Midnight for the Dollar?

Overall: The dollar fell on increased speculation of a Fed rate cut by December. In economic news, the Commerce Department said retail sales fell 0.3% in August and that sales for the year rose just 1.6%. Total sales for the June through August 2008 period were up 2.3% from the same period a year ago. The 0.3% fall in retail sales followed a 0.5% drop in July. Excluding automobiles, purchases were down 0.7%, the most this year. "The government uses sales of vehicles, gasoline and building materials from this report to calculate gross domestic product," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "Sales for this group fell 0.2% in August, the most this year, so that will subtract from third quarter GDP calculations."

Monthly PPI fell for the first time this year as energy costs declined. The yearly increase in PPI was 9.6%, a decrease of 0.2 percentage points from July's 9.8% reading. Prices excluding energy and food rose 0.2% in August and by 3.6% in the year to August, the biggest yearly increase since May 1991. Core PPI rose by 3.5% in the year to July.

Finally, the Reuters/University of Michigan preliminary reading of consumer sentiment reached the highest level since the start of the year in September as energy costs continued their decline. September's 73.1 reading was well above economists' expectations of 64.0.

The Euro (Eur/Usd) rose as traders in Fed Funds Futures priced in a 30% chance of a rate cut by the December meeting. In economic news, the number of persons employed in the euro-area rose by 0.2% in the second quarter of 2008. Compared with the second quarter of 2007, employment grew by 1.2%. Employment in the Euro-area grew by almost 10%, the release shows.

In July, industrial production fell in the Euro-area 0.3% from one month earlier. Analysts had expected a 0.2% rise in production output. From one year earlier, production declined by 1.7%. In July 2008 compared with one month earlier, production of energy increased by 0.2% (decreased 0.3% annually); intermediate goods fell by 0.3% (2.3% decrease); non-durable consumer goods declined by 0.3% (1.5% decline). Capital goods decreased by 0.8% (1.1% decrease). Durable consumer goods fell by 0.9% (5.7% off from one year earlier).

The Pound (Gbp/Usd) made its biggest one day gain since September 2005. The next economic release will be the monthly CPI report on September 16 at 04:30 EDT.

The Aussie (Aud/Usd) made its biggest one day advance since May 16 as gold futures advanced nearly $15. The quarterly report on housing starts will be released on September 14 at 21:30 EDT.

The Cad (Usd/Cad) fell for the fist time this week as prices for gold, oil and other commodities rose. A report on new motor vehicle sales will be released on September 15 at 08:30 EDT.

The Swissy (Usd/Chf) fell as investors sold equities and the yield on the 10 year note gained 3.2 basis points.

The Yen (Usd/Yen) rose on the day after the loss in the S&P was muted. In economic news, Japan's Industrial Production rose 1.3% in July. The market expected a 0.9% read. Compared with one year ago, industrial production rose, despite the hard period the Japanese economy has faced. Also, the revised report for second quarter GDP showed the Japanese economy contracted 3.0% on an annualized basis. The preliminary report said the contraction had been 2.7%.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

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