling the ‘mighty buck’ on the back of weaker US data. The lack of a rally in US benchmark yields combined with ‘this’ weak dollar ‘implies a market presumption that the weak US recovery will lead the Fed to stay easy for longer’. China too has done its bit this week. It’s reported that they are expected to represent a ‘strong proportion’ of buyers of EFSF issuance in the June auctions. Supposedly this will fund the Portuguese bailout. Analysts note that the depth and liquidity of the sovereign AAA market in EUR is growing, adding to the EUR’s attraction as a reserve currency. Liquidity now becomes a premium as we head into the US memorial long weekend. Below are some of the highlights of the week:


  • At the beginning of the week peripheral markets reacted badly to the results of Spanish regional elections. The poor Socialists performance will weaken the national government further and increase the risk of early elections at a national level.
  • Euro area PMI’s moderated sharply, falling to 54.8 from 58 last month while the services composite was slightly more resilient, falling by 1 point in May. Driving this weakness, German PMI’s weakened to the lowest level since the beginning of this year. The levels are still consistent with robust growth in core-Europe
  • German Ifo survey headline was unchanged at 114.2 in May. The expectations component fell to 107.4 from 107.7 while the current conditions rose to 121.4 from 121.0. Data suggest manufacturing remains resilient in the core of the euro area.
  • Mid-week, the Greek opposition leader declared he rejects the new austerity plan, perhaps a ploy in getting EU to approve additional aid.
  • UK public sector net borrowing (ex-financial interventions) rallied to £10.0bn compared with £7.2bn in April 2010, on a combination of lower total receipts and large spending.
  • BoE’s Fisher gave a fairly dovish interview in ‘The Scotsman’. He is more concerned about the weakness of consumer spending than the strength of inflation and indicated that he would vote for a hike only if there was a pick-up in wage growth. A new dove at the MPC, and close to BoE Governor King.
  • Norwegian mainland GDP grew +0.6%, q/q in 1st Q after a +0.3% rise in 4th Q, weaker than the +0.8% consensus. Analysts consider this as a one-off rather than the beginning of a soft patch for the consumer. Net trade also subtracted from growth with exports down -0.5%, q/q and imports up +10.7%.
  • There were reports of a possible Greek referendum on austerity measures.
  • UK 1st Q GDP was unrevised at +0.5%, leaving GDP level essentially flat in the six-months to March. Both consumption and investment deteriorated further, with the only encouraging sign was strength in exports. Sector was benefiting from sterling depreciation.
  • Swiss KoF was surprisingly strong at 2.30, its highest level since mid-2006, and is consistent with GDP growth above +3%. SNB have underestimated the Swiss economy’s ability to cope with an overvalued CHF.


  • Sales of new homes in the US beat market expectations (+323k), despite trumping the March print by +7.3%, sales are still down-23% from last years April print of +420k.
  • Richmond Fed’s manufacturing and services index were bad this month. The manufacturing component fell to -6 from +10, while the service sector revenue index dropped from +28 to +9.
  • The market was prepared for a weak April US durable goods number, however a -3.6% was much worse than the perceived -2.2% decline. The broad based nature of the decline suggests the US manufacturing sector has lost significant momentum for the beginning of the 2nd Q.
  • 1st Q US GDP of +1.8% fell well short of an expected upward revision of +2.1%. The surprise was consumer spending being revised lower five ticks to +2.7% and a larger downward revision to real disposable income
  • Number of claims filing for US unemployment insurance disappointingly advanced last week, up +10k to +424k
  • Pending US sales of existing homes drop -12% as foreclosures hurt values.


  • Singapore CPI inflation fell to +4.5%, y/y, in April from +5.0%, partly due to the housing and utilities rebates in last month and base effects.
  • RBNZ two year inflation expectations series rose to +3% in 2nd Q from +2.6% and the highest in three years. The Kiwi has also benefited from New Zealand’s dairy co-op announcing a further small increase in forecast payouts.
  • Apparently power shortages in China are increasing. It seems that state fixing of prices below generation costs have given rise to coal prices and is encouraging producers to cut production to avoid losses. Expect industrial production data to disappoint over the next few months.
  • Australia construction activity only rose +0.7%, q/q in the 1st Q. Market forecasted +1.4%. Rates market expectations for RBA rate hikes over the next 12-months fell 3bp to 21bp mid week.
  • FT reported that China is expected to represent a ‘strong proportion’ of buyers of EFSF issuance in the June auctions. Supposedly this will fund the Portuguese bailout. Analysts note that the depth and liquidity of the sovereign AAA market in EUR is growing, adding to the EUR’s attraction as a reserve currency.
  • NZ Herald reported that the China Investment Corporation may buy up to NZD6bn of New Zealand assets, including government bonds.
  • Australia private capital expenditure grew +3.4%, q/q in March,
  • Aussie Bureau of Statistics revised up its estimate for growth in capital spending over the next year to +31%. It would be one of the fastest private investment growth rates of any OECD or emerging market economy.



  • Busy week with CAD and AUD GDP prints
  • Confidence numbers from NZD and USD
  • A rate statement from the BoC
  • Manufacturing data from the UK and US
  • Retail Sales and Trade balances from down-under
  • Building approvals and consents from the Kiwi’s and Aussies
  • Swiss Retails Sales
  • manufacturing reports from China and the US
  • Finishing the week with the grandfather of economic releases NFP out of the US


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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