Recent Volatilities

An analysis at ActionForex made some good summaries which I take as a good explanation to suggest the recent volatilities for the last 3 weeks. Here it is:

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Dollar Bears Fearful of Betting Against the Fed Despite Weak TIC Report
Forex Fundamental Analysis Reports

US Dollar
Whenever we look at economic data, we use the information to extrapolate what the Federal Reserve will do with interest rates. However in recent weeks, the extrapolation has become far more difficult since US data has been telling us one thing while the Federal Reserve has been telling us another. So far, there have been signs that the US economy is weakening and that the odds are building against the dollar while at the same time the Federal Reserve has been telling us that inflation has become so problematic that they have to keep on raising interest rates. Today's batch of economic data makes figuring out whom to believe even more difficult. Jobless claims and the Empire State manufacturing survey both came out strongly, but the report on net foreign purchases of US securities (also known as the TIC report), industrial production and Philly Fed surveys all showed weakness. Since the TIC report was the day's most important release, the market tried to send the dollar lower, but traders were fearful of shorting the dollar too significantly in an environment where the Fed fund probability for a June rate hike is at 100 percent. The Treasury International capital report was extremely disappointing today, coming out at $46.7 billion compared to a forecast of $60 billion. The report indicated that foreign investors did not buy enough US dollar denominated investments to plug the April trade deficit of $63.4 billion. The weakness of the dollar and central bank reserve diversification into Euros has played a big role in the weaker demand. The biggest selling was from the UK which is frequently thought to include investments from the Middle East. For now, this may be written off as a one off phenomenon, but if weak demand persists for another month, it will become a far more pressing concern. The market currently has its focus centered on what the Fed will do at the end of the month, but once that passes and we see the next TIC report the following month, then another weak number will be met by a larger reaction in the US dollar. Aside from the TIC report, the other bad news today was the 0.1 percent drop in industrial production as well as the decline in the Philly Fed survey from 14.4 to 13.1. Although the Philly Fed was stronger than the market's forecast, after seeing the jump from 12.9 to 29.0 in the Empire State manufacturing survey, traders were looking for a stronger number to validate the strength in the more volatile NY index. Overall, the performance in the manufacturing sector has been lackluster at best with the Philly Fed survey remaining at the low double digit level for the fifth consecutive month. The big upside surprise was the jobless claims report which dipped below 300k to 295k. This is certainly an encouraging number and is a good sign for the labor market. However, with only 75k jobs created last month, this is only a recovery from the worst rather than a confirmation of a continued boom.
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