The past week has seen Germany, France, Hong Kong and today Japan all announce positive Q2 Gross Domestic Product figures which effectively signal that they have successfully pulled out of recession.
In the States the weekly jobless data is seeing some improvement, industrial production is extending its gentle recovery and the housing market has attracted some buyers suggesting that the sharp decline has come to a halt. How broad this buying has become is unclear and whether it represents a genuine improvement in sentiment or is just speculative buying as the market eyes the more positive economic numbers is unclear.
Retail sales in the States were not as positive as forecasts had suggested and while the likelihood is that the States will announce positive quarterly GDP numbers due to the unprecedented size of the fiscal packages there is still a great deal of uncertainty over whether consumers have recovered enough confidence to carry the recovery further.
Last week I ended with the statement “So for now the current pro-dollar sentiment is likely to persist but as we have seen over the past months the initial mini bout of euphoria can very quickly subside into lack of direction. So, for the moment it looks as if we may just remain in range trading conditions for a while longer.”
Indeed the pro-dollar sentiment stalled on that day and since then has demonstrated modest weakness but the manner of its decline has not really been convincing as yet and I can only surmise that range trading conditions will continue.
This still reflects a complete lack of commitment to increased risk taking by fund managers and right now it still seems very unlikely that we’ll see the forex market push significantly in either direction. This will please the central bankers but it's unlikely to last too much longer now.
Over the next month we are due to see the dollar cycles find a low and generate more sustainable strength in to the end of the year – and I favor into the first quarter of next year. Until that point, while much of the time we are likely to see range trading for most of the time but within the context of a continuing ratcheting decline in the Dollar.
We are coming to important support for the dollar against the yen and if we see any loss of 94.00 the chances will be favoring strength in the yen below the 91.74 level seen last month and which could eventually drop below 90.00.
Other posts by Ian Copsey: