Expert Analysis of Today's Market

Dollar Testing Support

Hans Nilsson 2007-07-17

In NY trading Tuesday, the dollar was on the defenses against most key currencies on continued concerns that the subprime mortgage trouble will spread and reduce growth. Sterling rose to a fresh 26-year high against the dollar after stronger-than-expected UK inflation data fueled expectation of a further interest-rate hike from the Bank of England. The EUR/USD was flat as a weaker-than-expected ZEW report was counterbalanced by ECB council member Nicholas Garganas’ hawkish comments. The yen dropped to near a record low versus the euro and the weakest since 1992 against the pound.

The USD/JPY rose today as some risk appetite returned to the FX market on higher equity prices. The support of the upward sloping bull-channel has been broken and the 121-122 support has held so far. If this support is broken, the USD/JPY will drop.

Having fallen since the last few weeks, the dollar index is at important support at a 2-1/2 year low. If this support was broken, the dollar index would fall dramatically. As long as the asset markets are stabilized, there is a reasonable chance the support will hold.

Financial and Economic News and Comments

US & Canada

US producer price index (PPI) declined 0.2% m/m in June versus a consensus expected gain of 0.2%. The PPI rose 3.2% y/y in June. The June PPI m/m drop was mainly due to energy prices, which fell 1.1% m/m. The core PPI, which excludes food and energy prices, rose a stronger-than-expected 0.3% m/m and 1.8% y/y.

US industrial production rose 0.5% m/m in June after falling 0.1% in May, the Federal Reserve said. Capacity utilization rose to 81.7% in June, from 81.4% in May. The numbers were in line with expectations. Over the 12 months ending in June, industrial production advanced 1.4%, while capacity use rose 2.1%. The report indicates the factory sector is beginning to expand in a strong pace after a weak spell.

Foreign buying of US stocks, notes and bonds climbed a net $126.1 billion in May from $80.3 billion April, The Treasury Department said. The record purchases beat the median forecast an increase of $73 billion.

Europe

The ZEW economic expectations index fell to 10.4 in July, the lowest since March, from June’s 20.3, the ZEW Center for European Economic Research said. The ZEW current conditions index fell to 88.2 in July from 88.7 in June.

ECB council member Nicholas Garganas said interest rates will need to rise further as stronger economic growth than the European Central Bank predicted threatens to fan inflation.

UK inflation slowed less than expected in June. Consumer prices rose 0.2% m/m and 2.4% y/y in June after gaining 2.5% y/y in May, the Office for National Statistics said. Core prices increased 2% y/y, the most in a decade.

Asia-Pacific

Japan’s tertiary index, which measures spending in the services sector, fell 0.1% m/m in May, posting the first drop in two months, the Ministry of Economy, Trade and Industry said.

FX Strategy Update

2008
January | February | March | April

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The commentaries, charts, and information provided on this website are not intended as trading advice. Please contact a registered trading advisor if you have any questions.

This report is intended solely for distribution to customers of Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Globicus International, Inc.