Dollar bulls have nothing but jobless claims

US Dollar

Greenback weakness could be felt since the morning hours as the U.S. fell victim
to better than expected economic data in the majors and a dearth of powerful
reports on the day.  The sole release that powered some retracements in the
market was the weekly initial jobless claims report.  Expected to rise 300,000,
applications for first time claims actually dipped to 278,000, additionally
below the 297,000 seen in the previous week. 

The positive report now sets the stage for the durable goods
orders report set for release today.  Should the report be released better than
expected, it would be a continuance of the recent string of dollar positive data
seen over the course of the quarter as it reflects healthy consumer spending in
the world’s largest economy as the labor market tightens.  Expected to decline
overall on a plunge in the demand for commercial aircraft, the monthly figure is
still expected to rise once again.  Ultimately, with policy makers now looking
for economic data in justifying further rate hikes, policy makers may very well
be prompted once again.

Euro

Rising to a 14-year high, German business sentiment increased in the month as,
simultaneously, consumer confidence in the region’s largest economy expanded to
an 11-month high.  According to the Ifo confidence index, the monthly survey
rose to a reading of 103.3 from a lower 101.5 reading seen in January.  Coupled
with the better than expected rise in consumer confidence in Germany according
to the GfK survey, the future looks brighter for the once downtrodden economy as
it becomes clearer that the central bank will raise rates in March.  This is
somewhat contrary to figures that were seen over the previous week as overall
growth prospects were looking thin in both France and Germany, both powerhouses
for the member states. 

Orders, reflective of exports, additionally fell in the German
economy.  Nonetheless, with the broader spectrum of exports in the positive,
stronger global foreign demand looks to compensate for losses domestically as
the region continues to battle with record inflation and head into positive
territory.  Looking ahead, traders’ focus looks to turn to consumer prices in
the German economy tomorrow in justifying the anticipated rate hike.

British Pound

Sterling got a lift against the greenback today as interest rate cut fears
dissipated following yesterday’s optimistic Bank of England meeting minutes and
a report that reflected healthy order activity in the economy.  With a clear 8-1
victory on the side of a stay on rate cuts, market sentiment is now growing more
confident that the upticks seen in the housing sector and manufacturing are
offsetting considerable weakness in the retail sector. 

As a result, in light of last night’s disappointing total
business investment report, traders are now looking optimistically ahead to
tomorrow’s gross domestic product report.  Expected to rise in line with the
previous reading of 1.7 percent annually, the monthly climb is looking rather
upbeat.  Rising 0.4 percent in the previous reading, growth in the fourth
quarter is expected to rise 0.6 percent, reflective of the recent string of
manufacturing upticks as production is revitalized.  Should the figure rise
against the consensus, looking ahead, more emphasis may be placed on the
domestic consumption as it continues to remain a thorn in the queen’s side.

Japanese Yen

Yen bulls finally had their day on the session, driving the domestic currency
higher across the board and the most against the dollar in almost two months
after comments by Bank of Japan Governor Toshihiko Fukui suggested that interest
rates may be ready to rise.  Citing the end of seven year deflationary levels,
the central banker noted that monetary authorities will reduce the amount of
physical cash that is being flushed into the country’s financial system
“immediately” upon indications that inflation is formally rising as growth
continues in the world’s second largest economy. 

However, although certainly accepted as optimistic, market
sentiment remains resoundingly convinced that rates will not realistically rise
till the second half of the current calendar year at the earliest.  Nonetheless,
the announcement has sparked numerous sources of speculation that the carry
trade notion may very well be on its way out as a result.  Used mostly for its
zero interest rate yield, the Japanese yen denomination will become a foregone
source of low rates compared to higher yielding currencies as a shift seems
likely as a result of the potential near term hike.  Separately, merchandise
trade balance figures were disappointing to say the least as the economy has now
shifted to a deficit, the first time in five years.

Kathy Lien



Kathy Lien is the Chief Currency
Strategist at

Forex Capital Markets
.
Kathy is responsible for providing research and analysis for


DailyFX,
including technical and fundamental research reports, market commentaries and
trading strategies. A seasoned FX analyst and trader, prior to joining FXCM,
Kathy was an Associate at JPMorgan Chase where she worked in Cross Markets and
Foreign Exchange Trading.

Kathy has vast experience within the interbank
market using both technical and fundamental analysis to trade FX spot and
options. She also has experience trading a number of products outside of FX,
including interest rate derivatives, bonds, equities, and futures. She has a
Bachelors degree in Finance from New York University. Kathy has written for
Stocks and Commodities, CBS Market Watch, ActiveTrader, Futures and SFO
Magazine. She is frequently quoted on Bloomberg and Reuters and has taught
seminars across the country. She has also hosted trader chats on EliteTrader,
eSignal, and FXStreet, sharing her expertise in both technical and fundamental
analysis.