Oil hits another high

Oil yet again reached a new high of $68 a barrel after the US reported a fall in petrol stocks. The rise in oil prices gave the Canadian dollar a boost as Canada is estimated to have the world’s second largest recoverable oil reserves in the world.

Some analysts even predict parity between the CAD and the USD if the current trend in oil prices continue.

It appears that the market sentiment for the Euro is quite strong at the moment as the Euro crossed the 1.23 mark despite weaker than expected IFO data. The IFO survey came in at 94.6 in August instead of the projected 95.2. The figure was also below July’s value, which means the first decline in three months.

The elections scheduled for the 18th of September might also be offering strength for the Euro in the medium term as it is reported that the likely alliance between CDU and FDP in parliament would allow much needed reforms to boost the German economy.

Initial claims data in the US came in as expected yesterday at 315k and seemed to calm the market down a bit after the negative durable goods orders earlier this week. The help wanted index, which rose to 39 from 38 in June, supported the initial claims data and the dollar in later trade.

There is very little in the form of data today, except for the UK 2nd Quarter GDP estimates out at 9:30am. The release will offer a first look at the breakdown of expenditure and the market expects to see weak consumer spending but a positive net trade contribution.

Disappointing durables sees Dollar slip

The US Dollar slipped back yesterday following a worse than expected US durable goods number. Official figures showed that industrial orders fell by 4.9% in July, following a 1.9% increase in June.

July's fall was the biggest amount since January 2004. Analysts had been expecting a more modest 1.5% decline, with the figure released putting some serious pressure on the Greenback.

The USD slide yesterday showed some recovery later in the day on news that sales of new US homes surged by 6.5% in July to a record seasonally adjusted annual rate of 1.41 million. New homes sales in the States are up 27.7% since July 2004!

Overnight oil prices surged to a record high of $68 a barrel - the highest since U.S. crude futures started trade in 1983.

Oil prices were hounded by supply concerns due to a growing threat to oil facilities from an Atlantic storm and a large fall in U.S. gasoline stocks. Gasoline stockpiles in the US, the world's top oil consumer (surprise, surprise), beat forecasts to register a slide of 3.2 million barrels in the week to August 19, widening the supply gap from a year ago.

August is peak driving season in the States with every man & his dog out on the highways in their 10-gallon Hummer sucking up a litre of petrol a second. The US Dollar opens understandably weaker this morning on the back of the record oil price, with little comfort on the horizon for prices to pull back soon.

Back on old Blighty, yesterday’s CBI survey revealed UK manufacturing orders fell at its fastest rate since October 2003. Whilst export orders remain steady, domestic demand has shown an obvious down-turn. With UK retail sales showing recent weakness, this is not entirely surprising. The UK manufacturing sector is at a stand still in comparison to robust growth in other parts of the world.

On the economic data front today, we have Germany’s IFO business climate index due out this morning. A positive number is expected here, in line with Tuesday’s better-than-expected ZEW business survey figure. The obvious benefactor of a good IFO index is the Euro, with the USD being the likely currency to suffer.

With nothing out of the UK to excite the masses (except the cricket of course), attention today then turns to the US weekly jobless claims figure and August’s Michigan Sentiment final reading.

Germany showing signs of recovery

The euro remained steady against the dollar despite further improvement in German business confidence. Analysts believe most of the rise in the closely watched ZEW survey yesterday was already priced in to the market.

There is a growing belief that the German economy is getting stronger, and as the largest economy in the Euro zone this could have a significant impact on the Euro going forward. The poll, which is based on the economic expectations of 294 analysts and institutional investors, rose to 50 points, against expectations of a more modest rise to 37.

Germany’s key IFO business climate survey, out tomorrow could provide further evidence that Germany's economy is on the up. Those waiting for a rate cut by the Central Bank might now be left standing as the recent data stands in stark contrast to all the negative data from the Euro zone only a few months ago.

The first data of note today is the CBI Industrial Trends data from the UK. Thereafter focus will shift to the US where possibly the strongest indicator for this week, the durable goods orders will be announced at 1:30pm GMT.

With Boeing aircraft orders down to 88 from 162 in July this figure is expected to come in at 1.2% down on the previous month, anymore could lead to dollar sell off.

The new home sales data out just a bit later at 3:00pm GMT is also expected to dip down from last month’s 1.374m to around the 1.3m mark, this will fit in with the decline in the number of existing US home sales that came out yesterday.

Oil might come down from its recent highs today as US inventory data is expected to show a rise in crude stockpiles. The oil price has been hit all this week by concerns over supply so positive inventory data will come as a welcome breather.

Gold rose yesterday as the dollar failed to make any ground against the Euro.

The Rand slipped against the dollar despite slightly higher gold prices. The Rand might be taking its cue from the Euro while it would also look to consumer inflation data released this morning at 10:30 GMT for direction.

US Dollar loses some of it's gains

The dollar wasn’t able to hold on to the gains it made last week, as it softened across the board yesterday. Despite weaker than expected current account data, the Euro still managed to push through the 1.22 level on the back of strong performances by the European equity markets.

The Yen also performed strongly yesterday after opinion polls showed that Prime Minister Koizumi who is seeking re-election on 11 September rose in the countries approval ratings.

This news also gave the Nikkei a boost increasing by 1.3% to a four year high. There also seems to be good support for the Nikkei and the Yen as many foreign investors are now looking at Japan to try and capitalise on the prospects of the countries recovery.

The Euro might hold on to its gains today if the ZEW business survey for August shows that optimism has increased again in Germany after rising about 23 points from May to July.

The recent rises in oil prices might however prevent further rises. Oil was again on the rise yesterday after weather concerns and doubts about supply from Ecuador, the North Sea and Iraq.

The fact that there isn’t much data out from the states this week means that today’s release of existing and new home sales data will be closely monitored.

The housing market is expected to cool down from recent record highs as sales of both new and existing homes declined in July partly due to interest rate hikes by the Fed.

Many traders are still reported to be bearish on the dollar meaning that weaker than expected data coupled with the lack of liquidity could spark a dollar sell off.

Slack volumes can bring volatile results

With the summer holiday season in full swing and with the upcoming bank holiday weekend, this could be described as potentially one of the quietest weeks of the year for the markets. Be careful though, the lack of money interest in the market around this time of the year has been known to cause a bit of volatility.

Last week was proof of this when the Euro/USD rate moved between 1.2450 and 1.2125 and GBP/USD traded up at 1.8160 earlier in the week to drop back to as low as 1.7890 in the second half of the week.

With no data out today let's have a quick look at the data for the rest of the week:

Europe perhaps has the busiest week ahead with sentiment indicators out tomorrow and Thursday. Germany releases their estimate 2nd Quarter GDP figures on Tuesday.

Sweden’s Riksbank is expected to hold rates steady at 1.5% when they meet on Wednesday after a half point cut at its previous meeting.

In the UK we can look forward to Wednesday when the CBI issues its monthly industrial trends report and the Nationwide house price survey is published.

Friday sees the first revision of the 2nd Quarter GDP figures for the UK where growth is expected to be revised upwards from 0.4% to 0.5% on the quarter. The estimates are however still likely to show GDP growth below trend for the fourth successive quarter, this might prove more significant for the market than the upward revision.

The demand for the US Treasury two-year note sale on Wednesday will be closely watched along with durable goods orders on the same day.

Central bankers will take a week break this week at a ski resort in Wyoming to add to the quiet tone of the week, Alan Greenspan is reported to also be at the resort.