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Following a move in favor of the greenback yesterday on the back of dips in equity markets amid the close of the second quarter, today saw a return to positive sentiment. The Euro-Dollar pair made up yesterday’s losses and set a new three-week high at the 1.42 level. Demand for higher-yielders was boosted by positive manufacturing data from China, while the greenback was pressured by Chinese comments that they would like to discuss the issue of a new global reserve currency at next week’s G8 meeting. The moves this week however may be exaggerated by low liquidity due to a short-holiday week, meaning it takes fewer orders to move prices.
The Euro was a particularly strong performer today, climbing against the Pound and Yen as well. The Euro-Yen extended its gains from Monday, when the pair broke above a line of resistance. Today, the pair breaks a downward sloping line of resistance making it to the 136.80 level.
Sentiment among Japan's largest manufacturers improved in the 2nd quarter, climbing to -48 from a record low -58 in the 1st quarter. That increase was lower than expected, and can signal that the Japanese economy will be slower to recover from its recession. Still it’s the first time in 2 years that the Tankan survey improved, a sign that the Japanese economy is through the worst phase of its recession.
The manufacturing sector in the UK, though continuing to shrink in May, did so at a slower pace. The manufacturing PMI rose to 47, which was above expectations and continuing a trend of improvement seen the last 4 months. Its the highest the index has been since last May.
The Pound-Dollar pair rose in favor of the Pound, but its moves today were not as strong as yesterday. It hit resistance near 1.6545, and reversed part of its rally in NY trading. Following a break of important resistance yesterday, it’s worth watching if this pair’s fall back into its range will result in more sideways trading.
The Euro-Pound pair broke its downward sloping line of support as the Euro was the better performer despite higher stocks in Europe, which usually boosts the Pound. Today’s rally extends the gains seen yesterday after the pair fell to test the support of a newly formed downward channel. Today’s price action broke above that channel, and now tests horizontal resistance from last Tuesday.
Turning to US fundamental releases today, the ADP measure of private sector employment showed the economy shedding 473K jobs in June, a figure that was about 100K worse than expected, though May’s figure was revised up by 47K. Though there is some signs of stabilization in the labor market, employment usually trails overall economy activity, so it is likely to keep declining for at least several months, the report stated.
The ISM manufacturing index improved in June to 44.8, but remains below the 50 level separating expansion from contraction. Still, the pace of contraction is easing, with the index at its highest since August. The index was pushed higher by an increase in the production, employment and prices sub-indexes.
Pending home sales rose 0.1% in May, a 4th straight month that sales were up, but the figure came in lower than expected, and at a much lower rate than the 6.7% increase seen in April. The positive four-month trend is being sustained by favorable housing affordability and a first-time buyer tax credit. Construction spending slid 0.9% in May, a figure that disappointed forecasts and more than reverses the gains seen in May. It's the fourth time in five months that construction spending has been down, and implies that the housing market's recovery will be slow.
The Dollar-Yen pair rose in favor of the greenback overnight, hitting a high near 97 as the greenback strength from yesterday carried over into today’s Asian session. However, the latter part of the European session saw stocks rise, and the greenback fall to its rivals, which brought the dollar back to the 96.50 level in NY trading. The pair breached its resistance around that level in today’s trading and is now retesting it as support.
The US Dollar-Canadian Dollar pair met resistance at 1.1650 towards the beginning of today’s global session and fell about 200 pips to find support near 1.1440. That intra-day low tested the low from last Friday. As US stocks eased off their highs in afternoon NY trading, the greenback managed to erase some of its losses.
Tonight, Australia releases trade data. Overnight, the UK will post data on its construction sector and its Halifax house price index, though that release is subject to change. The Euro-zone meanwhile releases reports on producer prices and unemployment.
Tomorrow, the European Central Bank concludes its interest rate meeting, though expectations are for policy makers to hold steady. Traders will instead focus on the accompanying statement and President Trichet’s press conference. The US releases its nonfarm payroll report for June, as Friday is a national holiday in the US, shifting the monthly jobs report from its normal Friday release. Other releases will include weekly jobless claims, and factory orders.
*Trading OTC Forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange or futures you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange and futures trading, and seek advice from an independent financial advisor if you have any doubts.
