Consumers Are Fading In the U.S.

Time is needed to restore confidence among both consumers and businesses, as the Treasury and the Fed are expecting banks the use some of the money of the rescue package to promote credit to the middleclass. Macroeconomics events will be attentively watched, while the U.S. dollar is again testing key resistance lines.

The focus is on macroeconomic events

With the households wealth is deteriorating and employment is falling, consumes are declining rapidly in the United States. In October, retail sales slid 2.8% (-2.1% expected) month-on-month versus September fall of 1.3%. In effect, the labor market remains weak and more laid-off are expected in the future. Jobless claims rose to 516,000 units in the week ending November 8th from 484,000 the previous week. Time is needed to restore confidence among both consumers and businesses, while banks are becoming very demanding on credit requirements. In reality, the Treasury and the Fed are expecting banks the use some of the money of the rescue package to promote credit to the middleclass. Nonetheless, consumers are slowly adapting to the new saving¡¦s era by cutting back loan demand and by not buying unnecessary items. The main focus is now on macroeconomic themes and fiscal measures, even though more rate cuts are expected around the globe and maybe in the U.S.

Consequently, the markets will attentively watch whether or not the U.S. government extends the rescue package to the shaky auto industry, while China might participate with the International monetary fund (IMF) to support countries damaged by the crisis. However, in the U.S., a clear cut between the old and the new administration¡¦s policy is needed to have a clear assessment of events. In the recent meeting in Washington D.C, the G20 agreed to create new regulations to face modern financial challenges, but some disagreements emerged between president Bush and president Sarkozy over the actual responsibilities of the new regulatory body. It is nonetheless clear that the work to be done is enormous. As an example, the decline of both crude oil and business activity improved the huge U.S. trade deficit in September to USD 56.6 billion (USD 57.20 billion expected) from 59.1 billion. But, numbers should deteriorate again, once the economic slowdown will subdue and inflation will pick up once more.

German consumers are optimistic, but for how long?

Recession is hitting the entire European continent, as the second largest European economy is moving into the red territory after more than fifteen years. In September, the French industrial production fell by 0.5% after sliding 0.4% in August. As a result, the ministry of finance expects the economic growth to be 0.2%/0.3% in 2009. Are they correct? Forecasts could be overlay optimistic, since the European economy is moving in slow-motion right now. Industrial production declined 1.6% month-on-month in September (2.4% on a yearly basis) and the European Central Bank (ECB) is expected to cut rates again in the coming meetings to avoid a deterioration of the crisis. Inflation is still receding and could help ECB work. In France, the Consumer Price Index (CPI) fell to 2.7% on an annual basis in October from 3.0% in September. In Italy, it slid to 3.5% from 3.8%. Finally, in Germany it moved to 2.4% from 2.9%.

Despite the cloudy picture, the German consumers remain somehow optimistic about the magnitude of this economic slowdown, especially after the rescue and stimulus package approved by the government. So, the German¡¦s economic sentiment, or ZEW, improved a bit to -53.5 in November from -63 in October, albeit much below the average of +27.1. Nonetheless, the current economic condition index fell almost 15 points to -50.4 points, while the economic expectations index rose 8.7 points to -54 points. In reality, the German Gross Domestic Product (GDP) moved down for the second consecutive quarter. In the third quarter, it slid by 0.5% after slumping 0.4% in the second. The first contraction of the past five years testifies a struggling economy for the old continent. In fact, the Euro zone GDP cooled 0.2% in the third quarter, after falling 0.2% in the second quarter. Annually, the GDP is at 0.7% from 1.4% in the second quarter.

USD/JPY: trying to base?

EUR/USD has again tested the support line at 1.24/1.22. This area is at the conjunctions of various levels of support. As a result, a move below 1.2110 is necessary for 1.20, 1.16 considering the divergence between the Rsi indicator and current price. A breakout failure could in fact take the price back to 1.32, 1.36.

GBP/USD moved below the support line at 1.52, which represents the long term trend line of the past 24 years. The trend is on the downside. Nevertheless, a fallow though is necessary for 1.44, because a move above 1.56 will quickly take the price back to 1.66, 1.72.

USD/JPY might try to climb again to 100/102, if 93.50 will hold. A move below 93.20 will eventually target 92.50, 91.70.

USD/CAD reached the important resistance line of the past 24 years at 1.27/1.30. This level is holding and only a swing over 1.33 will target 1.36, 1.40. A breakout failure will quickly bring the price again to 1.14, eventually 1.10, if 1.1250 is passed.

Angelo Airaghi
MG Financial Group
http://www.mgforex.com

Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

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