US Dollar Collapses as Chicago PMI Rings Recessionary Bells
Thursday, 30 November 2006 20:47:28 GMT
US Dollar – Yesterday’s recovery in the US dollar did not last long as the greenback came under another day of severe selling pressure. Having already started the US session on a softer footing, the Chicago PMI report tipped the currency over the edge. For the first time since April 2003, Chicago PMI dipped into contractionary territory and in doing so, rang the recessionary bells along with it. Large drops were seen in nearly every component of the report including employment, production, prices paid and new orders. This means that manufacturing conditions in the Chicago region is slowing and suggests that we could see a sharp slide in the regional ISM survey tomorrow as well. The market is not taking this well because we have finally seen a solid reason that supports the meltdown in the dollar. The June Fed fund futures contracts are pricing in a 100 percent probability of a 25 basis point cut to 5.00 percent by the summer while the odds for further cuts after that have also jumped. ISM is really the key tomorrow. The trend in the market is very strong. If ISM prints weak like the Chicago PMI report, we could possibly see 1.34 in the EUR/USD and 1.9750 in the GBP/USD. There are also a number of Fed officials speaking tomorrow including Bernanke. Given that many of them have already spoken earlier in the week, we do not expect anything new from them. Aside from Chicago PMI, there were other pieces of US data that were released today, most of which were dollar bearish as well. Personal income growth slowed while personal spending saw a sharp revision to the September data that essentially offset the mild upside surprise that was reported in October. Initial jobless claims jumped significantly last week to the highest level since October 2005, which suggests that non-farm payrolls could come out weaker next week as well. There was some good news though, the core PCE and PCE deflator both came out stronger, reflecting inflationary pressures while the help index held steady at 30 in the month of October and the house price index increased by a slightly more than expected 0.9 percent in the third quarter.
dailyfx.com |
