Reply #5: daily dollar watch

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Stronger Data Fails to Clarify the Uncertainty Around the Dollar

http://www.dailyfx.com/index.php?option=com_content&task=view&id=3856&Itemid=39

US Dollar - Despite some intraday excitement, the dollar struggled to make any meaningful move today. Indecision reigns high in the markets with the EUR/USD trapped within a 1.1980-1.2080 range since the beginning of the week. The greenback range traded throughout the Asian and European trading sessions, then fell significantly following better US data, but proceeded to retrace most of its losses for the remainder of the US session. These days, traders seem to question both good and bad data. Even though the final release of GDP for the second quarter was unrevised at 3.3%, both personal consumption and the GDP price index was revised higher. The arguments for the reliability of this release is fairly obvious with the market quickly talking about how even though Q2 growth and demand was solid, Q3 growth should be much less impressive. Much of the growth in the second quarter was attributed to a surge in motor vehicle sales, which are much weaker now. Economists have already slashed their forecasts for third quarter growth. Jobless claims were more interesting though, rising by only 356k compared to estimates of 418k. According to the Labor Department, Katrina accounted for 279,000 jobless claims since it struck at the end of August. The government had originally forecasted 400,000 jobs to be lost as a result of Katrina. The question is then whether the worst is now behind us. Whether the answer is yes or no, we are still in for some ugly non-farm payroll numbers next week. As of today, Bloomberg reports that the consensus around the street is that payrolls are expected to fall by 168k in the month of September. If we do have a negative reading, it would be the first since May of 2003. Dollar traders are still keeping an eye on commodity prices. Oil is up $0.43 while natural gas climbs to yet another all-time high. Trading could be interesting during Asian trading today with Fed President Stern and Kohn both speaking this evening.

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Will Manufacturing Be The Dollar's Undoing

http://www.dailyfx.com/index.php?option=com_content&task=view&id=3851&Itemid=39

U.S. Personal Income and Consumption Expenditure (AUG)(12:30GMT, 8:30EDT)

Personal Income
Consensus: 0.3%
Previous: 0.3%

Personal Consumption Expenditure
Consensus: -0.2%
Previous: 1.0%

Outlook: U.S. personal income is expected to rise by 0.3% for the month of August as businesses continue to take home higher profits. Incomes attached to real estate transactions will be the largest contributor to this gain as home values continue to rise. Unlike last month, however, this increase in wages and salaries is likely to be matched by a positive gain in savings as personal consumption expenditure (PCE) is expected to decline by 0.2%. This will be the first fall in spending in 3 months and the biggest drop since June 2004. Consumers will be cutting expenditure on nonessential items to cover the soaring cost of energy, especially after Hurricanes Katrina and Rita have put a large number of critical refineries out of commission. In contrast to last month, when automobile sales lead spending, car purchases look to be weak for the month of August as large-scale destruction of the gulf coast has pushed fuel prices impossibly high.

Previous: Personal Income rose at a rate of .3% in July, intensely fueled by rising home values and a strong equities market. The increase had its greatest effect in the private sector, where wages and salaries increased by $29.4 billion as opposed to a climb of only $17.9 billion the previous month. Employment rates had much to do with the overall increase in income, as weekly initial jobless claims were below average for the entire month. Increased income in July, however, did not result in increased savings. In fact, the personal savings rate fell to a record low of -0.6%. This was due to the 1% gain in PCE. A large contributor to the rise in spending was car sales as consumers flooded showrooms to take advantage of steep automobile discounts. In fact, demand at car and parts dealers soared 6.7%. The last time demand for automobiles was so high was in October of 2001 when auto manufacturers were offering zero-interest loans to boost sales after the attacks of September 11th.

US Chicago Purchasing Managers’ Index (Sep)(14:00GMT, 10:00EDT)
Consensus: 51.0
Previous: 49.2

Outlook: The Chicago PMI is expected to increase to 51.0 in September after drastically dropping last month below 50 to 49.2 suggestive of a contraction. The inventory clearing strategies employed by the automakers through August may have actually exaggerated the drop in manufacturing last month. Late seasonal distortions will have been cleared for September and the expansion seen over the past months will continue although slightly. A rebound across the board of US economic numbers is also expected for September as the shock from Hurricane Katrina begins to wear off and reconstruction begins. The slow growth predicted for the month can be mostly attributed to the continuous burden of oil prices on the consumer causing manufacturers to scale back production.

Previous: In August, manufacturing unexpectedly contracted in the Chicago area for the first time since April 2003. The index was only expected to fall slightly from 63.5 in July to 61; however it actually dropped to 49.2 – the largest drop on record. This drop suggested that oil prices are having a hard effect on factory demand. Also, during August, automakers, starting with General Motors, began to cut production and lower prices to clear out huge stocks of unsold cars. Manufacturers started to become cautious with their outlooks, seeing the effect that heightened energy prices has had on consumers, and slow production in reaction. US economic growth also slowed to 3.3 percent in the second quarter as consumers bought even less than expected and bought more foreign goods. The new orders index tumbled to 46.5 from 69.6 and the production index to 56.2 from 70.5.

University of Michigan Consumer Survey (SEP)(14:00GMT, 10:00EDT)
Consensus: 80.0
Previous: 76.9

Outlook: Although sliding to a reading of 76.9 in the month of August, the final figure for September looks to be a tad more optimistic with consensus figures pointing to an 80 print. Contributing to the overall loftier sentiment was a decision by the U.S. government to approve more than $62 billion in extra spending in the aftermath of Hurricane Katrina. As a result, a pickup in construction and manufacturing look imminent, leading to an increase in overall domestic expansion prospects. Additionally contributing are consumers’ overall spending habits as both wage and job growth rise. Ultimately, both increases have counteracted previous concerns of higher energy costs as consumers focus on the brightside future.

Previous: Final figures for the University of Michigan’s consumer sentiment survey dipped for the first time in three months as higher gasoline prices dampened once heightened personal consumption. Rising above $60 in the month, crude oil prices hit an all time high of $70.85 on August 30th trading on the New York Mercantile Exchange. Subsequently, gasoline prices at the pump rose to a record $2.61 in the week of the aforementioned release. This caused sentiment to drop from a previous reading of 96.5 in the month of July to an 89.1 print for August. Considerably disappointing, the current figure was expected to drop mildly to a 92.7 figure. Ultimately, consumers are now feeling the pressure of energy costs as it poses a tax on an individual’s disposable income. However, with job and wage growth still relatively strong, the full blown impact of higher costs may be dampened leaving the current reading a temporary thought.

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