Expert Analysis of Today's Market

• The dollar was little changed against most key currencies on Tuesday on mixed US economic data. The yen declined slightly versus the greenback as US equities rose in a volatile session. The pound rose against the dollar as traders increased bets the Bank of England will raise interest rates again this year. The Canadian dollar rose for the first time in 5 days as oil prices soared to the highest in a year. The Australian and New Zealand dollars rebounded from an 8-week low against the yen as carry trades resumed.


• The EUR/USD is stabilizing between support at 1.3600 and resistance at 1.3850. We do not expect any big move for the pair until Friday’s US employment reports.

Financial and Economic News and Comments

US & Canada

• Canada’s economy grew a slightly less-than-expected 0.3% in May, led by service industries including the biggest gain in retail trade since November 2001. Retailing rose 2.5% and wholesaling increased 1.4%, Statistics Canada reported.


• US personal income rose a less-than-expected 0.4% m/m in June for a second month, the Commerce Department said.


• US personal spending in June increased at the slowest pace in 9 months. June’s personal spending rose 0.1% m/m, which matched the market’s estimates, after a 0.6% m/m rise in May, the Commerce Department said.


• The personal consumption expenditures (PCE) index rose a less-than-forecast 0.1%, excluding food and energy. The Federal Reserve is closely watching this PCE core inflation gauge.


• US employment costs climbed at a faster pace in Q2, led by the biggest gain in spending on benefits in more than 2 years. The employment cost index rose 0.9% in Q2, following a 0.8% gain in Q1, the Labor Department reported.


• The Chicago PMI fell to a lower-than-expected 53.4 in July from 60.2 in June, the National Association of Purchasing Management-Chicago said. A reading more than 50 signals expansion.


• US construction spending unexpectedly fell 0.3% in June, the first since January, following an upwardly revised 1.1% increase in May, the Commerce Department said.


• Home prices in 20 US cities dropped the most in at least 6 years. The S&P/Case-Shiller index of home prices in 20 metropolitan areas fell 2.8% y/y in May, led by declines in Detroit and San Diego, according to the report issued by Standard & Poor’s and MacroMarkets LLC. The decline indicates a weakening US housing market.


• US consumer confidence rose more than forecast in July to the highest in almost 6 years. The Conference Board’s index of consumer confidence climbed to 112.6 in July from an upwardly revised 105.3 in June.

Europe

• European business and consumer confidence fell more than expected in July. An index of sentiment among executives and consumers in the eurozone declined to 111 in July from 111.7 in June, the European Commission said.


• Inflation in the euro region slowed to 1.8% in July from 1.9% in June, staying below the European Central Bank’s 2% limit for a 10th month.


• Capacity utilization in the euro area, cited by the ECB as an inflation threat, fell to 84.2% in Q2, from a 17-year high of 84.8% in Q1.


• The euro-area jobless rate stayed at 6.9% in June.


• German unemployment fell more than forecast in July, declining to the lowest level in 14 years. The number of the unemployed fell 45,000 from the previous month to 3.77 million. The adjusted unemployment rate fell to 9% from 9.1%, the Labor Agency said.


• German retail sales rose in June as the effect of an increase in sales tax in the beginning of the year waned. June’s retail sales rose a less-than-expected 0.7% m/m, following a 2.5% m/m decline in May, the Federal Statistics Office said. Sales fell 0.8% y/y.

Asia-Pacific

• China needs to have “more flexibility” in its exchange-rate policy, International Monetary Fund Managing Director Rodrigo de Rato said.


• Chinese bank stocks declined after the People’s Bank of China increased reserve requirements for banks for a sixth time this year to cool an investment boom and economic expansion.

FX Strategy Update