Reply #4: daily dollar watch

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Can US Durable Goods Orders Produce The Expected Rebound?

http://www.dailyfx.com/index.php?option=com_content&task=view&id=3788&Itemid=39

US Durable Goods Orders (AUG) (12:30 GMT, 8:30AM EST)
Consensus: 0.7%
Previous: -4.9%

Outlook: August’s data is expected to show a modest 0.7% increase in durable goods orders following July’s fall, which was the largest in a year and a half. The civilian aircraft component will most likely hold steady this month since Boeing received 90 orders in August compared to July’s 88. On the consumer side, there’s downside risk from the University of Michigan’s report of a sharp fall in sentiment to 89.1 from 96.5 in light of high oil prices and after a smaller increase in payrolls in the month combined with declining real hourly earnings. However, the Conference Board’s survey of consumer confidence actually reported a slight rebound in the month from 103.6 to 105.5. In any case, orders will probably only get worse in September due to the destruction caused by Hurricanes Katrina and Rita. The rebuilding efforts following the two storms will give a boost as firms and consumers must replace lost goods. Unfortunately, this effect probably won’t take hold for another few months.

Previous: After May and June’s hefty upward surprises to durable goods orders, July finally brought a larger-than-expected retracement along with some upwards revisions to data from prior months. Total new orders for durable goods dropped 4.9% against economists’ median expectation of a 1.5% fall. As expected, there was a decline in transportation, which amounted to a change of -8.3%. However, machinery and computers/electronics also experienced sizeable new order decreases of 6.2% and 5.9%, respectively. On top of all this, capital spending in the month was weak with a 3.7% decline in orders for nondefense capital goods excluding aircraft. One positive note is that in May and June, new orders exceeded shipments by $14,2 billion, signaling that there are enough orders in the pipeline to prevent any drastic drop in output in the near future despite July’s weak performance in orders.

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Dollar Shrugs off Weaker Confidence and Home Sales Data

http://www.dailyfx.com/index.php?option=com_content&task=view&id=3787&Itemid=39

US Dollar - Even in the face of weaker economic data, the US dollar remains unfazed. Consumer confidence fell by the largest amount in 15 years as Hurricane Katrina drove oil prices to a record high. With confidence at such weak levels, it remains to be seen whether consumer spending can also hold up. Although oil prices have retraced since Katrina, it is above $65 a barrel at the moment, which means that consumers must still be feeling the pain. Additionally, even though existing home sales increased in August, today’s new home sales report indicated that purchases fell 9.9%. For the most part, the Euro spent most of the day testing the psychologically important 1.20 level. Comments by Fed President Yellen were taken as slightly dollar bullish. She said that the Fed must keep its pledge to control inflation, which the market took as another hint that there may be more rate hikes in the pipeline. Yellen however, is not a voting member of the FOMC. Greenspan was also on the wires today but he refrained from making any new comments. He took the opportunity to once again warn about Americans’ disregard for growing credit risk. Greenspan said that “History cautions that extended periods of low concern about credit risk have invariably been followed by reversal with an attendant fall in the prices of risky assets.'' Although he did not directly say which market he is talking about, it is clear that he is referring to the housing market. According to the Wall Street Journal, Greenspan personally supervised research on consumer borrowing habits and according to his analysis, American consumers have been extremely dependent on home equity loans to fuel their spending, which means that a rise in mortgage rates could throw quite a setback to consumer spending. Of course, the dollar has completely shrugged off his warnings once again. Momentum continues to drive the slide in the EURUSD along with continued repatriation flows related to the Homeland Investment Act. Part of the reason why traders are focusing on the HIA flows now is because the bulk of the repatriation did not occur until May of this year, when the government clarified the tax law. It is also estimated that 10-15% of US corporation use September 30th as their year-end, which means that those corporations may be rushing to take advantage of the lower tax rate. Yet, HIA repatriation should continue into year-end, which means that it could continue to provide a stimulus for the dollar.

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