• USD: Mixed, personal income flat, personal consumption rises, equity markets reverse early gains
  • JPY: Higher, unemployment rises to a record high and core CPI falls at record pace
  • EUR: Higher, EU economic confidence surges, industry and consumer sentiment improves
  • GBP: Mixed, Q2 GDP revised higher, consumer sentiment falls
  • CAD and AUD: AUD & CAD higher, RBA rate hike speculation, Canadian current account deficit widens

Another mixed performance for the USD Friday with USD initially pressured by stronger equity market trade and commodity currencies outperforming. USD recovered some of the sharp losses from Thursday trade supported by ongoing doubts about the sustainability of the US and global recovery. A sharp sell off in the Shanghai Index, weak data from Japan and report that US problem bank list hit a 15 year high contributed to mixed USD trade. Japan's unemployment hit an all time high and CPI declined at a record pace. Better than expected economic news form Europe and above forecast earnings at Dell and Intel helped to boost European and US equity markets. The rally in equities and rise in crude above $73 a barrel limits the USD recovery and supports demand for commodity currencies with the AUD gaining additional support from RBA rate hike speculation. Swiss KOF leading indicator posted a sharp improvement, UK Q2 GDP was revived higher and EU industry, economic and consumer sentiment improved. US economic data was mixed with personal income flat consumption marginally higher and Michigan consumer sentiment changed little from July. CHF and GBP traded higher and the EUR was mixed. EUR gains were partly limited by increased risk of SNB intervention. As the global economy recovers currencies linked to growth will likely outperform. The trade will continue to try and determine whether US economic recovery will support the USD or if the USD will be pressured by improvement in risk appetite. Recovery doubts may limit USD downside.

Today's US data:
US August personal income was unchanged and personal consumption rose 0.2%. Final Michigan sentiment dips to 65.7 compared to 66 in July. A reading of 64.5 was expected.

Upcoming US data:
Next week's US economic calendar includes the August 31st release of August Chicago PMI expected 46 compared to 43.4 last month. On September 1st July construction spending will be released expected at -0.1% compared to 0.3% last month along with August ISM, July pending home sales in August domestic auto sales. The ISM is expected at 50.1 compared to 48.9 in July. Pending home sales Index expected at 94.1 compared to 94.6 last month. Domestic auto sales are expected at 8.70%. On August ADP employment will be released expected -263k compared to -371k last month. Q2 final productivity and unit labor costs will be released along with July factory orders. Productivity is expected at 5.9% compared to 6.4% in the preliminary report. ULC is expected at -5.3% compared to the original report 5.8%. Factory orders are expected to rise 1% compared to 0.4% last month. On September 3rd initial jobless claims for the week ending 8/29 will be released expected 656k compared to 570k last month along with August manufacturing PMI expected 48 compared to 46.4 in July. On September 4th August unemployment rate will be released expected at 9.5% compared to 9.4 last month with nonfarm payrolls 220k compared to -247k in July.

JPY traded lower pressured by a report of weak Japanese economic data and stronger equity market trade. Japan's unemployment rate rose to an all-time high of 5.7%, July household spending declined by 1.3% and July core CPI fell by a record 2.2% y/y. The decline in Japan's CPI increases the risk of deflation in Japan. Midweek Japan also reported a sharp drop in July exports. These reports will likely increase the odds that the ruling LDP party will be defeated in Japan's national elections this weekend. As we noted in our special report on Japan's election earlier this week a DPJ victory could lead to increased domestic spending, focus on closer ties with Asia and possible reduced demand for US bonds by Japan's new government leadership. Despite weak Japanese economic data the Nikkei closed up 62 points higher and EU and US equity markets firmed. The trade looked past a sharp fall in Shanghai Index with equities gaining from speculation that the global recession is ending. World trade flows rose 2.5% in June which may be further sign that the global economy has stabilized. JPY was also pressured in cross trade with AUD/JPY and GBP/JPY posting solid gains. JPY turned higher midsession in reaction to a reversal of early US stock gains.

Next week's Japanese economic calendar includes the August 31st release of July housing starts expected at -2.5% compared to -1.2% last month. July construction orders will also be released on August 31st expected to fall by 24.4% compared to -28% last month along with retail sales expected at -6.8% and vehicle production expected at -34% year-over-year.

Key technical levels to watch in USD/JPY include support at 92.70 the July 14th low with resistance at 95.10 the August 24th high.

EUR traded mixed to lower despite report of better than expected EU economic data and firmer equity market trade. EU August economic sentiment improved to 80.6 from 76 last month, industry sentiment improved to -26 from -30 last month and consumer sentiment improved -22 from -23 last month. These reports contribute to speculation that the EU recession is ending but the data failed to boost additional demand for the EUR. EUR gains may have been partly limited by selling in cross trade to the GBP and CHF with GBP supported by report of an upward revision in UK Q2 GDP and CHF supported by a sharp improvement in Swiss KOF index. In addition, the slight rise in EU consumer confidence may temper optimism about the strength and sustainability of the EU recovery. Moreover, there may be an increased threat of intervention from the SNB as the SNB's Jordan warns that the central bank would not tolerate CHF appreciation. For most of the week, better than expected economic data from the EU was met with skepticism from ECB officials warning that the recovery may not be sustainable. Thursday, the EUR rallied sharply as US equity markets reversed early losses to close higher and positive US jobless claims and GDP data contributes to improving risk appetite. EUR turned lower as US equities reverse early gains.

Next week's EU economic calendar includes August 31st release of foreign reserves expected at 384.50. On September 1st EU unemployment will be released expected at 9.5% along with manufacturing PMI expected 46.5. On September 2nd EU PPI will be released expected -5.9% y/y along with EU GDP expected at -2.5%q/q and 0.3% m/m. On September 3rd EU retail sales would be released expected at -0.1% along with services PMI expected at 47.2.

The technical outlook for the EUR is mixed as the EUR rally stalls above 1.4400. Expect EUR support at 1.4209 the August 21st low with resistance at 1.4450 the August 5th high.


GBP traded higher supported by report of an upward revision in UK GDP and a rebound in cross trade. UK Q2 GDP was revised higher to -0.7% from -0.8% as government spending and private consumption was stronger than originally estimated. However, exports remain weak and the uncertain outlook for consumer demand may limit UK economic recovery. GDP rebounded from an 11 week low versus the EUR and rallied in cross to the JPY. GBP has been underperforming with selling pressure attributed to ongoing concern about the outlook for the UK economy and in response to the BOE's recent decision to expand quantitative ease. In addition to GBP has been pressured by report of a record budget deficit in July and concern that rising deficit spending will force the UK government to issue more debt and eventually raise taxes to cover the spending shortfall. Recent GBP weakness in cross trade to the EUR is attributed to concern that the UK recovery will lag the EU. GBP upside is limited by report of weaker than expected consumer confidence. August GFK consumer confidence sentiment declined to -25, reading of -24 was expected. Focus turns to next week's release of UK manufacturing and services PMI. Monday is a holiday in the UK.

Next week's UK economic calendar includes September 1st release of manufacturing PMI expected 50.8 and mortgage approvals expected 47.6 along with consumer credit expected at all .1% and net lending expected at 0.3%. July mortgage approvals are also expected Tuesday. On September 2nd construction PMI will be released expected at 47. On September 3rd services PMI will be released expected 53.2.

The technical outlook for GBP is mixed as GBP rises back above 1.6300. Expect near-term support at 1.6150 the August 27th low with resistance at 1.6500.


CAD traded higher supported by firmer equity markets and rising crude prices. US and European equities traded higher supported by better earnings report at Dell and Intel with European equities supported by positive economic data from Europe. Crude prices rallied above $73 a barrel. CAD rallied despite report of falling raw material prices and a bigger than expected widening of Canada's current account deficit. July IPPI falls 0.5% at RMPI falls 3.8%. Canada's Q2 current account deficit widened to -11.2 bln from -9.1 bln last month. The current account deficit was close to expectations which helped limit the impact of the report. CAD was also supported by a WSJ report which reports on the health and wealth of Canada's banks. CAD had been weakening since Tuesday's statement by the BOC's Lane expressing concern about the impact of CAD strength on the Canadian economy. Lane sees end of Canada's recession but he expressed concern about strength of the CAD. According to Lane, Canada's economy is expected to start to grow this quarter along with the global economy but the recovery will be muted. Lane's comments increase the risk that the BOC may take action to weaken the CAD. CAD direction will remain closely correlated to speculation about the global recovery and risk sentiment. Risk of intervention is rising.

Next week's Canadian economic calendar includes the August 31st release of June GDP expected at 0.3% compared to 0.5% last month. On September 4th August unemployment rate will be released expected at 8.6% and employment growth expected at -22.7. August IVEY manufacturing PMI will also be released on September 4th expected at 53 compared to 51.8 last month.

The technical outlook for CAD has turned mixed as USD/CAD falls back below 1.0900. Look for near-term support at 1.0715 the August 25th low with resistance at 1.1020 the August 27th high.

AUD traded sharply higher supported by rising equity markets, firmer commodity markets and RBA rate hike speculation. Better than expected economic data from Europe and positive earnings reports from the US supported equity market gains and boosted demand for commodities. RBA watcher Mitchell published an article today which suggests that the RBA may hike interest rates in October. AUD was also supported by sharp gains in cross to the JPY with JPY pressured by improving risk sentiment and report of weaker than expected employment and inflation data from Japan. Thursday's late reversal and stronger close on Wall Street helped offset the impact of a sharp decline in the Shanghai Index. The Shanghai Index was pressured by report of a drop in China's August bank lending. AUD price direction has been closely correlated to the outlook for China and the direction of the Shanghai Index but today the impact was diminished by stronger equity market trade in the US and Europe US. AUD rallied Thursday supported by report stronger than expected Australian Q2 CAPEX spending. Australia's Q2 CAPEX spending was reported at 3.3%. The trade had expected a -5% reading for Q2 CAPEX spending. CAPEX spending is the fuel for business investment and the report suggests that the Australian economy may begin to expand supported by increased business spending.

Next week's Australian economic calendar includes the August 31st release of Q2 company profits expected at    -1.5% compared to -7.2% last quarter along with Q2 business inventories expected at -2.1% compared to -1.1% last quarter and private sector credit for July expected unchanged at 0.1%. On September 1st July building approvals will be released expected at 3.5% compared to 9.3% last month along with the Q2 current account expected -32.2 bln compared to -35.4 bln last quarter. On September 2nd Q2 GDP will be released expected at 0.6% compared to 0.4% last quarter. On September 3rd July trade balance will be released expected to improve 6.9 bln from 6 bln last month.

The technical outlook for the AUD is positive as AUD rallies back above 8400. Expect AUD support at 8239 the August 27th low with resistance at 8480 the August 15th high and 8525 the September 22nd high.