After The Party – An Economy In Crisis Greets The Incumbent Obama Administration
A tough week for the US economy could offer fresh opportunities for currency traders, says XForex.
/EIN News/ Toronto, Ontario (XFOREX) November 13th, 2008 – – The celebrations that have greeted the election of Barack Obama in the US are likely to prove short lived as the slew of negative indicators that emerged from the US economy last week look set to continue into the week ahead. This Friday heralds the release of October retail sales data and indications suggest that the result is likely to make grim reading for US policy makers. The currency markets have remained volatile over recent days and should provide opportunities for savvy investors in the days ahead as traders adjust their positions in advance of further news releases.
Last week, election euphoria aside, was vicious for the US economy. Ford and GM revealed the truly terrifying scale of the losses they’ve incurred, the unemployment rate reached 6.2%, its highest level in 14 years, Non Farm Payrolls came in with a worse than expected showing, and equities markets suffered the largest two day sell off since 1987. The headache that greets the morning after the party of the night before is thus already besetting the incumbent administration.
This week the markets are bracing themselves for more of the same as retail sales data due on Friday now looks set to record the largest monthly drop since 2001, prompting fears of US recession. A news survey conducted by Bloomberg estimated that retail sales will fall in excess of 2% in October, double the market forecast of 1%. The news will add further gloom to the US economic picture. Michigan consumer sentiment data, also due Friday, could offer similarly grim reading to traders.
The dollar strengthened last week against both the euro and sterling. Following interest rate cuts from both the Eurozone and the UK the EUR-USD closed out the week at $1.2716 and cable (GBP-USD) closed the week at $1.5641. There may now be room for both currencies to claw back some gains against the dollar in the coming days; if the market starts to anticipate that US economic weakness is actually more severe than previously thought.
The state of US equities markets should once more be a bell-weather for currency traders in the week ahead. Further severe falls in equities should see renewed strengthening of the yen, and, paradoxically perhaps, the dollar as well: with the economic situation in Europe continuing to deteriorate and oil and commodities prices dropping once more, the dollar for all its drawbacks may remain appealing.
The markets are now looking with anticipation towards an incumbent administration in the US which says it is serious about tackling the economic difficulties besetting the country. Yes we can may be the slogan of that administration, but no one should underestimate the economic challenge it will face.
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