FOREX TRADING

A weak and weakening American economy has undermined the strength of the dollar for the entire month of July and this week’s economic information provided no relief for the US currency. Since Monday the greenback has declined more than 1% versus the euro, 1.9% against the sterling, 1.1% for the Aussie. Only the Canadian Dollar, tied by economic proximity to the US economy and the Japanese Yen, embedded in its own economic morass, were relatively unchanged in the general US decline.

In the past four weeks the euro has gained 7.1%, the pound sterling 4.9%, the Australian Dollar 7.7% at the expense of the US Dollar. Even the yen has forged 2.2% ahead. Except for the Australian currency and to a small extent the pound, these appreciations are not based in resurgence in the national economies but in a clear change in the tenor of American economic performance.

Whether looking backwards in the 2nd Quarter GDP figures, 2.4% on a 2.6% expectation or forward with consumer expectations in July returning to 66.6, far below May’s 84.2 and near the levels of last fall and winter, the buoyancy has drained out of the US economy deflating the dollar along with it.

Adding to the gloom the Commerce Department new figures for GDP lowered output for the third quarter of last year to 1.6% from 2.2% and the fourth quarter to 5.0% from 5.7%, more than compensating for the 1.0% increase (from 2.7% to 3.7%) in first quarter expansion. The recession was deeper than originally estimated and though the recovery in the first three months was more robust than previously thought, so was the decline in the second quarter.

New home sales shot up 23.6% in June to 330,000 slightly more than the 310,000 predicted by economists. May sales were revised down to 267,000 from 300,000 a 36.7% drop over April, itself revised down by 24,000 to 422,000. Sales in May and June suffered from the end of the government’s $8,000 home buyer’s credit which ended April 30th. These two months are the lowest sales numbers in the history of this measure. Sales records go back to 1963 when the US population was 189 million, 38% smaller than it is today. The monthly average of the past ten years is 871,500. The three month average of the second quarter of 339,700 is also the lowest on record.

The stock of finished homes for sale in June fell to 81,000 the lowest since late 2003. Completed homes remain unsold for an average of 12.4 months.

New home prices also dropped in June. The average price sank 9.8% to $243,000; the median price slipped 1.4% to $213,000. The average price declined a greater amount because sales of higher priced homes are stagnant. The greatest volume of sales is in the $150,000 to $300,000 price range.

The Federal Reserve assessment of business and economic activity in the twelve reserve districts prepared for the August 10th FOMC meeting, said that “Economic activity has continued to increase, on balance, since the previous survey.” Two of the districts said activity “held steady, two said activity decreased and eight noted heightened expansion. The report complements Chairman Ben Bernanke’s recent testimony before Congress where he noted that although the economy continued to expand the pace had slackened from earlier in the year and that the economic outlook remains “unusually uncertain”.

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