Daily Forex Fundamentals Written by CMS Forex Aug 06 08 01:14 GMT

USD Gains As Global Growth Falters The dollar gained as US stocks rose on falling oil prices and the Federal Reserve kept interest rates unchanged. The Fed is unlikely to change rates anytime soon and warned that several factors are expected to keep US economic growth on a slow pace. 'Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters,' the Federal Open Market Committee said in its statement accompanying the decision. Despite the gloomy statement, the dollar advanced as global economic slowdown is intensifying, diminishing the greenback's growth and interest rate disadvantage. The dollar block currencies fell on fears that the global economic slowdown is reducing commodity demand. Sterling declined as UK manufacturing output fell. The yen was little changed. The EUR/USD fell after the eurozone services sector fell to a 5-year low, while inflationary price pressures remained near record levels. The slumping European growth is undermining the case for the European Central Bank to raise interest rates again this year, despite strong inflationary pressures. The EUR/USD is likely to test the significant 1.54-support. We expect it to be broken, but timing is uncertain as the pair is oversold. We will sell the pair on strength. Financial and Economic News and Comments US & Canada The Federal Open Market Committee held the benchmark interest rate steady at 2% while indicating continued worries about weaker economic growth and higher inflation. 'Labor markets have softened further….tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth,' the Fed statement said. The statement indicates the Fed is unlikely to change monetary policy. Dallas Fed President Richard Fisher dissented for a fifth time this year, preferring an increase. The ISM US non-manufacturing index rose more-than-expected to 49.5 in July from 48.2 in June, still indicating a stalling US service sector. The overall business activity index fell to 49.6 from 49.9, and the new orders index fell to 47.9 from 48.6. Offsetting these declines were an increase in the July employment index, which rose to 47.1 from 43.8, and the supplier deliveries index, which increased to 53.5 from 50.5. The index gauging new export orders fell to 47.5 from 52.0. The prices paid index declined to 80.8 from 84.5, indicating service providers felt less price pressure than they did in June. Europe The RBS/Markit Eurozone PMI for services companies fell to 48.3 in July from 49.1, indicating further weakness for the EMU. The manufacturing sector is also at a 5-year low. Falls in both the manufacturing and services PMIs took the composite index to a near 7-year low of 47.8. The contraction makes it difficult for the European Central Bank to maintain a restrictive monetary policy despite record inflation. The outlook for the bloc is cloudy as business expectations at a survey-low of 49.7, well below June's 55.9, as incoming new business fell to a 5-year low of 47.7, suggesting activity next month may be weaker. Services input prices fell slightly to 65.2 from June's near 8-year high of 65.7, still indicating high inflationary pressures. The eurozone retail sales matched consensus forecasts for a 0.6% m/m fall in June, but previous revisions pushed the year-on-year rate sharply below expectations at down 3.1% y/y. UK manufacturing and industrial output unexpectedly showed further declines during June, driven by widespread falls in the sectors, and could cause Q2 GDP to be revised down, official figures showed. Manufacturing output fell 0.5% m/m in June, the Office for National Statistics said. The Chartered Institute of Purchasing and Supply/Markit's headline activity index for the sector rose to 47.4 in July from a 7-year low of 47.1 in June. Asia-Pacific The Reserve Bank of Australia held its key interest rate steady but indicated it could cut rates soon as the Australian economy slows. The dovish sentiment signals a rapid switch from a tightening bias just two months ago. 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 Positive Neutral Neutral Outlook Neutral Neutral Negative Neutral Positive Negative Neutral Action None Sell Sell None None None None Current 1.5565 108.24 1.9564 1.0543 1.0367 0.9153 167.35 Start Position N/A 107.95 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 N/A 108.70 2.0135 N/A N/A N/A N/A Support 1.5400 105.00 1.9600 1.0200 1.0000 0.9100 166.00 1.4900 103.00 1.9500 0.9980 0.9800 0.9000 162.00 Resistance 1.5800 108.30 2.0000 1.0550 1.0400 0.9800 170.00 1.6020 110.00 2.0300 1.0600 1.0500 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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