The currency markets are active, active, active! The EUR/USD and GBP/USD currency pairs are still consolidating those gains as they await tomorrow’s key U.S. consumer inflation report. The EUR/USD currency pair is currently trading around the important psychological level of 1.1700, showing how deep the current weakness in the U.S. dollar runs. The GBP/USD holds up fairly well, keeping above the 1.3700 level. This new milestone signals new multi-year highs and extends its bull market streak for the fourth session in a row. These announcements have taken place amidst conflicting signs about U.S. economic growth and a slight decline in durable goods orders.
The EUR/USD has risen recently to converge toward three-year highs, lifted by ongoing weakness in the dollar. Analysts are pointing to these economic factors to explain this sharp decline. They do foresee some pullback in the U.S. economy—particularly in the first half of this year. With market participants on hold awaiting an important string of U.S. data releases, the currency pair’s forthcoming direction may depend on its fortunes.
Durable Goods Orders Surge Amid Aircraft Demand
One of the most significant contributors to the current economic climate is the surge in durable goods orders reported for May. In July 2014, we saw an all-time high July year-to-year jump of 26.4%. This was soon undone with a steep 21.2% drop the following month. May’s durable goods orders have shot up, mostly on the back of an explosion in aircraft orders. This injection of investment and activity has created lift and momentum in the manufacturing sector.
The consensus expectation going into this boom was for an increase more on the order of 8.5%. This estimate was mainly due to the forecasted recovery of aircraft orders after an order increase fell off a cliff in April. Even with the jump, analysts said that capital goods shipments went nowhere when factoring in aircraft orders. Without aircraft, they barely scratched the surface with an increase of 0.5%. In addition, last month’s jump in ex-transportation orders was revised down, meaning no gain last month after all.
Today’s data shows that non-transportation orders were up 0.5%. That would indicate that underlying demand has gotten a bit better. Some observers are cautioning that a payback may be in store in the coming months. All of these indicators point to a deepening capital investment swamp potentially awaiting us in the latter half of this year.
Currency Trends and Market Reactions
Trends in the currency markets are a common barometer to measure investor confidence about the strength/weakness of an economy and its associated currencies. Those sentiments are largely driven by economic data. The GBP/USD has been incredibly strong lately, holding solidly above 1.3700, recently making new multi-year highs. It has now pushed its winning streak to four straight sessions, an indication of strong investor conviction.
The U.S. dollar’s weakness is due to predictions of much slower growth in the economic outlook. Market participants are being very guns-a-blazin’ with their trades. They’re joint to expecting strong economic indicators that would point to possible rebound currency valuations in the future.
Gold prices are still on a bull run. This happens against a backdrop of otherwise strong currency declines, and an overall weakening of the U.S. dollar. Gold has been unable to build any real bullish momentum. Even with two days of trading mildly positive, it is still well below that $3,350 threshold. This failure to follow-through is emblematic of confusion about market conditions and investor sentiment.
Outlook for Economic Growth and Investment
Analysts are looking with great interest to the macroeconomic environment. They note that U.S. growth appears weaker in the H1 of the year. This evaluation calls into question the long-term effects across all areas including the economy, by and especially affecting capital investment. That predicted damp squib for capital investment could make any rebound in the economy harder and affect future decisions by monetary policymakers, too.
The upcoming U.S. economic data releases will play a critical role in shaping market expectations and currency valuations moving forward. Investors, meanwhile, are on edge at the prospect of how these indicators might shape both U.S. and international economic conditions going forward.