Forex Investment and Currency Trading

Eurozone Germany’s GfK Consumer confidence index declined from a revised 3.6 in July to a preliminary 2.1 in August, the weakest reading since June 2003. CPI data for state of North-Rhine-Westphalia are due out later on Monday. Market expects German inflation to remain stable in July at 3.3% for the domestic index and 3.4% for the HICP. Weakness in housing activity in the Euro zone is concentrated in selected markets, with Spain suffering the worst setback after strong gains earlier in
the decade. House transactions fell in May although the timing of a religious holiday may have impacted the data, as [...]

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July 29 2008

Consumer Confidence (July)
S&P/Case Shiller Index

COMMENT
Consumer Confidence
Battered by housing and financial crisis, and surging energy and food costs, consumer confidence has plummeted, falling for 10 of the past 11 months and in each month so far this year. Flat gasoline prices after 4 months of relentless gains and the positive impact of the rebate checks likely stabilized confidence in July. However, housing decline continues, credit conditions are tight and the labor market continues to weaken.
July 31 2008

Jobless Claims (wk 7/26)
Employment Cost Index (Q2)
GDP (Q2 advance)
PMAC Survey

COMMENT

Employment Cost Index
Market looks for another 0.8% rise in the ECI in Q2, the [...]

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Purchasing power parity (PPP) is a theory that states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate between two countries should equal the ratio of the two countries’ price level of a fixed basket of goods and services. When a country’s domestic price level is increasing (i.e., a country experiences inflation), that country’s exchange rate must depreciate in order to return to PPP.
The basis for PPP is the “law of one price.” In the absence of transportation and other Transaction costs, [...]

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The USD Index has broken its downtrend and appears to be establishing a more positive tone. Lower gasoline prices should provide important relief to US consumers while there are signs that home sales are nearing a bottom. There is a positive outlook for the USD versus developed currencies, particularly in Europe, but the USD is expected to continue to weaken versus Asian EM currencies.
Concerns about a serious overshoot for the EUR remain high, and data last week suggesting a more serious economic slowdown add to these concerns. ECB rate hikes are being priced out of the market, with downside implications [...]

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