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Dollar Drips Lower As Confidence Wanes

Last updated 5/29/2009 5:34 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Jaoanese Industrial Production rebounds strongly to 5.20% from 1.6% the month prior
• German Retail Sales turn positive 0.5% on Easter shopping
• Equities higher in Asia and Europe +1.00%
• Oil remains at $65/bbl as the rally rolls
• Gold powers to $969/oz as 1000/oz creeps closer

Overnight Eco

• NZD Building Consents big jump to 11.2%
• GBP GfK Consumer Confidence -27 flat against -25 eyed
• JPY Manufacturing PMI improvement to 46.6 vs. 41.4 last
• JPY Household Spending worse at -1.30% vs. -0.70%
• JPY Tokyo Core CPI colder at -0.9% vs -0.7% eyed
• JPY National Core CPI better at -0.1%
• JPY Unemployment Rate 5.0% as expected
• EUR German Retail Sales 0.5% in line bounces from month prior but Easter helps
• EUR M3 Money Supply expands to 4.9% from 4.5% eyed
• EUR CPI Flash Estimate 0.0% vs. 0.2% eyed

Event Risk on Tap

• CAD Current Account expected at -10.5B
• USD Prelim GDP expected at -5.5%
• USD Chicago PMI expected at 42.3
• USD Revised UoM Consumer Sentiment expected at 68.0

Price Action

• USD/JPY seesaws between 9600 and 9700 as risk flows are offset by better Japanse data
• AUD/USD takes out 7900 as risk flows continue on the yen crosses
• GBP/USD better Nationwide data drives it within striking distance of 1.6100
• EUR/USD Retail Sales rebound help to push it through 1.4000 but topside heavy

Better German Retail Sales and steady upward flow in equities helped to push the EUR/USD through the 1.4000 level in early European trade but the move fizzled out once again as the key psychological barrier continues to act as resistance.  The last trading day of the week was marked by broad dollar weakness as risk appetite lifted the high beta currencies while yen gathered strength on a surprisingly strong Japanese Industrial Production data.

The Asian session saw a slew of Japanese economic releases including the marked improvement in Japanese IP which rebounded to 5.2% from 1.2% the month prior, lending further credence to the recovery thesis as global trade picked up and Japanese corporations rebuild inventories. The unemployment rate remained steady at 5.0% but the job to applicant ratio shrunk further to .46 from .52 the month prior.

Lack of jobs is clearly having an impact of the psyche of the Japanese consumers who once again retrenched in April as Overall Household Spending declined by a significant -1.30% versus estimates of -0.7%. The trend in Japanese consumption is mirroring the  behavior in the other G-3 economies as consumers continue to curtail spending despite some return in confidence and broad evidence of economic stabilization.

In Germany however, Retail Sales bucked the recent dour trend by actually rising in line with expectations at 0.5% versus -0.4% the month prior, but the data was probably skewed to the upside because Easter holidays fell late this year.  In other European economic news, the EZ flash CPI reading printed colder than forecast at 0.0% vs. 0.2% expected and remains consistent with a deflationary scenario overhanging the G-3. As consumer spending remains dormant price pressures are nonexistent on the demand side with the only coming push coming from oil.       

As we approach the North American session, the weak dollar trade refuses to die, buffeted by both the recovery thesis and  nagging worries over the expansion of US government debt. This week’s Treasury auctions were well bid, but pacified no one as rates on the long end skyrocketed. For the optimists the steepening yield curve is a sign of  US economic recovery, but the bears argue that it is really a function of lack of faith in US fiscal governance. For the time being the bears have the upper hand and this weekend’s meeting between Treasury Secretary Geithner and the Chinese authorities could be pivotal in either restoring or destroying market’s confidence n the greenback.     

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.