European releases overnight:
December Forecast Actual
Italian Retail Sales (MoM) - 0.1% +0.1%
Italian Retail Sales (YoY) +0.2% - 0.6%
U.S. releases overnight:
January Forecast Actual
U.S. Existing Home Sales 4.81mn 4.89mn
U.S. Existing Home Sales - 1.8% - 0.4% Basically it was a pretty lackluster day with very little in the way of economic releases and what came were not enough to push the Dollar either way strongly. The Italian retail sales came slightly better than forecast on a monthly measurement but dipped quite alarmingly on an annual basis to -0.6% from +0.2% in November. It does continue to point to continuing weakness and this week’s confidence numbers will be interesting to watch for the Euro-zone in general.
Even in other news the noises that are emanating from central bank officials are not that positive. The BOE’s Barker still feels that the U.K. will not slip into recession but added “We have got this combination of shocks coming from abroad and it’s difficult. We certainly expect a period of great volatility this year.”
However, shocks equal instability which equals lower confidence which equals a significant slowing. The SNB’s Roth is beginning to squirm in his chair noting that the current forecast of 2% growth for 2008 is probably too optimistic. Last year saw a 2.7% pace of growth. He is also uncomfortable with the level of inflation but considers domestic demand to remain robust while the financial sector that contributes 15% of output is unlikely to support the economy this year. And across Europe more and more banks are reporting sub-prime writedowns that will maintain the credit squeeze. The U.K’s RBS are the latest and is considering selling assets to offset their £1bn loss. All this makes the news that existing home sales in the States fell to their lowest point in 9 years in January somewhat less of a shock. In some ways it was expected but the news didn’t really impact on the Dollar which actually saw gains which were attributed to the news that a deal may be struck as early as next week to rescue AMBAC.
Today comments are centering on the strength of the Dollar coming from the AMBAC news but frankly the only real strength was that the Dollar didn’t decline further. It can be more described as range trading against the Europeans but the timing is interesting.
This does exclude Dollar-Yen which did recover a lot more strongly to stall just below the 108.36 corrective high. Against the Aussie the U.S. Dollar actually dipped. All in all it is reflective of the market’s continuing uncertainty and still lack of commitment to the Dollar’s downside. While the Dollar did recover sufficiently to suggest that it has met its low it didn’t really show much power on the upside either. Considering we are probably still in a period of range trading, mostly against the Euro and Pound, the fact that we are seeing uncertain and erratic moves is quite consistent with the underlying pattern. Overall it should mean that the Dollar should slowly recover over the remainder of the week and probably into next. On this assumption it is actually quite encouraging as it would appear that the consolidation does have a finite life span and turn into additional Dollar strength in around 2 weeks, maximum 3. Today, considering we didn’t quite make ideal targets, we still need to be a little cautious of one last dip in the Dollar but through this all remember that the next larger move should be higher. More later once the daily analysis has been done…
The following are due to be released from Asia:
Japan
January Corporate Service Prices (YoY) +1.4%
February Business Confidence 43.0 | 
