European Ministers Happy With Dollar’s Rally Against Euro

Using harsh words to make people do what you wish them to do doesn’t always work, and if it doesn’t, you could try to nudge in a positive way, saying that it would be nice if they do as you say. This gentler form of persuasion seems to be working right now, coming from Euro Group chairman and Luxembourg Finance Minister Jean-Claude Juncker, coinciding with the change in market sentiment towards the US dollar in the forex markets. He said that before, “financial markets didn’t correctly understand the message from the G7″ as traders kept shorting the dollar after the latest G7 meeting (at which the statement on currencies was slightly modified), but now, he has a positive impression that “more financial markets have a better understanding” and that he would “encourage them to stay on track”. His positively reinforcing statement is a strong indication that Europe’s finance ministers are pleased with the USD’s recent rebound versus the Euro, and that traders should continue to buy up dollars. ECB’s Trichet and others have been urging the markets for a long time, to no avail, to stop allowing Euro to bear the brunt of dollar’s weakness, but with the USD’s sentiment looking better for the time being, financial markets might just end up doing what Trichet, Juncker and others are desperately hoping for.

US Retail Sales

Tuesday’s economic data gave a boost to the US dollar. US retail sales fell by 0.2% in April, just as expected, but the drop was mainly because of falling demand for cars. Excluding cars, sales rose 0.5% in April, more than double expected. The report also showed that demand increased in many sectors, a sign that US consumers haven’t stopped shopping and the economy might not be that weak. Even March’s ex-auto sales were revised up to 0.4%, instead of the previously estimated 0.1% increase. Consumer spending is likely to rebound slightly in the third quarter as Americans spend a large portion of the $117 billion in tax-rebate checks being sent out now.

Another report Tuesday showed that US import prices gained 1.8% in April, led by rising fuel and metal costs. Prices excluding petroleum increased 1.1 percent on higher costs for capital goods, industrial supplies and auto parts.

Forex Trading

EUR/USD did break past 1.5530, rising 40 pips to expected resistance around 1.5570, but then bounced 140 pips from that ceiling as a result of heavy shorting interest. Its nearest support is around 1.5400, then 1.5370. USD/CHF has been trading in a narrow range, supported by 1.0400. The British pound fell against the US dollar again Tuesday, dipping to a near 3-month low around 1.9420 after UK retail sales showed the biggest year-on-year drop in three years in April, and the second consecutive monthly decline. Another report today showed that UK inflation rose at its sharpest pace in almost six years in April.

Wednesday:

Australia Westpac consumer confidence 0030 GMT

UK claimant count 0830 GMT

BOE quarterly inflation report 0930 GMT

US MBA mortgage applications 1100 GMT

US CPI 1230 GMT

New Zealand retail sales 2245 GMT

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Comment by Moise levi

2008-05-13 13:35:45

Its no more a $USD weakness story …..but rather a European slow down.
I do not expect to be bullish on the $USD right now with so many geopolitical
events (Lebanon, Nigeria, Venezuela).

True, the Pound and the Yen are loosing ground, but their economies are slowing down …..

Regarding the Pound, with such a high rate …..when they start lowering rates, I expect to see the Dollar pop up …….

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