Weekly Recap and Outlook for the U.S. Financial Markets and Dollar - 7/19/2010

Written by ForexTraders.com on July 19, 2010 at 3:08 PM ET

The U.S. Dollar turned in another week of mixed results against the other major currencies. The Greenback fell notably against the Euro, Yen and Pound Sterling, although it did manage to rise versus the Canadian and Australian Dollars, and it remained virtually unchanged against the New Zealand Dollar.

The highlight of the week for the U.S. Dollar was the Fed's FOMC minutes for their monetary policy meeting held in June. The FOMC minutes, which were released on Wednesday afternoon, reduced estimates of growth for the U.S. in 2010 by roughly 0.2%, with a similar revision to estimates for 2011.

Nevertheless, the addendum to the minutes entitled, "Summary of Economic Projections," made U.S. markets especially jittery with the statement:

"Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants' interpretation of the Federal Reserve's dual objectives; most expected the convergence process to take no more than five to six years."

This comment disappointed markets that were generally expecting a sustainable U.S. recovery far sooner than the five to six years indicated.

Furthermore, the FOMC had one dissenting vote on continuing to keep the wording about interest levels being kept low for an "extended period." The dissenting vote was cast by Thomas Hoenig, President of the Federal Reserve Bank of Kansas City, Missouri, a well known inflation hawk. This may give an advance warning that building inflationary pressures due to excessive fiscal stimulus spending could well become a problem requiring rate hikes.

U.S. stocks were lower last week after starting the week in the black. The S&P 500 lost 1.2% with eight of the ten sectors of the economy posting losses. The week had seen sizeable gains before Friday only to wind up in the red after Friday's 2.9% loss.

In other U.S. stock related news, Goldman Sachs' stock rose 5.9% last week after the company settled with the SEC for $550 million. The investment bank managed to avoid admitting guilt to fraud charges that stemmed from its marketing of toxic mortgage backed security assets to its pension fund and other customers without revealing that they were apparently designed to fail.

Commodity prices were softer last week, with crude oil prices virtually unchanged at $76 per barrel and gold dropping to $1,193 per ounce. Rumors in the market of Paulson and Co. liquidating some of its $31 billion in assets sent gold significantly lower.

Overall, the economic news out last week generally hurt the Greenback against European and Asian currencies, although the weakness in gold and the consolidation in oil caused some Dollar strength against the Canadian and Australian Dollars.

Last Week's U.S. Data Review

United States economic numbers were - with the exception of some seasonal indicators - for the most part on the negative side. With no major economic releases on Monday, the week began on Tuesday with the U.S. Trade Balance which showed an expanding deficit of -$42.3 Billion versus a consensus of -$39.3 Billion. The number was $2 Billion worse than the previous month. Also on Tuesday, the U.S. Federal Budget Deficit contracted to -68.4B versus an expected -70.0B and considerably better than last month's -135.9B.

On Wednesday, Core Retail Sales came out, declining 0.1% month on month as was widely expected, while Retail Sales declined 0.5% month on month versus a decline of 0.2% expected. Also on Wednesday, Crude Oil Inventories dropped by -5.1 Million barrels versus an expected -1.1 Million, and the dovish comments in the FOMC minutes that were previously discussed sent the Dollar notably lower.

On Thursday, U.S. PPI showed a decline of -0.5% versus a -0.2% expected, while Initial Jobless Claims contracted to 429K versus a 448K consensus and significantly less than the previous reading of 458K adjusted up from 454K. On Friday, Core CPI increased by 0.2% versus 0.1 expected. Also on Friday, the University of Michigan's Consumer Sentiment survey indicator came out at a disappointing 66.5 versus an expected reading of 74.2, thereby indicating the loss of confidence now increasingly prevalent in the U.S. economy.

Fundamental Data Outlook for the United States

The coming week of economic data releases for the United States calms down significantly, but it still offers some interesting policymaker speeches, as well as important data for forex traders on the U.S. housing market. In terms of housing data, the calendar features Tuesday's Building Permits and Thursday's Existing Home Sales releases.

The week commences on Monday with a speech by FOMC Member Duke scheduled in Virginia, as well as the release of the NAHB Housing Market Index (16).

Tuesday has the highlighted Building Permits (0.57M) data, as well as Housing Starts (0.58M) and testimony by FOMC Member Tarullo on Financial Regulation before the Senate Banking Committee scheduled in Washington, D.C.

Wednesday offers important testimony by Federal Reserve Chairman Ben Bernanke on the semi-annual monetary policy report before the Senate Banking Committee, in Washington, D.C.

Thursday is especially active with Initial Jobless Claims (453K), the highlighted Existing Home Sales (5.15M) data, the CB Leading Index (-0.3% m/m), the HPI (-0.3% m/m), plus more testimony by Fed Chairman Bernanke on the monetary policy report, this time before the House Financial Services Committee, in Washington, D.C.

Thursday ends the week since Friday has nothing notable due out.