CIT News Dominates In Early Forex Trading
There is news this morning that CIT, a large lender to small businesses, is being denied bailout funding. There is talk of an imminent bankruptcy announcement.
The news is giving the EURUSD and GBPUSD a bid (USDCHF being sold) this morning on a flight into EURO, GBP and CHF. USDJPY has come off from its peak. The EURUSD also just moved above the trendline from the daily chart at around the 1.4123 area and shot up to the 1.4150 (WATCH the 1.4123 level early today). There was no data out of the Eurozone, Germany or the UK. Swiss released their ZEW survey of investor confidence and it showed a decline to 0.0 from 9.0 last month. This was the first decline after 8 months of higher values.
Also announced overnight was slightly better data out of China (GDP +7.9% vs +7.8%, Industrial Production rose by 10.7% YoY vs 9.5% expected but Retail Sales Year on Year was lower than expected at 15% vs expectations of 15.3% and down from 15.2% last month. This implies a decline in Retail Sales on a MoM basis. Note however, the statistic office does not announce a MoM change number.
Although the news is encouraging, the gains were largely reliant on governement stimulus and lower interest rates. Nevertheless, the gains cannot be ignored in the face of the global declines and the sharp declines in exports (-21% YoY). There are risks. For one lending has doubled over the last year and money supply is growing rapidly. This has helped fuel the growth. Can growth be be maintained without fueling problems down the road if inflation rises? In other news, however, the inflation remained subdued with PPI falling by -7.8% and CPI falling by -1.7%. So all looks ok but risks remain going forward.
In the US today, the Initial Claims data for the current week will be released. Last week, the claims fell sharply to 565K. However, it could have been influenced by the July 4th holiday. This week will therefore be of interest as it does not include a holiday shortened period. The expectation is for a decline to 553K. Continuing Claims are forecast to fall slightly to 6850K from 6883K. The claims come out at 8:30 AM.
The Net Long Term Tic flows will be released for the month of May. This release is a rear view look of the amount of flows into the US. The US does run a trade deficit. As a result, funds are expected to flow back into the US in general. If funds flow out (or are less), the demand for dollars is less. If countries are shunning US investments (and the dollar), it should show up in this data. The chart above is showing this trend. Last month, China’s investment in the US fell to 763.5 billion. Russias net flows also fell from 138.4 to 137.0. These numbers will be watched for clues to the demand for dollars by the loudest proponents of a more diversified reserve currency.
