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Video for August 21st, 2008 (5 min): Dollar Takes a Hit on the Chin as Credit Market Woes Resurface, Oil Surges JPN Trade Balance Declines For 5th Straight Month Japan's trade balance when unadjusted for seasonal variations, narrowed for a 5th straight month in July as Japan pays more for oil on their import bill while growth to the US, Europe and other nations struggles. The unadjusted balance came in at 91.1 billion yen, an 86.6% decline from a year ago. On a seasonally adjusted basis, the balance was 170 billion yen. USD/JPY - Yen Breaks Out of Range, Dollar Sinks to Test 108.10
Despite the weaker trade data, the Yen had a strong day as concerns over credit-market losses resurface and oil prices were on the rise. The Dollar-Yen broke below its recent support at 109.60 and dropped about 150 pips. SWZ Trade BalanceBetter Than Expected, ZEW Expectations Falls The Swiss trade balance surprised forecasts and matched its downwardly revised level from June, coming in at 2.37 billion francs. It's a welcoming sign for the economy, as it means foreign demand for Swiss products remains strong. June's level was close to an all-time high. The ZEW Expectations index however fell further to -79.6. SWZ Producer Prices Rise Sharply in Jule, at 4.9% Annual Pace Swiss input prices rose to an annual pace of 4.9% in July, the highest it's been in 19 years. Higher prices for oil and metals led the increase, adding pressure on the Swiss National Bank to keep rates at their current level of 2.75%, even as domestic demand weakens. Producer prices may see a peak here as oil prices came down in July and August. USD/CHF - Swiss Franc Gains as Credit Concerns Weaken Carry Trade
The Swiss Franc was also benefited by the jitters sweeping around financial markets. The Dollar-Franc pair was down 180 pips from yesterday's high, testing support at 1.0850. Most of the declines came during the NY session as oil prices climbed almost $5 today on the back on increased tensions between the US and Russia. EUR Manufacturing and Services Contract for 3rd Month In the Euro-zone manufacturing and services activity contracted for a 3rd month, preliminary data for August showed. The manufacturing PMI registered a 47.5, which is a slight improvement on July's figure while services remained rather steady at 48.2. German manufacturing fell below the 50 level separating contraction from expansion. UK Retail Sales Surprise on Upside In the UK retail sales surprised forecasts and increased in July, climbing 0.8%. On the year, sales registered a 2.1% increase, a slower pace than in June, but better than forecasts. The positive result may be short lived as the pressures facing consumer spending remain, and just last month sales fell by the most in more than 20 years. UK Investment Falls 1.9% in 2nd Quarter UK business investment fell 1.9% in the 2nd quarter compared with the first, sharper than the 0.7% decline expected by economists. With businesses facing most of the stiffer costs for raw material and energy, they are scaling back their spending on heavy equipment and other investment. EUR/USD - Dollar Falls to Euro on Credit Concerns, Oil Surging
The Euro-Dollar pair climbed 130 pips from its open, breaking above yesterday's high near 1.48. The pair dipped slightly in the Dollar's favor after the European data, but went on to rally after touching 1.4750. Further trouble for Fannie Mae, Freddie Mac, and Lehman Brothers reignited concerns about credit markets while oil prices climbed. The Pound had a similar climb against the Dollar. US Jobless Claims Fall 13K, But Still at Elevated Level The number of Americans seeking initial claims for unemployment benefits fell by 13K to 432K. Still, the level remains elevated and suggests the labor market is softening. The four-week moving average of claims rose to 445K, the highest it's been in seven years. US Philly Fed Improves but Still Negative, Leading Index Falls 0.7% The Philly Fed index measured -12.7 for August. Although manufacturing activity remains weak, it showed improvements and was better than expected. Gains were made in all the components of the index, and prices paid index fell as oil prices retreatead. The leading index was down 0.7%, a very poor reading, and shows that the economy continues to face tough times. CAN Consumer Prices Rise to 3.4% Annual Rate Canadian consumer prices increased 0.3% for the month of July, easing from the 0.7% seen in June. Still, that caused the annual rate to jump to 3.4%, from June's 3.1%. On the year, gasoline prices are up 28.6% and were cited as the main driver of higher inflation. USD/CAD - Loonie Breaks Down to 1.0440
With oil prices increasing today, the US Dollar-Canadian Dollar pair broke out of its recent downward channel, sliding to 1.0440. That's about a 150 pip move from the session open. Upcoming Releases The fundamental docket eases to end the week. Tonight we get the Bank of Japan minutes. Then overnight, the Euro-zone releases its current account and data on new industrial orders. The UK will post its revised version of GDP and an index on the services sector. |
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