Thursday (May 29) was a generally positive one on Wall Street and from a US economic perspective. Crude oil futures dipped to $126.62, the lowest level in a few weeks. Despite the drop, retail gas ticked to another new record high of $3.95 per gallon. Still, the fact that oil is nearly $10 off its record high is positive for the moment.

A surprised upward revision of the first quarter gross domestic product (GDP) also excited investors and suggests the economic situation may not be as bad as some have speculated. The initial estimate for the GDP showed growth of .6 percent. Today’s revised GDP showed a growth of .9 percent for the economy during the first quarter. This certainly does not indicate strong growth, but it also makes it harder to fathom a recession now or in the near future.

The combined effects of lower oil and a better than expected economic situation helped the dollar make another strong surge against some major currencies, after it has been in a relative holding pattern for a couple weeks. Most notably, the dollar climbed near 106 yen for the first time since early this year. One dollar currently nets 105.57 yen. The dollar had been on a strong slide against the yen due to carry trade unwinding that took place late 2007 and into early 2008, but the dollar has bounced back a bit after falling to 97 yen early this year.

The dollar also sits just below 1.05 Swiss francs, near its near-term high. The dollar dipped below equal weight against the Swiss currency earlier in the year. The greenback has not been able to continue forward against the major European currencies as of late. One British pound is currently worth $1.9745, while a Euro nets $1.5515. The US currency has bounced well off its recent all-time lows against each currency but has been stuck in a tight range for several weeks.

Currency speculators typically operate with either a fundamental or technical approach to trading. Fundamental traders have been reacting to some of the more hopeful news on the US economy the last couple months with less downward reaction to negative news reports. Currency speculation is very much driven by future expectations, so it appears traders are uncertain but modestly hopeful for an economic turnaround in the US.

Technical currency traders trade with varying strategies. Some traders operate with a short-term orientation looking to profit from momentum trading. Others examine charts and technical indicators for the medium and long term to predict currency moves before they develop. Medium term traders are likely seeing a flat trend over the last couple months. Flat periods of trade usually indicate uncertainty about direction among speculators. This leads to up and down directionless trade. Traders are waiting for some type of strong indication of economic direction. Once momentum builds, currency can move quickly.

Americans are also interested in what happens with the dollar because it affects prices in gas, food, and other consumer products. With gasoline just on the fringe of $4 per gallon, a stronger dollar can prevent a dramatic push through this level. Some economists have already talked about the possibility of $5 gas. Food prices have become unmanageable for some lower and lower-middle class Americans who have struggled to put nutritious meals on the table for their families. A more valuable dollar buys more products.

Economic data has been very mixed in most major markets in recent weeks. Housing, credit, retail, oil, and other market data has been mixed, which has created a very directionless investment environment. Soon, data should start to provide a better picture of what is to come. Americans are hoping the grass gets greener.

Market Recap

Stocks carried their momentum through Wednesday’s trade with the Dow gaining another 45 points and the NASDAQ adding 5 points. Oil bounced back over $131 as supply concerns returned. Durable goods reported strong. The momentum continued Thursday as the Dow jumped 52 points, while the NASDAQ and S&P were up 21 and 7 points. Oil dipped back below $127 even thought retail gas recorded another new high at $3.95. A revised first quarter GDP to .9 percent growth excited investors.

Neil Kokemuller
Thursday, May 29, 2008
8:12 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.