The dollar and yen gained on Wednesday. Federal Reserve Chairman Ben Bernanke said in testimony to the Senate Banking Committee that the Federal Open Market Committee did not have any immediate plan to bolster the economic recovery despite what he called an unusually uncertain outlook. Bernanke said the Fed policy makers expect continued moderate growth, a gradual decline in the unemployment rate, and subdued inflation over the next several years. The S&P 500 fell 13.89 to 1,069.59.

The yen advanced after Bank of Japan Deputy Governor Hirohide Yamaguchi said the BOJ does not have any specific exchange rate level that would change its monetary stance. Yamaguchi said: We are undoubtedly watching current exchange rate moves carefully. Having said that, the BoJ has not and will not guide monetary policy with a specific currency level in mind. Poorly received government bond auctions from Portugal and Germany as well as concerns over the European bank stress test results pressured the euro, while Bernanke's comments pressured the Australian and Canadian dollars.

The overbought GBP/USD fell on today's release of the July 7-8 BOE MPC minutes. The Monetary Policy Committee considered the arguments both for tightening and loosening its monetary stance as economic growth is threatening to underperform even as inflation is above target, the minutes showed. However, the MPC seemed more preoccupied with the risks to growth than the threat of inflation. Last week the GBP/USD broke its downtrend but failed to penetrate the 1.55-area resistance. The pair has since been trading between the 1.51-area support and the resistance. If the support is broken, the pair will test the 1.50-area support and likely fall substantially.

Financial and Economic News and Comments

US & Canada

The MBA US market composite index, a measure of mortgage loan application volume, increased a seasonally adjusted 7.6% for the week ending July 16 after a 2.9% decline a week earlier, the Mortgage Bankers Association reported. The refinance index rose 8.6% w/w, the highest since the week ending May 15, 2009. The purchase index was up 3.4% w/w, led by an 8.0% w/w rise in government purchase applications.

 

Canada's wholesale sales unexpectedly slipped 0.1% m/m to C$44.1 billion ($42.1 billion) in May, a second consecutive monthly decline, after a revised 0.2% m/m decrease in April, figures from Statistics Canada showed, led by a 29.5% m/m drop in agricultural supplies. May wholesale sales rose 9.5% y/y. Wholesale inventories grew 1.7% m/m to C$52.4 billion in May, the largest gain since January 2007, but fell 5.5% y/y. The inventory-to-sales ratio increased to 1.19 in May from 1.17 in April.

Europe

 The Bank of England's Monetary Policy Committee voted 7-1 to maintain its key interest rate at 0.50%, minutes of the July 7-8 MPC meeting released today showed. Andrew Sentance supported a rate hike to 0.75%, asserting that economic conditions had improved over the past twelve months and the inflation outlook had shifted sufficiently to justify beginning to raise interest rates gradually. While most members believed it was appropriate to leave the stance of monetary policy unchanged, the MPC also considered expanding stimulus. The minutes read: The Committee considered arguments in favour of a modest easing in the stance of monetary policy. The softening in the medium-term outlook for GDP growth over recent months would put further downwards pressure on inflation, once the impact of temporary factors had waned.

Asia-Pacific

Australia's economic growth remains high; however, showing a modest slowdown. The Westpac-Melbourne Institute Australian leading economic indicators index, a measure of future economic activity, increased 0.2% m/m to 264.7 in May, Westpac Banking Corp. and the Melbourne Institute reported. The LEI annualized growth rate slowed for a second month, to 6.7%, the weakest pace since November 2009, from April's 7.5%. The coincident index, measuring current economic activity, increased to 252.4 in May from 251.3 in April; its annualized growth rate quickened to 3.7% from April's 3.3%.

 

Bank of Japan board members agreed that the latest lending program will help stabilize consumer prices, according to minutes of the June 14-15 BOJ monetary policy meeting released today. The members said the central bank should take care to ensure that it would not become directly involved in the allocation of funds to individual firms and industries and that, in terms of the amount and duration of funds provided, the measure would not hamper the smooth conduct of interest rate policy and money market operations.

FX Strategy Update

 
EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
AUD/USD
EUR/JPY

Primary Trend
Negative
Neutral
Negative
Positive
Negative
Neutral
Negative

Secondary Trend
Neutral
Negative
Positive
Negative
Neutral
Neutral
Negative

Outlook
Neutral
Neutral
Neutral
Neutral
Positive
Neutral
Neutral

Action
None
Long
None
None
Long
None
None

Current
1.2752
87.07
1.5163
1.0512
1.0494
0.8780
111.00

Start Position
N/A
87.75
N/A
N/A
1.0247
N/A
N/A

Objective
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Stop
N/A
85.75
N/A
N/A
1.0075
N/A
N/A

Support
1.2550
86.00
1.5100
1.0500
1.0400
0.8600
107.50

1.2150
84.80
1.5000
1.0300
1.0300
0.8300
106.00

Resistance
1.3000
90.00
1.5500
1.0750
1.0600
0.8850
113.50

1.3250
92.00
1.5700
1.1000
1.0800
0.9050
120.00

 
EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
AUD/USD
EUR/JPY

Primary Trend
Negative
Neutral
Negative
Positive
Negative
Neutral
Negative

Secondary Trend
Neutral
Negative
Positive
Negative
Neutral
Neutral
Negative

Outlook
Neutral
Neutral
Neutral
Neutral
Positive
Neutral
Neutral

Action
None
Long
None
None
Long
None
None

Current
1.2752
87.07
1.5163
1.0512
1.0494
0.8780
111.00

Start Position
N/A
87.75
N/A
N/A
1.0247
N/A
N/A

Objective
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Stop
N/A
85.75
N/A
N/A
1.0075
N/A
N/A

Support
1.2550
86.00
1.5100
1.0500
1.0400
0.8600
107.50

1.2150
84.80
1.5000
1.0300
1.0300
0.8300
106.00

Resistance
1.3000
90.00
1.5500
1.0750
1.0600
0.8850
113.50

 
 
 
 
 
 
 

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