• USD: Higher, housing starts hit a seven-month high, PBOC's Zhou calls for a super sovereign currency
  • JPY: Lower, Tamaki says USD to remain the world's key reserve currency, won't rule out intervention
  • EUR: Lower, EU posts trade surplus, German officials say the economy has stabilized
  • GBP: Lower, IMF warns that GBP is vulnerable to rising UK government debt, Bean sees slow recovery
  • CAD and AUD: AUD lower & CAD higher, Australian export prices fall, Canada's CPI turns negative

 

Overview     
USD traded higher Friday supported by safe haven flows sparked by news of two bombings at high-end Western hotels in Jakarta Indonesia which left nine people dead. USD was also supported by an IMF warning that the GBP may be at risk from uncertainty over UK debt and a statement from Japan's Tamaki that the USD will remain the world's key reserve currency. The USD was also supported by fresh concerns about the global economic outlook as analysts downplay yesterday's report of strengthening growth in China and New York Stern Business School professor Roubini says that the outlook for the US economy remains weak and more stimulus is needed. Commodity currencies traded mixed as Canada's CPI was reported negative for the first time since 1994 and Australia reports a sharp drop in Q2 export and import prices. USD consolidated overseas gains supported by report of better than expected US June housing starts and building permits. US earnings reports were mixed with Citigroup, IBM, GE beating expectations and Bank of America falling short of estimates. USD upside was limited by a Reuters report which says that China's PBOC's Zhou is again talking about the need for a super sovereign reserve currency. Zhou noted that he does not expect a new sovereign currency to come in to play right away. Commerce Secretary Locke says the US wants a free floating Yuan. According to a Reuters report Zhou thinks it a good time to discuss global imbalances but he does not think the imbalances can be corrected by exchange rates alone. FX markets remain range bound as investors seek clarity about the global economic outlook.

Today's US data:
June housing starts rise 3.6% and building permits rise 8.7%. This marked the highest level for housing starts since last November.

Upcoming US data:
Next week's US economic calendar includes the July 20th release of June leading economic indicators expected at 0.4% compared 1.2% last month. On July 23rd initial jobless claims for the week ending 7/18 will be released expected 540k compared to 522k last week. Existing home sales for June will also be released on July 23rd expected at 4820k compared to 4770k last month. On July 24th July final University of Michigan consumer sentiment will be released expected 73.4 compared to 70.4 last month.

JPY
JPY traded mixed initially supported by safe haven flows on news of Al Qaeda linked terrorist bombings in Jakarta and concern that CIT will file for bankruptcy. JPY upside was limited by a statement from Japan's Tamaki that the USD will remain the world's key reserve currency and intervention cannot be ruled out. Tamaki is Japans currency spokesperson. Trading in the JPY was thin due to Tokyo holiday. The trade showed limited reaction to report that Japan's leading economic indicator was revised down to 76.9 from 77 in the preliminary report. JPY initially firmed in cross trade with AUD/JPY pressured by report of a sharp drop in Australian export prices and GBP/JPY pressured by an IMF warning that GBP is at risk to rising UK government debt. JPY edged lower and reversed overseas gains in cross trade after the release of better than expected US June housing starts and building permits as the data sparked a rally in US 10 year bond yields.

Next week's Japanese economic calendar includes the July 23rd release of June trade balance expected at 0.53 bln compared to 0.30 bln last month. On July 24th May all industry activity will be released expected at 1.1% compared to 2.7% last month.

Key technical levels to watch in USD/JPY include support at 92.70 the July 14th low with resistance at 94.95 the July 8th high.

EUR
EUR traded lower pressured by spillover from weak GBP trade and safe haven demand for the USD on news two bombings at high-end Western hotels in Jakarta Indonesia. A report that EU May trade balance improved to 1.9 bln compared to -3.8 bln last month and comment from Germany's economic minister that the global economy is stabilizing helped to limit EUR downside. The German economics minister also went on to say that there's a good chance that the German recession is ending. EU May exports fell 2.7% and imports declined 2.8%. EUR stabilized after the release of a much larger than expected rise in US housing starts and building permits as the data help to boost equities and contribute to improving risk appetite.

Next week's EU economic calendar includes the July 20th of release German June PPI expected 0.1% compared flat last month. On July 22nd June EU industrial orders will be released expected at -1.2% compared 1% last month. On July 23rd EU May current account will be released expected -9.6 bln compared to -9.2 million last month. On July 24th EU July flash manufacturing and services PMI indices will be released. The manufacturing PMI is expected at 41.3 compared to 40.9 last month. The services index is expected at 44.8 compared to 45.2 last month. German July IFO will all also be released expected at 86.6 compared to 85.9 last month.

The technical outlook for the EUR has improved as the EUR rises above 1.4100. Expect EUR support at 1.4056 the July 16th low with resistance at 1.4200 the July 1st high.

 

GBP
GBP traded lower pressured by the IMF's warning that GBP is vulnerable to rising UK debt and uncertainty about UK economic outlook. The IMF also warned that UK banks may need more capital. GBP was also pressured by comments from the BOE's Bean that he expects a slow recovery in the UK. Bean went on to say he sees possible UK growth by year-end. Thursday, Bean said that the BOE can expand quantitative ease if necessary and the Bank of England would decide whether quantitative ease needs to be extended at the next monetary policy meeting. GBP direction will remain closely tied to equity markets risk sentiment and speculation about the outlook for the UK economy.

Next week's UK economic calendar includes the July 22nd release of July CBI orders expected at -48 compared to -51 last month. On July 23rd June retail sales would be released expected -0.2% compared to -0.6% last month. On July 24th Q2 GDP will be released expected at -0.8% compared to -2.4% last quarter.

The technical outlook for GBP is mixed as GBP dips below 1.6400. Expect near-term support at 1.6220 the July 16th low with resistance at 1.6500 the July 2nd high.

 

CAD
CAD edged higher despite report that Canada's CPI turned negative for the first time since 1994 and leading indicators fell for the 10th month in row. Canada's June CPI declined 0.3% and core inflation rate was flat. CPI report was right in line with market expectations. Canada's June LEI fell 0.1%, a 0.1% rise was expected. Today's Canadian economic reports are expected to have limited impact on next week's Bank of Canada policy meeting. The BOC meet on July 21st. The BOC is expected to hold rate policy steady and refrain from implementing quantitative ease. The BOC is expected to upgrade its forecast for Canada's economic outlook. The BOC plans to release economic projections four times a year instead of the previous two times a year. BOC projections for Canada's economy will be released in the July 23rd BOC Monetary Policy report. CAD downside was limited by report that US housing starts rose to a seven-month high in June and modest rise in crude prices. The US housing report encourages hope that the US recession is ending. The direction of the CAD remains closely correlated to the outlook for the global economy and the direction of equities and commodity prices. 

Next week's Canadian economic calendar includes the July 20th release of May net foreign investment expected at 7.9 bln compared to 9.05 bln last month. BOC meet on July 21st. On July 22nd, May retail sales would be released expected at 0.1% compared to-0.8% last month.

The technical outlook for CAD has improved as USD/CAD falls decisively below 1.1600. Look for near-term support at 1.1005 the June 12th low with resistance at 1.1350 the July 15th high.

 

AUD
AUD traded lower pressured by report of a sharp decline in Australian import and export prices. Australia's Q2 export prices fell 20.6% and import prices were down 6.4%. AUD was also pressured by the news of the Jakarta bombings and uncertainty about the global economic outlook as the IMF warns about the impact of rising UK government debt and a number of analysts have downplayed Thursday's report of  better than expected Q2 GDP from China. In addition, part of yesterday's strong rally in US equities was attributed to report that Roubini upgraded his outlook for the US economy. Today's Wall Street Journal suggests that yesterday's report overstated Roubini's optimism about the US recovery and that his forecast for the US economy is unchanged. Roubini says the US economy remains weak and more stimulus is needed. AUD clawed its way back in the US session supported by report of improving US housing market data, a rebound in the price of crude and relatively stable US equity market trade. AUD price gains were limited as investors digest today's US earnings reports which on balance were generally above market expectations. AUD price direction will closely track risk sentiment and commodity markets.

Next week's Australian economic calendar includes the July 20th release of Q2 PPI expected at 0.2% compared to -0.4% last month. On July 21st June new car sales released expected at 7% compared to 5.4% last month along with Q2 CPI expected at 1.8% compared to 2.5% last month.

The technical outlook for the AUD has improved as AUD rallies above 8000. Expect AUD support at 7814 the July 14th low with resistance at 8130 the July 3rd high.