Weekly overview and analysis. -Dec 31 2007 - Jan6 2008 -

-USD-:

1.Last Monday Housing economic releases signals US housing market were worse than expected and signals housing market could even weaken further. Volume traded was low across money markets as investor’s stays sidelines ahead of New Years holiday and some markets are closed early.

•USD strengthens on Monday assisted by the low volume traded which makes USD to move with less pressure with investing selling bets on weaker USD position ahead of New Year Holiday and Wednesday manufacturing economic releases.

2.Wednesday ISM manufacturing survey shows contraction in manufacturing sector, prompting investors to increase positions betting on weaker USD. Meeting minute Fed officials signaled they are now as concerned about a faltering economy as they are about stability in financial markets but their main strategy is to prevent the credit market from hurting broader economy.

•USD weakens, erasing Monday’s gains. ISM manufacturing survey figure and Fed Meeting minutes raise the odds that Fed will cut rates to prevent a possible recession and investors are concern that housing markets slump are spreading beyond financial sector.

3.Thursday US Factory orders figure unexpectedly posted higher than earlier expected, led by energy products refineries followed by a revise followed a revised 0.7% increase in October that was more than previously reported and ADP Employment posted higher than expected figure.

•USD is steady on Thursday amid positive economic releases as most investors are focusing on Friday’s economic releases.

4.Friday, the day that most investors has long waited was a disappointing day for USD and US economy. Forecast was US NFP (70k), Unemployment rate (4.8%), Change in manufacturing payroll (-15k), and Average hourly earnings –YoY-MoM- (3.6% - 0.3%) and Average weekly hours (33.8), -------- but actual US NFP (18k), Unemployment rate (5.0%), Change in manufacturing payroll (31k), and Average hourly earnings –YoY-MoM- (3.6% - 0.3%) and Average weekly hours (33.8).

•Instantly after the releases, USD weakens against all currencies, particular against GBP, EUR and JPY, but few minutes later, it recover some of its weakness and steadily traded for the rest of the trading session as USD is supported by investors exiting positions ahead of weekends.
 

-JPY-: (No economic releases for last week)

1.US capital market fell on Monday’s on economic releases shows Housing markets were weaker than expected, prompting investors to reduce holding in US capital markets.

•JPY strengthens as most capital markets falls on weaker than expected US housing markets and investors exits position ahead of New Year Holiday.

2.US capital markets continue its slide on worse than expected ISM manufacturing survey figure, hinting housing market slump hurting broader sector and a possible long-term slowdown in manufacturing sector.

•JPY continue its rally on US capital markets slump and on speculation that BOJ will raise rate to curb inflation affected by rising commodities prices.

3.JPY was steady on steadier US capital markets last Thursday as US factory orders and ADP employment change posted better than expected figure and investors are focusing on Friday’s economic releases.

•JPY remains steady throughout European and US trading session on steadier capital markets.

4.Friday US economic releases was a disappointment, both important economic release (NFD and Unemployment rate) were worse than expected, causing capital market to slump instantly and continue its downtrend throughout the trading session.

•JPY strengthens the most against USD and touched one month high against USD. JPY strengthens 3.3% against USD and EUR last week and 3.9% against AUD as investors reduce carry trades.


-EUR-:

1.Last Monday money markets volume was low as most investors are staying sidelines ahead of New Year holiday.

•EUR weakened against USD on last Monday as USD strengthens on investor’s exits position profited from previous week biggest gain since April 2006.

2.Euro Zone economic releases last Wednesday shows manufacturing growth slowed in December. DIHK industry and trade chambers said that German industrial output may slow ``noticeably'' this year as rising costs erode business investment and the global economy cools.

•EUR strengthens against USD amid euro zone economic releases shows manufacturing sector growth slowed as USD weakens on worse than expected US ISM manufacturing survey figure.

3.German labor markets are steady amid economy slowdown, Germany's unemployment rate fell to the lowest in almost 15 years in December as manufacturers of cars and industrial equipment hired staff to work off a backlog of orders.

•EUR is steady on Thursday as cross currency is steady, particularly USD on US economic releases. (Factory orders and ADP employment change)

4.Last Friday Euro zone CPI statistic shows inflation are accelerating amid economy slowdown, investors are receiving mix message over ECB rate decision this week, as ECB have to decide whether to raise rate to curb the 6 year high inflation rate or to cut rates to prevent a major economy slowdown.

•EUR strengthens against USD last Friday as Friday’s important economic releases posted worse than expected figure (NFD and Unemployment change), but weakens from mid to late session as investors exits position ahead of weekends.


-Crude oil-:

•Crude oil falls last Monday on strengthening USD, but recovered a little before closing as investors exit positions ahead of New Year Holiday.

•Last Wednesday crude oil rallies as USD weakens against most currencies on US ISM manufacturing survey and most investor are speculating that Thursday crude oil storage report will post another draw, pushing Crude oil price higher breaching record high and almost touched above 100USD, but soon weakened by late session on investors selling pressure.

•Crude oil touched above 100USD mark for the first time last Thursday as EIA storage posted a draw of 4.0Million barrels, but Crude oil staying above the 100USD mark was short-lived as investors exiting positions to protecting their profits and Crude oil remain steady throughout the trading session.

•Crude oil falls last Friday amid weakening USD as Friday’s US NFP and Unemployment change figure were worse than expected, heightening investors concern that slowing US economy will curb energy products consumption and investors are exiting position ahead of weekends, putting pressure on crude oil.



USD

US economic releases disappoints most investors as most of it are not within forecast range, causing USD to slide further, touching a one month low against EUR. We should see this downtrend to continue with little technical recovery, unless Thursday BOE and ECB rate decision surprise most investors.

Besides economic releases and Fed rate decision could affect the current USD downtrend, Fed statements-actions, corporate financial statements and cross currency weakness too could snap recent USD weakness. Although this week there will be less important economic data for US, but we should see this economic releases can get USD increase volatility as investors are looking at any possible hint on current depressed market.


JPY

JPY without any economic releases last week move along closely with Global capital markets, although we might see JPY giving back fraction of last week gain, but main mover is still capital markets movement and economic release.

Cross currency strength and weakness will play a role in JPY strength/weakness this week, cross currency that might have major move against JPY are likely to be –GBP, USD, EUR, AUD and NZD-. There will be very low amount of important Japan related economic releases this week, keep an eye on capital markets movements closely.


EUR

Most euro zone economic release last week somehow within forecast range or better than forecasted, particularly on labor market, manufacturing sector and indexes that shows accelerating inflation. Most investors were speculating that ECB will raise rate to curb inflation, but we can’t deny that economy slowdown has taken place and ECB policy maker might have to reconsider their decision.

All investors are speculating on EUR while waiting for Thursday ECB rate decision, before that, main influence for EUR movement are likely to be cross currency strength/weakness –USD, GBP, JPY and CHF-. Most likely we will see ECB policy makers will have rates on hold to prevent lower rates that will fuel inflation or high rates causing slow economic growth.


Crude oil

Crude oil last week was push towards 100USD mark for the first time in history, but above 100USD market was short-lived as investors selling are putting pressure on crude oil prices. Most investors know that last week rally was pushed mostly by speculators, nothing fundamental, weaker USD, storage withdrawal and slight geopolitical risk without anything significant.

But soon after the oil reached 100USD market, investors seems to realize that USD weakness is caused by slowing US economy and weaker US economy outlook. An economy slowdown will curb energy product consumption and such high price is just unrealistic. We should see Crude oil remains on the downtrend throughout the week unless Wednesday storage post a surprise or some supply disruption/”events” that will push crude oil prices further upward.

Loh Chang Yuen,

Junior Strategist

All rights reserved: Admiral Markets Ltd


 

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