Money is flowing back into the safe haven Euro, as a close ally of the United States, former president Mrs. Bhutto, is killed in Pakistan. State’s turbulence appears more the consequence of an internal struggle between various conflicting powers, than a terrorist attack from external sources.
Euro/Usd is again challenging important resistance levels, but a thicker market is needed to evaluate the move of last week, considering the light volume in which the rebound took place. Advertisement U.S. housing still in steep downtrend In the United States, housing remains in a steep downtrend and might undermine growth in the first part of 2008. In October, home prices in twenty major cities declined 6.1% year over year according to the Case-Shiller price index. The fall was broad based among various cites with Florida and California showing heavy losses. Home prices in ten major cities have been declining for sixteen consecutive months and are now 6.7% below last year level. A negative performance, but not much different from past behaviour.
In October 1989, prices began to fall for eighteen straight months. Then, in April 1991, the average home price in ten major U.S. cities slumped 6.30% year over year before ticking up the following month. Housing appears not having found a bottom yet, as consumers and investors are still backing away from the real estate business.
In November, new home sales slumped 9% month over month, the lowest level of the past twelve years. The fall was well distributed among most of the U.S. territories and only the Western regions showed a gain. Inventories of unsold homes remains above median levels and should depress sales for some more time in the future.
Consumer confidence softening
After the rise in orders for aircrafts by Boeing, durable orders were expected to increase in November’s data. In reality, they rose a tiny 0.1% (1.9% expected) compared to October’s -0.4%. The good performance of non-defence aircraft and parts (+20.9%) month over month, was offset by the weakness in other sectors. As an example, defense orders declined 21.9%. Core orders, non-defence capital goods orders excluding aircraft, slid 0.4% on the top of October’s -2.9%. This data could anticipate further weakness in business activity in the fourth quarter, considering that confidence among consumers is fading. In December the Conference Board consumer confidence index moved to 88.6 from November’s 87.8, but remains below the important benchmark of 100. Expectations rose to 75.5 from 69.1, while the present situation index declined to 108.3 from 115.7. With consumer confidence softening, the housing declining and stocks still below key technical levels, the Federal Reserve might again cut rates to 3.75% in the first part of 2008. It will be not an easy task, considering the persistent inflation menace, but growth should remain a priority for the first part of 2008.
High inflation in Germany
While growth stays on trend for the moment, albeit declining in some sectors, German’s inflation maintains an aggressive stance. In December, the Consumer Price Index (CPI) in the state of Baden-Württemberg (Germany) rose 0.6% month over month and is now up 2.8% year over year. The data was in line with market expectations. Nonetheless, it confirmed that inflation keeps on trending higher and should pick up substantially over the next months/years. In the preceding data from another German state, Saxony, inflation printed 0.6% month over month and 3.1% year over year. The European Central Bank is caught between growth and the inflation menace. However, rates should remain unchanged at 4.00% during the coming meetings.
In France, the third largest economy in Europe, economic growth increased consistently in the third quarter of the year. The Gross Domestic Product (GDP) moved up 0.8% from the second quarter, supported by the increase of consumes in both the private and the business sectors. In fact, consumer spending rose 0.8% in the third quarter, while business investments increased 1.1% from the second quarter. President Sarkozy invested Euro 9 billion into various initiative to stimulate the economy. He reduced taxes for companies investing in research, for families buying homes or investing in small businesses.
Money flowing back into the safe haven Euro
Last’s week move above the important resistance level at 1.4620, probably exacerbated by the light volume and the fatal attack in Pakistan to former prime minister Mrs. Bhutto, a close ally of the United States, put the short term scenario of Euro/Usd into more neutral stance. The Euro should nonetheless move above 1.4760 for 1.4820, eventually 1.4930/1.50. In fact, a thicker market is needed, considering the light holiday volume in which the rebound took place. Failure to climb above key technical levels could again inspire a decline to 1.43, eventually 1.41, 1.39. The long term trend is still pointing upward for European currency against the U.S. dollar and should support the currency over time. However, a swing above 1.5110 is necessary to clear one month’s congestion and take the European currency into new historical highs.
The British Pound has found an important barrier at 1.98. It corresponds to the weekly eight month support line and should be overcome with decision for lower prices. Consequently, a move below 1.9650 is necessary to target 1.9450, eventually 1,92. Important resistance levels are found at 2.00, 2.0190.
