Yen Gains as European and US Stocks Continue Their Slide; Positive ISM Fails to Revive Greenback

Daily Forex Fundamentals | Written by CMS Forex | Jul 01 08 21:35 GMT |

AUS RBA Holds Rates at 7.25%, Manufacturing Shows Contraction

In Australia, the central bank held rates at 7.25%. The RBA statement said that financial conditions were tight as a result of moves the Bank had already made, and that credit growth was easing. Also the very tight labor market seems to be slacking. Though inflation will remain high in the short term, the Bank seems to think the current rate is sufficient to bring prices down in the medium term as domestic demand slows. In a separate release, manufacturing activity contracted in June. The PMI fell to 47, continuing a six-month period of softer performance.

JPN Tankan Falls to 4-Year Low, But Still Better Than Feared

In Japan, confidence among manufacturers fell to a 4-year low in the 2nd quarter, with profits set to decline for the first time since the 2001 recession. The manufacturing index fell to 5 points in June, from 11 in March. The services sector declined to a reading of 10. The silver lining is that both indexes were expected to fall even further.

AUD/JPY - Yen Takes a Bite Out of Aussie, Following RBA Decision

Japanese stocks led a slight rally in Asian markets, as the Tankan survey was better than feared, while the Aussie was pressured following its dovish interest rate decision. At one point the Aussie-Yen pair was down 150 pips from its intra-day high, but it found support near 100.20.

UK Housing Prices and Manufacturing Activity Decline in June

In the UK, the price of an average home declined 6.3% in June compared to a year ago. That's the biggest fall since 1992. In addition, manufacturing activity fell into contraction, posting a 45.8, the weakest since 2001. The UK economy is now facing a serious slowdown, though concerns about inflation are pressuring the central bank to keep rates high.

GBP/USD - Pound Reaches $2 For First Time Since April

The Pound-Dollar shrugged off the housing news, as the monthly rate came in better than expected and rallied to touch the 2 to 1 level, for the first time since April. From there, the manufacturing data weighed on the Pound, and the Dollar clawed back some of its losses for the day.

EUR Manufacturing Activity In Contraction

The Euro-zone as a whole saw manufacturing activity also fall into contraction, with the final version of June's PMI falling to 49.2. France, Italy, and Spain all posted multi-year lows while Germany remained above the 50 expansion level. The data however was close to the preliminary estimate from last Monday.

GER Retail Sales Double Forecasts, Improve 1.3% on Month

In Germany, retail sales recovered from 2 months of declines to post a 1.3% increase on the month and a 0.7% rise compared to a year ago. The monthly rate doubled expectations, but with inflation still red hot, and consumer confidence at low levels, it remains to be seen if June's strong sales will continue.

GER Unemployment Rate Falls to 16-Year Low

The unemployment rate for Germany fell to 7.8% in June, a 16-year low. 38,000 Germans were able to find jobs as the labor market remains resilient in the face of the global slowdown.

EUR/JPY - Euro Faces Volatile Action vs Yen, European Stocks Suffer Once More

Despite the better news from Germany, European stocks were sharply lower as financials suffered and geopolitical tensions between Israel and Iran caused oil prices to test $142 a barrel again. The Euro-Yen has been very volatile recently. After yesterday's steep fall, it recovered to 167.30, but fell again overnight. After retesting its low support near 166.20, the Euro rallied once more in NY trading.

US ISM Manufacturing Index Surprises on Upside, Shows Expansion

In the US, the ISM Manufacturing Index was at 50.2 in June, bringing the index into expansion territory after 4 months of readings below 50. Prices continued to accelerate, hitting 91.5, the highest measure since July 1979, as firms deal with higher input costs.

USD/JPY - Dollar Falls to Yen Again as US Stocks Weaken

After getting a boost from the ISM data, US equities fell back into negative territory in the early afternoon, with the Dow Jones index was 130 points a little past noon. The Dollar-Yen pair was weaker overnight and the Dollar's gains from the better than expected ISM release were cut down rather quickly as US equities turned negative.

EUR/USD - Euro Jumps Above 1.58 in NY Trading

The Euro-Dollar pair rose in overnight trading following the better German data. The Dollar was bolstered as a result of the ISM data, but those gains were short lived. Weakening stocks, along with Ford's announcement that sales for June fell 28% gave the Euro the chance to set a new high near 1.5825.

Upcoming Releases

Tonight Australia will post data on retail sales, while overnight the Euro-zone release producer price data. Tomorrow the US will reveal the ADP employment change and post its factory orders.

Capital Market Services, L.L.C.
www.cmsfx.com

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