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Video for August 5th, 2008 (5 min): Dollar Jumps to 6-Week High vs Euro, 7-Week High vs Pound in Overnight and NY Session Rally, FOMC Stalls Gains AUS Services Contract in July, RBA Signals Rate Cuts Ahead In Australia, activity in the services sector contracted again in July, with the PMI sliding to 42.8. When the index is below 50, the sector is contracting. The economy was hot in the beginning of the year but has sharply turned around from that point, as household spending and business activity decline in the face of high inflation and borrowing costs. The Reserve Bank of Australia held rates at 7.25% and acknowledged that growth was slowing. It concluded it had room to cut rates, and signaled such a move for the next meeting. AUD/JPY - Aussie Weakens Following RBA Statement, Carry Trade Retreats
The Aussie sank following the news against its rivals. The Aussie-Yen, a big destination for carry trade fell 160 pips following the statement finding support near 98.70. The prospect of RBA cuts in the future is a quick turnaround from a few months ago and has brought this pair down 500 pips in the last 2 weeks. UK Inudstrial and Manufacturing Production Negative in June UK industrial production declined 0.2% in June, after a fall of 0.8% in May. Manufacturing production fell 0.5%. Both figures disappointed forecasts. UK Services Contract, EUR Services Match Preliminary, Down as Well The UK services PMI marked another month of contraction at 47.4. Activity didn't fall as much as in June, and beat forecasts but still weakened the Pound overnight. The final version of Euro-zone services confirmed the preliminary figure of 48.3. EUR Retail Sales Decline 0.6% on Month, -3.1% on the Year Euro-zone retail sales fell 0.6% in June, and at an annual rate of 3.1% - a 13 year low. Consumers, faced with high energy and food prices are cutting back on discretionary spending. The news adds further data suggesting the Euro-zone is facing serious headwinds. The ECB meets later this week. EUR/JPY - Euro Weakens vs Yen, Despite Strong Stocks
The Euro-Yen pair, similar to the Aussie pair earlier, saw a steep decline. From its open there was a 180 pip swing in the Yen's favor as there was an exit from carry trade. The pair now sits near its level from Friday. The fall comes despite stocks in Europe being in the green, up on falling oil prices. GBP/USD - Pound Falls to 7 Week Low vs Dollar Prior to FOMC Statement
The Pound-Dollar was pressured by its fundamental data and Dollar strength prior to the FOMC meeting. The pair fell 80 pips in favor of the greenback, breaking support at 1.96. This put it at a new 7-week low. US ISM Non-Manufacturing PMI in Contraction, but Beats Forecasts In the US, the ISM Non-manufacturing PMI, a measure of services activity posted a 49.5 in July, improving on June's level. New orders fell and other key indicators stayed below 50, while the prices measure cooled.
US FOMC Holds Rates at 2%, Inflation and Growth Remain Concerns
At 2:15 PM EST, the Fed held rates at 2%, and pointed out uncertainty over inflation while seeing downside risks to growth. The statement may have disappointed those traders hoping to see some indication of a rate hike in October, as the Fed still seems concerned about growth. EUR/USD - Euro Hits 6-Week Low vs Dollar Before Fed, Initial Euro Gains After Release Cut Down
Overnight the Euro-Dollar pair was down 100 pips following weak European data and expectations of a FOMC statement more inflation focused. The pair jumped 30 pips in the minutes following the release, but did not sustain these gains, and instead returned to pre-FOMC statement levels. USD/JPY - Dollar Gains vs Yen as US Stock Rally on Oil Prices, Unable to Break 108.30 Resistance
The Yen gained initially against the Dollar overnight, but the Dollar found support and by the New York session nearly retested the 108.50 resistance level, which has held up multiple times in recent weeks. US stocks, bolstered by yet another day of oil declines, rallied during NY morning trading. The DOW was up 200 points and oil prices were down by $2.50 by 12:30PM. However, there was not enough dollar-bullish sentiment after the FOMC statement to penetrate the critical resistance level. Upcoming Releases Tonight, the UK posts data on consumer confidence and a monthly GDP estimate. Australia follows that up with data on home loans and its construction PMI. Overnight, Japan releases its leading index. Also overnight, Germany releases factory orders and the UK posts a index of retail prices. Tomorrow Canada reveals its Ivey PMI, a measure of business activity. |
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