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Mid-Day Report: Dollar Firm after Strong GDP Growth, Awaiting Upbeat FOMC Statement

Action Insight | Written by ActionForex.com | Jan 31 07 14:17 GMT |
Forex Mid-Day Technical Report Dollar Firm after Strong GDP Growth, Awaiting Upbeat FOMC Statement

Dollar remains firm in early US session after stronger than expected Q4 GDP report that showed the US economy grew faster than expected by 3.5%, up from 2.0% in Q3. This was well above consensus expectation of 2.9%. The improvements was mainly due to strong consumption, exports and governments spending that offset the negative contributions from housing and inventories. Though, price index and core PCE both increased slower than expected, suggesting moderation of inflation is still on the right track. Nevertheless, the strong GDP report is raising the expectation that FOMC will deliver an upbeat statement later today.

Fed is widely expected to keep its target rate unchanged at 5.25% today. Once again the focus will be on the accompanying statement. There were three major developments since last meeting in Dec. Economic indicators has be resilient and showed that the US economy grew near potential in the fourth quarter. Inflation eased moderately but the pace certainly slow. More importantly, Fed members has shifted to a more hawkish stance in their speeches, saying that growth outside housing sector remains firm and inflation pressure may moderate slower than they would like to see. Hence, the statement’s wordings on inflation is not expected to change but the wordings about “recent indicators have been mixed” could be modified to reflect the current growth outlook, leaving the statement a slightly more hawkish statement than the prior one. Chicago PMI and Construction spending will be featured before FOMC announcement.

The Swiss Franc was lifted briefly after better than expected Swiss KOF leading indicate which came with a reading of 1.71 versus expectation of 1.56. However, that didn’t change that fact that this leading indicate has now had a seventh straight decline in a row since prior month’s reading was revised up from 1.60 to 1.75.

UK Gfk consumer confidence also came in slightly better than expected at -7 versus expectation of -9. This suggested that consumer confidence improved mildly in Jan. However, the rise was largely owing to a sharp upswing in the climate for major purchases sub-index, which rose from -4 in December to 10 in January. However, expectation for the next 12 months did drop from 11 to 9 with Future saving intentions rising from 28 to 34. Present financial situation also deteriorated from -1 to -3.

Data from Eurozone were mixed today, with better than expected retails sales and unemployment in Germany. However, sentiments in Europe generally weakened in Jan with Economic Sentiment Index dropping from 109.8 to 109.2. Sub-indices all dropped except Services confidence. Meanwhile, HICP inflation came in at 1.9%, missing consensus of 2.1%. EUR/USD

Daily Pivots: (S1) 1.2948; (P) 1.2964; (R1) 1.2986; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

EUR/USD edges lower in early US session as recovery was limited well below 1.3000 resistance so far. With 4 hours MACD showing sign of turning south, recovery could have already ended at 1.2980. Break of 1.2905 will add much credence to this case and bring retest of 1.2865 low and then trend line support at 1.2845. Break will confirm that whole fall from 1.3364 has resumed for next downside target of 1.2760 support.

On the upside, above 1.3000 resistance will indicate that the consolidation from 1.2865 is indeed still in progress. In such case, focus will be back to 1.3042 high and 1.3052 cluster resistance (38.2% retracement of 1.3364 to 1.2867 at 1.3057).

In the bigger picture, an important medium term top could be in place at 1.3364 already, with bearish divergence condition in weekly MACD and RSI. Sustained break of 1.2760 support, which will also have medium term rising channel line (now at 1.2748) taken out too, will add much weight to the case that whole medium term up trend from 1.1639 has completed. Focus will then be on 1.2483 cluster support (50% retracement of 1.1639 to 1.3364 at 1.2502). Decisive break of 1.2483 cluster support will confirm this case and have medium term outlook turned bearish.

However, decisive break of 1.3052 cluster resistance will indicate the fall from 1.3364 has possibly completed after drawing support from resistance line (1.2978 to 1.2937, now at 1.2845). This will also save the case that medium term up trend from 1.1639 is still in progress with EUR/USD kept inside the rising channel. Break of 1.3296 resistance will suggest the rise from 1.2483 has possibly resumed and EUR/USD could make a new high above 1.3364 before finally making a top on above mentioned bearish divergence condition in weekly chart.

GBP/USD

Daily Pivots: (S1) 1.9583; (P) 1.9638; (R1) 1.9682; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

Cable’s recovery from 1.9545 was limited at 1.9695 and falls sharply today, reaching as low as 1.9480 so far, pressing mentioned rising trend line support (1.8517 to 1.8834, now at 1.9480) now. Break of 1.9545 low indicates fall from 1.9913 has resumed. At this point, Further decline is expected to follow as long as cable stays below 1.9556 resistance.

As discussed before, sustained break of the trend line support will confirm that whole rise from 1.8517 has completed at 1.9913 and deeper decline is expected to follow towards 1.9237/61 cluster support (23.6% retracement of 1.7047 to 1.9913 at 1.9237).

On the upside, above 1.9556 will turn intraday outlook consolidative but a strong rebound to above 1.9695 resistance is needed to shift focus back to the upside. Otherwise, further decline is still expected to follow.

In the bigger picture, we already have bearish divergence conditions in weekly RSI, daily MACD and RSI. Sustained break of 1.9588 cluster support is a warning that whole rise from 1.8517 has completed earlier than we thought. Break of mentioned rising trend line support will confirm such case. Decisive break of 1.9237/61 cluster support will add much weight to the case that whole medium term up trend from 1.7047 has already completed and much deeper decline should be seen towards next cluster support at 1.8834 (38.2% retracement of 1.7047 to 1.9913 at 1.8818).

USD/CHF

Daily Pivots: (S1) 1.2491; (P) 1.2517; (R1) 1.2538; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/.

Despite edging higher to 1.2569 earlier today, USD/CHF lacks decisive momentum to resume recent rally and take out medium term falling trend line resistance (1.3238 to 1.2768, now at 1.2546) and retreated back to established range. Nevertheless, further rally is still in favor as long as USD/CHF stays above 1.2486 minor support. Sustained break of the trend line resistance should bring further rise towards 1.2768 cluster resistance (61.8% retracement of 1.3283 to 1.1878 at 1.2746). On the downside, below 1.2486 will turn outlook consolidative first but pullback should be contained above 1.2422 support and bring rally resumption.

In the bigger picture, decisive break of medium term trend line resistance will also indicate that whole medium term down trend from 1.3283 has already completed at 1.1878. Further rally should be seen towards 1.2768 cluster resistance first. Decisive break of 1.2768 cluster resistance will add much weight to the case that whole corrective rise from 1.1288 (04 low) has resumed and further rally should be seen towards 1.3283 (06 high) or above.

On the downside, break of 1.2422 support will also have short term rising channel (now at 1.2448) taken out too. With bearish divergence conditions in 4 hours MACD and RSI as background, this could indicate that the whole rise from 1.1878 has completed, after failing to break mentioned medium term falling trend line. Deeper correction should then be seen towards 1.2268 resistance turned support in such case.

USD/JPY

Daily Pivots: (S1) 121.38; (P) 121.68; (R1) 121.88; http://www.actionforex.com/forex_analysis_and_forecasts/pivot_points/pivot_points_summary_200603205734/

USD//JPY’s retreat from 122.17 was supported by mentioned 121.22 support and recovers mildly in early US session. As discussed before, further consolidation cannot be ruled out, but still, rise from 114.41 is still in force as long as USD/JPY stays within short term rising channel (lower channel line at 121.09 now) and any interim consolidation should be brief. Above 121.72 will indicate the retreat has completed and should bring retest of 122.17 high. Break of 122.17 high will indicate recent rise has resumed for 123.23/29 cluster projection level

In the bigger picture, as medium term rally from 108.99 is still in force, such rally is treated as resumption of whole up trend from 101.65 for the moment. With price actions from 117.87 to 114.41 treated as interim consolidation, next upside target will be 123.23/29 cluster projection level (100% projection of 114.41 to 119.68 from 117.96 at 123.23. 100% projection of 108.99 to 117.87 from 114.41 at 123.29).

On the downside, sustained break of the short term rising channel will indicate a short term top is formed. With bearish divergence condition in 4 hours MACD and RSI as background, that would indicate that the whole rally from 114.41 has already completed. Hence, deeper decline is expected to be seen towards 117.96 support in such case.

Forex News Digest

http://www.bloomberg.com/apps/news?pid=20601087&sid=apn2MCgnrANs&refer=home

http://c.moreover.com/click/here.pl?r789903605
Wed, 31 Jan 2007 10:35:00 GMT from Houston Chronicle

http://c.moreover.com/click/here.pl?r789883436
Wed, 31 Jan 2007 10:07:00 GMT from Bloomberg

http://c.moreover.com/click/here.pl?r789881552
Wed, 31 Jan 2007 10:05:00 GMT from Reuters

http://c.moreover.com/click/here.pl?r789899885
Wed, 31 Jan 2007 10:30:00 GMT from Globe Investor

http://c.moreover.com/click/here.pl?r789783487
Wed, 31 Jan 2007 08:18:00 GMT from Washington Post

http://c.moreover.com/click/here.pl?r789775611
Wed, 31 Jan 2007 08:10:00 GMT from Bloomberg

http://c.moreover.com/click/here.pl?r789734063
Wed, 31 Jan 2007 07:22:00 GMT from Bloomberg

http://c.moreover.com/click/here.pl?r789725247
Wed, 31 Jan 2007 07:05:00 GMT from Los Angeles Times

http://c.moreover.com/click/here.pl?r789687051
Wed, 31 Jan 2007 06:09:00 GMT from ABC Money

http://c.moreover.com/click/here.pl?r789629880
Wed, 31 Jan 2007 04:50:00 GMT from Los Angeles Times

http://c.moreover.com/click/here.pl?r789548940
Wed, 31 Jan 2007 03:00:00 GMT from Federal Reserve Bank of Richmon

http://www.actionforex.com/latest_news/latest_news/forex_news_20060323537/ Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
23:30 JPY Japan Manufacturing PMI Jan 53.4 N/A 53.1
5:00 JPY Japan Construction orders Dec -5.60% N/A 9.20%
5:00 JPY Japan Housing starts Y/Y Dec 10.20% 9.80% 4.00%
7:00 EUR Germany Retail sales M/M Dec 2.40% 1.30% -0.70%
9:00 EUR Germany Unemployment rate Jan 9.50% 9.70% 9.80%
10:00 EUR Eurozone Consumer confidence Jan -7.00% -6 -6
10:00 EUR Eurozone HICP Y/Y Jan 1.90% 2.10% 1.90%
10:00 EUR Eurozone Unemployment rate Dec 7.50% 7.60% 7.60%
10:30 CHF Swiss KOF index Jan 1.71% 1.56 1.6 1.75
10:30 GBP U.K. Gfk index Jan -7 -9 -8
13:15 USD U.S. ADP employment change Jan 152K 122 K -40 K
13:30 USD U.S. GDP annualised Q4 3.50% 2.90% 2.00%
13:30 USD U.S. GDP price index Q4 1.50% 1.70% 1.90%
13:30 USD U.S. Core PCE Q4 2.10% 2.20% 2.20%
13:30 CAD Canada GDP M/M Nov 0.20% 0.40% -0.40%
15:00 USD U.S. Chicago PMI Jan 52 51.6
15:00 USD U.S. Construction spending Dec 0.10% -0.20%
19:15 USD FOMC rate decision Feb 5.25% 5.25%

http://www.actionforex.com/general_information/forex_newsletters/forex_newsletter_200507301487/

Northrop May Pull Refueling Tanker Bid

Northrop May Pull Refueling Tanker Bid Northrop Withdrawal From Lucrative Air Force Refueling Contract May Not End Tanker Controversy By BEN EVANS The Associated Press

WASHINGTON - The withdrawal by Northrop Grumman Corp. from an Air Force refueling tanker contract bid potentially worth more than $100 billion would not necessarily hand the deal to rival Boeing Co. at least not right away.

The prospect of having only one bidder Northrop Grumman is threatening to bow out on one of the most lucrative and controversial military contracts in U.S. history is already raising eyebrows on Capitol Hill.

“If Northrop really does decide not to compete, the Air Force could find its program stopped once again,” said Frank Cevasco, a defense analyst and former Pentagon acquisitions official. “There is far too much taxpayer money involved to award a sole-source contract to Boeing. In my view the Air Force is playing a dangerous game that could backfire once more.”

Still smarting from an ethics scandal that stalled the contract three years ago, the Air Force is expected to release within days its final call for bids to replace the Eisenhower-era KC-135 midair refueling tanker.

The contract has drawn interest from two major contractors, Chicago-based Boeing and an international team formed by Los Angeles-based Northrop Grumman and the European Aeronautic Defence and Space Co., majority owner of jet maker Airbus.

The initial contract for 179 planes is worth an estimated $40 billion, the Air Force says. But the winning bidder could have a leg up on more than $100 billion in work as the Air Force gradually replaces a 530-plane fleet.

Boeing would build the planes based on its familiar 767 in Washington state. The Northrop/EADS team would offer a modified version of the Airbus A330 plane, to be built in Mobile, Ala.

Lawmakers star-struck over the potential economic development impact have joined in the battle and lobbied intensely for the project.

But as the Air Force completes its bidding requirements, the Northrop/EADS team is threatening to withdraw, saying the military’s criteria favor Boeing. If the specifications don’t change to reflect the Northrop plane’s additional cargo and fuel capacity, “then we feel we would not be competitive and we would not bid,” said Northrop spokesman Randy Belote.

“It’s truly a multi-role, multifaceted capability that we’re offering, and it’s unfortunate that it’s not being given an opportunity to compete and to perhaps transform the way tankers are used in the future,” Belote said.

Accusations of bias in the tanker project have a familiar ring.

Congress killed an earlier Boeing contract for the plane in 2004 amid revelations that Boeing hired a top Air Force acquisitions official who admitted giving the company preferential treatment before leaving the military. The former Air Force official and a former Boeing executive who hired her were sentenced to prison in the case.

Even without that history, many lawmakers say it would be a mistake to grant Boeing the contract without competition.

“It would be a huge loss to our defense capability to have only one competitor for this aircraft,” said Sen. Jeff Sessions, R-Ala., whose hometown of Mobile could win 1,000 new jobs if Northrop/EADS gets the project. “There should be multiple bids so that the Air Force gets the best price, the taxpayer gets the best value and the war fighter gets the most capable aircraft.”

It’s not just Alabama lawmakers who have criticized the process. Senate Armed Services Committee members such as Democratic Chairman Carl Levin of Michigan and Sen. John McCain, R-Ariz., have insisted that the proposal draw a true competition.

Levin declined comment for this article, but he told reporters earlier this month that the Air Force “is going to have to persuade us that there’s real competition” in the search.

Air Force officials insist they have been open and clear in their proposal. They have indicated, however, that they have no intention of changing their specifications for a smaller, more basic refueling tanker.

“Ultimately it has to be based on war fighter needs what are the people out there using this equipment telling us they need,” said Air Force spokesman Don Manuszewski.

For its part, Boeing says it stands ready to build whatever plane the Air Force wants. In recent months, the company has said it may offer a tanker based on its large 777 commercial passenger jet as an alternative to its midsize 767, which Boeing has pushed for nearly five years at a cost of more than $1 billion.

“We’re going to be ready,” said Boeing’s Bill Barksdale.

Rep. Adam Smith, D-Wash., a member of the House Armed Services Committee, rejected any notion that the contract is tilted toward Boeing.

“If that’s what the Air Force says they need, that’s what the Air Force needs. This is about as clear and transparent a process as you could ask for,” he said.

Time to Call a Professional

Emerging markets produced great returns last year, but there were also several reminders of how risky they can be.

In May and June, fears of interest rate hikes in some of the most developed nations sparked a broad-based selloff in emerging-market debt and equity. Then a military coup in Thailand sent the local stock market down 15% in December as capital controls were implemented. And the president-elect of Ecuador roiled the local debt market when he reiterated plans to “restructure” the nation’s debt.

More recently, Venezuelan President Hugo Chavez announced plans to nationalize the nation’s largest telephone company.

Curtis Mewbourne, head of the emerging-markets portfolio team at the bond fund giant Pimco, makes a distinction between what he terms emerging-market “contagion” and the political and financial risks of investing in individual emerging markets. In commentary posted on the company’s Web site earlier this month, the fund manager compared days when all emerging-market asset classes are trading down in response to an external event to a local grocery store handing out a sign reading “10% off all items.”

“On such days, you don’t need to buy everything, but it’s certainly a good time to stock up on things that you want to have in the coming weeks and months,” he says.

But in the case of Ecuador, Pimco’s fund managers unloaded their exposure to the country even before the election, avoiding the eventual selloff in government debt, because they were concerned about the quality of the various presidential candidates and their platforms. In retrospect, Mewbourne says, this was a prudent decision “not because we ‘predicted’ the unpredictable … but because we believe that proper investment decisions always involve weighing the potential risks and returns within a risk-management philosophy that stresses capital preservation.”

Mewbourne expects that the asset class will continue to benefit from improvements in the economic fundamentals of individual emerging markets, along with supportive global economic conditions. These have dramatically reduced risk even as returns have remained robust.

He says some of the best potential returns can be found in local emerging markets, where interest rates remain substantially higher than in their developed-country counterparts. “Strong macroeconomic fundamentals and deep-seated institutional changes in the conduct of fiscal and monetary policy have set the stage for a secular convergence of emerging-market local interest rates toward developed-country levels,” he says.

As for contagion, Pimco fully expects there will be additional bouts of volatility but expects they will more likely be transient than permanent.

On the political front, the fund family will be paying close attention to developments in those countries that just completed presidential elections, such as Brazil, Colombia, Mexico and Peru, where the focus will shift to policy implementation. On the financial side, Mewbourne says risks remain for those countries with large current account deficits such as Hungary, Turkey and South Africa.

Disney Wants Its Own MySpace

It’s been the worst kept secret in dot-com land of late. The Walt Disney Co., after nearly a year of rethinking its flagship Disney.com site, will soon unveil a major overhaul in an effort to make it less of a promotional site and more of a social-networking site for kids and their folks. Call it the PG MySpace, or at least that’s what they’re hoping for at Disney (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=DIS). The official announcement is expected from Disney Chief Executive Robert Iger during a Jan. 8 keynote address at the Consumer Electronics Show in Las Vegas.

Details of the new site have been leaking out for months, mostly through well-placed hints that Iger and Disney’s chief financial officer, Thomas Staggs, have dropped to analysts and investors at various conferences. “Will Disney.com be sort of a 2- to 15-year-old portal the way News Corp.’s (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=NWS) MySpace is to 12[-year-olds] to twentysomethings?” Iger asked rhetorically during a recent New York media conference. “Well, one of the features it will have is a customized point of entry” much like MySpace, he said.

Such customization would enable kids to log on to a world tailored to their needs—with Disney characters and games and eventually with movies to be downloaded from the Disney Channel or other company outlets—while teens could log on to take a shot at a new array of online games that the site will also offer. Iger has said that kids will be able to swap music lists, send messages to one another, and do other things that qualify as social networking in the new MySpace-style Disney.com. Sticky Sites

It all sounds great, of course. But Disney is playing catch-up in a big way. The Disney sites, which include sites for the Disney Channel, Playhouse Disney, and Toon Disney, have been lagging the sites operated by Viacom’s (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=VIA) Nickelodeon powerhouse for much of the last few years. Nickelodeon has better mastered “stickiness,” or the amount of time that kids stay online to play games, watch videos, and—most important—buy stuff or soak up advertising.

In the most recent numbers from Nielsen//NetRatings, kids and their folks stay on Viacom’s Neopets site—a social-networking site where some 25 million folks have created their own pets and play games—for a whopping 114 minutes per visit, on average. That compares favorably to the nearly 124 minutes per visit that teens stay on MySpace.com, although MySpace lures a massive 53.6 million unique users a month while Neopets lures 3.4 million a month.

Disney isn’t even second on the list in terms of stickiness, with the 55 minutes its Playhouse Disney site keeps kids around, less than the 70 minutes that users of Viacom’s Nick Jr. hang around for games, videos, and more. The site also lets kids “mash up” videos—that is, create their own videos by altering videos Viacom has given to them. What Disney does have, however, is massive reach and name recognition that means a hefty audience—if it can manage to hang on to its users. In November, the most month for which numbers are available, Disney’s online unit lured 21.4 million users to its sites, including 7.6 million who found their way to the Disney Channel site and 10 million who logged on to Disney.com. Before its relaunch, the site was heavily promoting new Disney movies and TV shows and directing visitors to buy Disney products. Duking It Out with Nickelodeon

The Disney-Nickelodeon fight is a long and competitive one that started when both were pitching their shows to kids on cable. For years, Nickelodeon has been the top-rated channel in the cable and satellite world among kids 2 to 11, luring more than 1 million. Disney has been coming on strong in recent years, especially in prime time among tweens and 6- to 12-years-olds with shows like Hannah Montana and movies such as The Cheetah Girls.

Now Disney intends to close in or overtake the Viacom kiddy powerhouse online as well. The company has major assets, including a worldwide household name and family-friendly brand. Indeed, Iger says that the company has a list of some 58 million Disney-philes that it can promote to, enticing them to buy tickets to theme parks, Disney cruise vacations, and Mickey Mouse ears. Now it intends to use that same list to get them to log on to the revamped Disney.com site. And, if Disney works its magic right, perhaps they’ll stick around.

Oil Plunges Anew

Cathy Minehan, the president and chief executive of the Federal Reserve Bank of Boston, plans to retire from her position later this year.

She has led the Boston Fed since 1994 and has been associated with the U.S. central bank since 1968, when she joined the New York Fed.

“I am proud of my service at the Federal Reserve Bank of Boston, and earlier at the New York Fed,” Minehan said in a statement Thursday. “I have been honored to be a part of its activities for virtually 40 years, and especially to have been the President of the Federal Reserve Bank of Boston.”

Minehan said she has no specific future plans beyond continuing her involvement in nonprofit activities. She said she won’t consider any opportunities until her successor is in place.

“I look forward to actively leading the excellent staff of the Bank and serving on the Federal Open Market Committee until the selection process is complete,” she said.

The FOMC, the Fed’s policymaking arm, is responsible for making decisions on interest rates.

The Boston Fed is one of the 12 regional banks in the Federal Reserve system and serves the first district, which encompasses all six New England states, with the exception of Fairfield County in Connecticut.