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FX: Terrible Tuesday Ahead?

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It has been a quiet morning in the foreign exchange market with parts of Europe and all of Australia closed for holiday. The lack of U.S. economic reports should also keep the North American session quiet even with Fed Presidents Lacker and Fisher scheduled to speak, because only one is a voting member of the FOMC (Fisher). Nonetheless today is not an opportunity to be complacent because a heavy dose of economic data from China, the U.K., U.S. and New Zealand will be released over the next 24 hours.

The hesitation in the foreign exchange market suggests that traders are wary of Terrible Tuesday. New Zealand economic data will be important but only for New Zealand whereas Chinese and U.S. economic data could affect risk appetite across the financial markets. Most investors have grown accustomed to slower growth in the U.S. but if China's economy slows materially as well - the markets will respond negatively. Producer prices, consumer prices, retail sales and industrial production numbers will be released this evening and based upon the forecasts, growth in most of these data sets are expected to slow. This morning's M2 money supply data from China showed a more moderate pace of growth that reflects the efforts of the central bank's tighter monetary policies. Unfortunately, there may no winning when it comes to the Chinese data - a negative surprise could lead to concerns about Chinese growth while a positive surprise could spark speculation of tighter monetary policy - both of which could lead to slower global growth.

As for the U.S., we have producer prices and retail sales numbers tomorrow. The drop in commodity prices last month is expected to lead to softer inflationary pressures while reports from individual retailers showed spending increasing in May but at a slower pace than the previous month. High end retailers are seeing better results than low end ones while those that sell gas also benefited from higher prices. Costco for example reported a 13 percent rise in sales with 6 percent of those gains attributed to gasoline sales and foreign exchange rates. Target, J.C. Penny and Kohl's were among the companies that reported weaker results. If retail sales increase less than expected, the dollar could extend its losses because that would suggests interest rates will not be increased before the second quarter of next year. If they are strong, the chance of a rate hike before Q2 still remains slim but at least it may signal that the drop in payroll growth last month was a one month fluke.

Given the recent trend of global economic data, the risks are skewed towards a downward surprise and for this reason, investors need to be wary of the possibility of a terrible Tuesday ahead.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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