A Forex View From Afar

When the release data doesn’t match

Back to www.thelfb-forex.com

For some time we have heard that the export industry is thriving under a weaker dollar, but that cannot be seen in the statistics.

It’s true that the ISM release shows that the export industry is expanding, and has been for a long period of time. But it’s expanding at a sluggish pace, with the reading barely above the 50 line, and expansion getting slower and slower.

What is more important is that the export industry numbers cannot be seen where it is critical to see them; in the trade balance. If there really was a strong and flourishing export industry then the trade deficit should have shrunk a little, especially now that the weak dollar is on everyone’s lips, and consumers appear to have reduced their shopping trips for forign made imports. The trade deficit however is not shrinking, and at best the deficit still remains at a floating rate that is far too high for comfort.

The same export industry should have been seen in the employment data too. But it is not. The ADP release just showed that the goods producing industry shred 76k jobs, while the service industry got rid of 3k jobs. Service corporations shed 29k jobs in the last month, while small service business (less then 50 employers) added a robust 34k new jobs. The ADP release is inline with the ISM release, which shows the employment index is contracting at the fastest pace in 8 months.

All this put together shows that things may not improve too fast in the next few quarters, although some improvements can be seen. My call is for a 'no rate increase' on the horizon from the Fed, while the ECB will “unleash” a 25 basis points it seems. Let’s see if we have a classic case of “buy the rumor, sell the news” on the euro, because I can’t see the Euro-zone accepting too easily a 1.60 exchange rate on the eur/usd

No Comment | Posted in » ECB, economic preview, Fed, forex