Greenback Consolidates Gains

Daily Forex Fundamentals | Written by CMS Forex | Aug 12 08 22:31 GMT |

The dollar traded mixed Tuesday consolidating multi-month highs over last week versus the yen, euro and Canadian dollar, while extending gains against the Australian dollar and sterling. The greenback was initially boosted after the US trade deficit unexpectedly narrowed in June as exports registered their biggest gain in nearly four and a half years. Sterling fell to the lowest level in over two years after more troubling UK economic data. The aussie declined for an 11th day, the longest losing streak since 1975, on slumping commodity prices and increased bets the Reserve Bank of Australia will cut interest rates. The Canadian dollar broke its longest losing streak in three years after Canada's trade surplus widened in June on strong exports. The euro rose modestly snapping a 5-day losing streak. The yen gained as US stocks fell after JPMorgan Chase & Co. reported losses of $1.5 billion on mortgage-backed assets so far this quarter. The GBP/USD dropped for an eight consecutive day as higher-than-expected UK consumer-price inflation increased concerns over the prospects for the UK economy. The pound was under pressure after a survey from the Royal Institution of Chartered Surveyors revealed UK homes sales dropped to a 30-year low in July and data from the British Retail Consortium showed high-street sales fell in July. The Bank of England is in a dilemma as rising inflation makes it harder to cut rates to support economic growth while weak economic growth makes it harder to hike rates to combat inflation. The GBP/USD is oversold, at the lowest level since November 2006. Supports exist at 1.89 and 1.85 and resistances at 1.92 and 1.94. We lowered the stop to 1.9335 to lock in profits. Financial and Economic News and Comments US & Canada The US deficit in international trade of goods and services unexpectedly narrowed 4.1% to $56.77 billion in June on export gain, following May's revised $59.20 billion, the Commerce Department said. The June deficit was much smaller than expected. US exports rose 4.0% to a record $164.42 billion in June, the biggest gain since February 2004, from $158.03 billion in May. Imports also hit a new high, increasing 1.8% to $221.19 billion from $217.24 billion. The US trade deficit with China expanded to $21.43 billion in June from $21.05 billion in May, as exports to China fell $200 million. The deficit with Japan rose to $6.13 billion from $5.05 billion. The trade gap with the euro area increased to $7.20 billion from $6.50 billion. Meanwhile, the US gap with Mexico declined to $5.70 billion from $6.58 billion. The US budget deficit widened to $102.8 billion in July on tax rebate checks, following a shortfall of $36.4 billion in July 2007, the US Treasury said. July spending rose 27.3% y/y to $263.3 billion, and revenue declined 5.8% y/y to $160.5 billion. Canada's trade surplus widened for a second straight month in June on energy exports. The surplus widened to C$5.76 billion ($5.41 billion) in June from a revised C$5.22 billion in May, Statistics Canada reported. Exports and imports both rose to records, gaining 3.1% and 2%, respectively. The trade surplus with the US was the widest since January 2006. Europe UK consumer-price inflation accelerated to 4.4% y/y in July, the most since records began in 1997 and more than double the Bank of England's 2% target, from 3.8% y/y in June, the Office for National Statistics said. Consumer prices stayed unchanged on the month (0% m/m) in July. Accelerating year-on-year consumerprice inflation makes it harder for the Bank of England to lower interest rates as the threat of a UK recession is looming. UK retail-price inflation quickened to 5% y/y, the fastest pace since 1991. Excluding mortgage-interest payments, it reached 5.3% y/y, the most since 1992, today's data showed. UK house prices fell in July as the credit squeeze locked out buyers and brought the property market to a "virtual standstill," the Royal Institution of Chartered Surveyors said. The number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by 83.9 percentage points, the group said. Sales in UK shops open at least a year declined an annual 0.9% in July, the British Retail Consortium said. Asia-Pacific Japan's consumer confidence fell to 31.4, a record low in July, from June's 32.6, the Cabinet Office said. Japan's industrial output fell a seasonally adjusted 2.2% m/m in June, bigger than the initial reading of a 2.0% m/m fall, according to revised government data. Japan's producer-price inflation accelerated to 7.1% y/y, a 27-year high in July, after a revised 5.7% y/y increase in June, the Bank of Japan said. China's consumer-price inflation increased a less-than-expected 6.3% y/y in July, cooling to the slowest pace in 10 months, after rising 7.1% y/y in June, the statistics bureau said. The slowdown may encourage policies aimed at sustaining economic growth in China rather than fighting inflation. The Australian confidence index was unchanged in July at -9, indicating Australia's business confidence held at the lowest level in 7 years, according to a National Australia Bank Ltd. survey. FX Strategy Update EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY Primary Trend Positive Neutral Neutral Negative Negative Positive Positive Secondary Trend Negative Positive Negative Positive Positive Negative Neutral Outlook Negative Neutral Negative Positive Positive Negative Negative Action Sell Sell Sell None None None None Current 1.4920 109.30 1.8959 1.0865 1.0633 0.8742 163.10 Start Position 1.5312 109.30 1.9790 N/A N/A N/A N/A Objective N/A N/A N/A N/A N/A N/A N/A Stop 1.5440 111.90 1.9335 N/A N/A N/A N/A Support 1.4880 108.00 1.8900 1.0500 1.0500 0.8700 162.00 1.4500 106.00 1.8500 1.0300 1.0300 0.8500 159.00 Resistance 1.5300 110.50 1.9200 1.0900 1.0700 0.9000 166.00 1.5500 113.00 1.9400 1.1000 1.1000 0.9300 170.00 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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