Fragile Dollar Tone Ahead of US Consumer Sentiment, Housing Data

With more than half of the total trading volume absent from the currency markets today, currency moves across the board have been quite narrow. The US dollar is only a tiny bit down against major currencies like the Euro, Swiss franc and Japanese yen. The events calendar is bare, except for a G-30 meeting Monday. At the meeting, ECB President Jean-Claude Trichet said the market correction is “ongoing”, and he reiterated that the Group of Seven nations are concerned about “sharp fluctuations in major currencies”, obviously relating to the strength of the Euro against the US dollar. Federal Reserve Bank of New York President Timothy Geithner was also speaking at the same G-30 meeting, and he said that the global economy was “better positioned to deal with the consequences of the slowdown” in the US, compared with the oil shock of the 1970s, “It’s looking at least for now really very resilient to the broader pressures you see,” Geithner said.

The markets will roar again with volatility come Tuesday as we look forward to some major economic data from Europe and the US. Watch out for German GDP data, US consumer confidence and US housing data which will give us a glimpse of the current housing slump. If US data comes out weaker than expected, it may lead traders to pare bets that the Fed won’t cut rates again this year.

Geroge Soros Says

According to the UK Daily Telegraph today, billionaire investor George Soros said that the UK and US are facing a recession of a scale bigger than the early 1970s and 1990s. He said house prices in the UK are further away from sustainability than in practically any other country, adding that the UK housing slump may be more prolonged than the US. UK’s Hometrack said today that home prices fell for an eighth straight month in May, and prices fell 1.9% from a year ago, the biggest drop since November 2005. Hometrack even predicts that prices will “remain under downward pressure over the coming months”. Despite that, the British pound could continue last week’s rally versus the USD this week if US data is weak.

Forex Trading

The Australian dollar is holding near a 25-year high against the US dollar, trading above 0.9600. The New Zealand dollar is also up against the greenback, trying to break above resistance around 0.7880-0.7900. EUR/USD’s nearest resistance is around 1.5815-30, then 1.5860.

Tuesday:

German GDP 0600 GMT

Swiss trade balance 0615 GMT

US S&P/Case-Shiller house price index 1300 GMT

US consumer confidence, new home sales 1400 GMT

Fed’s Yellen speaks on economy in San Francisco 1550 GMT

Posted in Categories: Australia, Economy, Eurozone, Forex, Japan, New Zealand, Switzerland, UK, USA.

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Comment by James Yang

2008-05-26 20:01:21

Coincidentally, Greenspan also suggested the same about the US housing weakness and risks of recession at an FT interview. Here is an excerpt on housing:

“The Financial Times said Greenspan estimated house prices would fall by another 10 percent from their February levels, for a total peak-to-trough decline of roughly 25 percent.”

“If the economy was weak and the market overshot, house prices could decline by another 5 percent, he said.”

And on the economy:

“I still believe there is a greater than 50 percent probability of recession,” Greenspan told the Financial Times in an interview published on the newspaper’s website.

“(But) that probability has receded a little and I think the probability of a severe recession has come down markedly,” said Greenspan.

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