Yen And Dollar Gain On Dimming European Economic Outlook

Daily Forex Fundamentals | Written by CMS Forex | Jul 25 08 01:13 GMT |

The dollar was mostly higher Thursday despite weak labor market statistics and the lowest existing housing sales in a decade. The weak US economic numbers matched feeble economic reports from Europe. The euro fell after PMI surveys showed contraction in the eurozone manufacturing and services sectors, and the German Ifo business survey plunged. The Canadian dollar fell for a third day and the Australian dollar is testing important support in the 0.95-0.96 area. The yen and Swiss franc rose as falling US equity prices increased risk aversion. The New Zealand dollar fell to a 6-month low against the dollar after the Reserve Bank of New Zealand cut interest rates by 25 basis points to 8.0%. The GBP/USD fell after a sharp fall in UK retail sales heightened fears the UK was headed into a recession and increased the chance of Bank of England interest-rate cuts. The pair is in a short-term uptrend. If the support at 1.98 is broken, the uptrend will be broken, the technical outlook will be more bearish and the pair may fall to the important 1.94-1.95-area support Financial and Economic News and Comments US & Canada US initial jobless claims soared 34,000 to 406,000 after seasonal adjustments in the week ended July 19, more than forecast and the highest level since September 2005, data from the Labor Department showed. The 4-week average of new jobless claims rose 4,500 to 382,500, a 3-week high. Continuing claims fell 9,000 to 3,107,000 in the week ended July 12. Overall, the figures suggest no stabilization in sight for the US labor market. US existing home sales resumed falling, declining 2.6% m/m to a 4.86 million annual rate in June, following May's 4.99 million annual pace, the National Association of Realtors said. Existing home sales dropped 15.5% y/y. The median home price was $215,100 in June, down 6.1% y/y, compared with May's median price of $207,900. Inventories of homes increased 0.2% m/m in June to 4.49 million available for sale, which represented an 11.1-month supply at the current sales pace, compared with May's 10.8-month supply. Singlefamily home prices fell 6.7% y/y. The months' supply of single-family homes increased to 11.0 in June, the highest since 1985, from 10.5 in May. Europe The eurozone composite PMI, which incorporates both the manufacturing and services sectors, fell to 47.8 in July, the lowest since November 2001 and below the key 50 dividing line between expansion and contraction, following June's 49.3. The services PMI slipped to a 5-year low of 48.3 in July from 49.1 in June, while the manufacturing PMI dropped to 47.5 from 49.2. The figures indicate further contraction in the eurozone manufacturing and services sectors, reducing the chance of an ECB interest-rate increase The Ifo research institute said its German business climate index fell more than expected to 97.5 in July from June's downwardly revised 101.2 in June. The business assessment index, which measures current conditions, eased to a lower-than-forecast 105.7 in July from 108.3 in June. The business expectations index, which measures expectations for the next six months, fell to 90.0 from June's 94.7, also lower than consensus forecast. UK retail sales plunged in June by their biggest amount since records began in 1986, but inflationary pressures, particularly within food, continue to mount. Retail sales dropped 3.9% m/m in June, following an upwardly revised 3.6% m/m increase in May, the office for National Statistics said. Asia-Pacific The Reserve Bank of New Zealand lowered interest rates by 25 basis points to 8.0%, signaling that the move was just the beginning of New Zealand's monetary easing cycle. The RBNZ said given “more unpleasant news” had emerged since its June meeting, there was a risk that the domestic economy would slow further. Japan's exports fell 1.7% y/y in June, the first decline in more than four years as global demand for cars and electronics cooled. Exports to the US fell 15.4% y/y, shipments dropped 11.2% y/y and export to Asia rose only 1.5% y/y, indicating previously strong Asian demand is faltering too. FX Strategy Update EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY Primary Trend Positive Negative Negative Negative Negative Positive Positive Secondary Trend Neutral Neutral Neutral Neutral Neutral Neutral Positive Outlook Neutral Neutral Neutral Neutral Neutral Neutral Neutral Action None Sell None None None Buy None Current 1.5678 107.38 1.9862 1.0365 1.0154 0.9591 168.35 Start Position N/A N/A N/A N/A N/A 0.9716 N/A Objective N/A N/A N/A N/A N/A N/A N/A Stop N/A 108.50 N/A N/A N/A 0.9570 N/A Support 1.5600 105.00 1.9800 1.0200 1.0000 0.9600 166.00 1.5400 103.00 1.9600 0.9980 0.9800 0.9500 162.00 Resistance 1.5800 108.20 2.0100 1.0400 1.0300 0.9900 170.00 1.6020 110.00 2.0300 1.0600 1.0400 1.0000 172.00 Hans Nilsson Capital Market Services, L.L.C. www.cmsfx.com ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. 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