Forex Market Update: Sentiment In A Sharp U-Turn Overnight, Stocks Recover Losses From The Last Few Days

Daily Forex Fundamentals | Written by Saxo Bank | Jul 31 09 06:22 GMT |

US GDP data tonight will likely keep markets cautious at month-end HEADLINES - PREVIOUS SESSION US Weekly Initial Jobless Claims out at 584k vs. 575k expected and 559 k prior US Weekly Continuing Claims out at 6197k vs. 6300k expected and 6251k prior UK Gfk Consumer Confidence out at -25 vs. -23 expected and -25 prior JP Jul. Nomura/JMMA Manufacturing PMI out at 50.4 vs. 48.2 prior JP Jun. Jobless Rate out at 5.4% vs. 5.3% expected and 5.2% prior JP Jun. Tokyo CPI out at -1.8% y/y vs. -1.7% expected and -1.5% prior JP Jun. National CPI out at -1.8% y/y, as expected, vs. -1.1% prior AU Jul. TD Securities Inflation out at +0.9% m/m, +1.9% y/y vs. +0.4%/+1.4% prior resp. AU Jun. Private Sector Credit out at +0.1% m/m, +3.4% y/y, both as expected, vs. -0.1%/+3.8% prior resp. SI Q2 Unemployment out at 3.3% vs. 3.7% expected and 3.3% prior JP Jun Housing Starts out at -32.4% y/y vs. -30.6% expected and -30.8% prior THEMES TO WATCH - UPCOMING SESSION EU Euro-zone CPI (0900) EU Euro-zone Unemployment (0900) Swiss KOF Leading Indicator (0930) CA GDP (May) (1230) US GDP (Q2) (1230) US Personal Consumption (1230) US Employment Cost index (1230) US Chicago PMI (1345) US NAPM – Milwaukee (1400) Market Comments We saw another flip in risk sentiment overnight as a fresh string of above-expectation Q2 earnings results negated all the losses from the last couple of days. Wall St powered higher with the Dow closing at its highest since November last year and the S&P crawled towards the psychological 1,000 mark. Other inputs also favoured a return of risk with the weekly initial claims count broadly in line with expectations and the continuing claims declining for the third straight week. In a surprise turnaround, the 7-year US bond auction was well received, countering the doubters around following the dismal 2- and 5-year auctions earlier this week. One notable laggard in the dollar's retreat was the EUR, seemingly pressured by comments from the IMF suggesting the EU-bloc currency was overvalued by as much as 15% when compared to fundamentals. In addition, the IMF advised the ECB not to consider current interest rate levels as a floor and to keep interest rates at low levels for some time. EUR struggled to make it back above 1.41 despite EU economic sentiment coming in on the firmer side of forecasts. Australian data this morning would appear to suggest inflationary pressures are on the rise again, with July's TD-MI monthly inflation gauge showing prices rising more rapidly for the 2nd month in a row, by a record high 0.9% pace after a 0.4% gain previously. The annualised figure held just under RBA's target 2-3% band at 1.9% after gaining from 1.4% prior, to be at its highest annual pace in 3mths. The data confirms RBA's Stevens' more hawkish comments earlier this week and may set the stage for a shift to a neutral bias by the RBA at its policy meeting next week. Japan data was a mixed bag. CPI showed that prices fell a record 1.8% y/y (-1.7% on core readings) with soft consumer demand the major factor influencing. This was the fourth straight month of declines but matched market expectations. Unemployment rose to its highest level in over five years, hitting 5.4% the same as June 2003, and job availability sank to a new record low. Despite the plethora of data, Asia chose to sit mostly in the doldrums on the last trading day of the month. Early chatter and concerns about erratic month-end demand at fixing time and heavy Toshin issuances failed to materialize and most currency pairs were engaged in a slow grind higher, mostly favouring the traditional 'risk' currencies. All eyes will be on the US Q2 GDP release later (-1.5% q/q expected following Q1's dismal -5.5%) but we may remain range-bound ahead of that. Into Europe we will see Euro-zone CPI and unemployment. Also on the slate are Canada GDP, US personal consumption, employment cost index and Chicago PMI. Analysis Disclosure & Disclaimer SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. 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