Thursday, November 23, 2006

US Dollar Getting Whalloped!

In today's market wrap, Michael Hartman talks about Economic Reports and White House Say Economy Will Slow .

  • Investors are jamming the exit doors for the U.S. dollar this morning as three economic reports came out with a negative bias, with the only positive report coming from the Energy Department. Stock prices are struggling to move higher from yesterday’s close and bond prices are catching a modest bid to push yields lower with the economic slowdown moving into the spotlight. Most investors, including myself, expected lower volatility today going into the holiday weekend, but this development in the foreign exchange market is quite significant. The dollar is really getting whacked! Yesterday the U.S. dollar index closed at 85.12, but this morning it gapped-down to open at 84.77 and is still getting pounded lower to 84.32, touching a six-month low versus the euro.

    The first surprise that seemed to have the biggest impact on the dollar was the increase in unemployment claims from 309,000 to 321,000. Analysts’ consensuses were looking for a number closer to 310,000. To add fuel to the fire, Alcoa announced they would be sending another 13,000 workers to the unemployment lines with a reduction of workforce. The unemployment numbers hit the dollar, but stock futures were not affected much.

    Thirty minutes before the bell rang on the floor of the NYSE the University of Michigan released their index of consumer sentiment. Last month the index had a reading of 93.6 and analysts were expecting 93.3 for November, but the number came in lower than expected at 92.1. The slumping consumer confidence numbers aided the dollar decline, but this time around stock futures also moved lower.

    The third report adding fuel to the dollar decline came from the Mortgage Bankers Association saying their application index was 3.7% lower last week even though the 30-year fixed rate dropped to 6.13%. This is the lowest rate since January and below the rate from a year ago at 6.26%, but mortgage applications are declining nonetheless.

    The only report that would have offered some support for the dollar came from the Energy Department with an unexpected build in crude oil and unleaded gasoline inventories. Analysts expected a build of approximately 500,000 barrels in crude, but the number came in much higher than expected at 5.1 million barrels. Prior to the report, some analysts were expecting energy prices to rise as traders cover their short positions to square-up prior to the long weekend. Just the opposite is actually occurring. As I write, crude is down $1.42 to $58.75. I expect these low prices to last for another month, and then we move higher into the first quarter around the $60 to $65 a barrel range, but no blow-out back to $80 until later next year.

So how weak is the USD.

Have a look...