• USD: Lower, better than expected PMI data from US, Europe and the Pacific Rim
  • JPY: Lower, pressured by improving risk appetite, selling in cross trade
  • EUR: Higher, EU manufacturing PMI improves, technical buying on break of 1.4300
  • CHF: Higher, Swiss manufacturing PMI improves, threat of SNB intervention
  • GBP: Higher, UK manufacturing PMI rises above 50, HSBC and Barclays earnings beat forecasts
  • CAD and AUD: AUD & CAD higher, RBA policy bias shift, rising commodity prices and risk appetite

 

Overview     
USD traded at a new low for 2009 pressured by improving risk appetite, higher equity markets, rising commodity prices and hope that the global recession is nearing an end. Stronger than expected PMI data from the US, China, Australia, the UK, Switzerland and the EU, coupled with comments from ex-Fed Chairman Greenspan that the economic crisis is nearing a trough, helped fuel the latest rise in risk appetite and optimism about the global economy. Crude prices traded above $71 a barrel and copper prices hit a 10 month high adding support to the commodity currencies. According to New York University economist Roubini commodity prices may rise in 2010 as the global recession recedes. AUD continues to benefit from last week's comments from RBA governor Stevens which suggested a shift in RBA policy to neutral from dovish. Better than expected earnings at HSBC and Barclays coupled with a comment from PIMCO's McCulley that the Fed will not raise interest rates until 2011 added support to global equity markets and helped to boost risk appetite. JPY traded lower pressured by improving risk appetite and selling in cross trade. The next key test for rising optimism about the global recovery will be Friday's release of US July nonfarm payrolls and unemployment report.

Today's US data:
June construction spending rose 0.3% a reading of -0.5% was expected. July ISM manufacturing rises to 48.9, a rise to 46 was expected. Ford posted its first monthly gain in auto sales in two years. USD extends early losses in reaction to report of better than expected US construction spending manufacturing data and stronger auto sales at Ford. The Dow and S&P hit their highest level since November and the NASDAQ trades at its best level since last October.

Upcoming US data:
On August 4th June personal income and consumption will be released. Personal income is expected to fall 1% compared to 1.4% rise last month and consumption is expected to be unchanged at 0.3%. June Pending Home Sales Index will also be released on August 4th expected at 91.2 compared to 90.7 last month. On August 5th June factory orders will be released along with July nonmanufacturing ISM index. Factory orders are expected to fall 1% compared to 1.2% rise last month. The nonmanufacturing ISM index is expected to rise to 48 from 47 last month. On August 6th initial jobless claims for the week ending 08/01 will be released expected at 580k compared to 584k last week. On August 7th July unemployment and nonfarm payrolls will be released. The unemployment rate is expected to rise to 9.6% from 9.5% last month with nonfarm payrolls at -320k compared to -467k in June.

JPY
JPY drifted lower pressured by improving risk appetite and selling in cross trade. Global equity markets continue to rally supported by the speculation the global recession is ending. Firmer equity market trade fuels improving risk appetite. EUR/JPY, GBP/JPY and AUD/JPY traded higher supported by report of improving manufacturing PMI data in Europe and Australia and rising commodity prices. JPY downside was limited by economic data which suggests that the Japanese economy shows signs of moderate recovery. Last week Japan reported that industrial production rose for the fourth straight month and manufacturing PMI rose above 50. The rise in Japan's manufacturing PMI suggests that the manufacturing sector of Japan's economy is beginning to expand. According to Nikkei Japan's Q2 GDP is expected to have expanded for the first time in five quarters. Japan's recovery is expected to be moderate as the economy remains weak and at risk to deflationary pressure. Japan's consumer prices fell at a record pace in June and unemployment hit a six-year high. JPY remains vulnerable if risk appetite continues to improve. JPY downside should be limited by optimism that improving outlook for the global economy will help boost demand for Japan's exports and help to improve Japan's domestic economy.

This week's Japanese economic calendar includes the August 6th release of June leading indicators expected at 1.1% compared to 0.9% last month. On August 7th June machinery orders will be released.

Key technical levels to watch in USD/JPY include support at 93.50 the July 23rd low with resistance at 96.25 the July 6th high.

 

EUR
EUR traded above 1.4300 and rallied to a two month high versus the USD supported by report of improving EU manufacturing PMI and rising risk appetite. EU July PMI rose to 46.3 from 42.6 last month. The improvement in EU manufacturing PMI follows last week's report that unemployment declined and consumer confidence rose in Germany. These reports suggest that the EU economy is contracting at a slower pace. EUR gains were partly limited  by selling in cross to the GBP as UK manufacturing PMI outpaces the EU and rises above 50 supporting strong demand for the GBP. Today's EUR price action generates hope that the EUR is breaking out of its recent trading range. The week's main focus will be Thursday's ECB policy meeting. The improvement in EU economic outlook will encourage the ECB to maintain steady interest rate policy. We may begin to see speculation about the timing of a possible tightening by the ECB if EU economic data continues to show improvement. As always, trade will be looking at the ECB press conference following Thursday's ECB policy announcement for clues to future ECB policy action.

This week's EU economic calendar includes the August 4th release of EU July PPI expected at 0.2% compared to -0.2% last month. On August 5th EU services PMI for July will be released expected at 45.6 compared to 44.7 last month along with June retail sales expected to rise 0.2% compared to -0.4% last month. On August 6th the ECB meet, no policy change is expected. Also on August 6th German June factory orders will be released expected to rise 0.6%

The technical outlook for the EUR is positive as the EUR rises above 1.4300. Expect EUR support at 1.4206 the August 3rd low with resistance at 1.4500.

 

CHF
CHF traded higher supported by report of improving Swiss manufacturing PMI. Swiss July PMI rose to 44.3 from 41.8 last month. The improvement in Swiss manufacturing PMI follows last week's report of the biggest monthly gain on record for Swiss KOF index. These reports suggest the Swiss economy is stabilizing. The CHF gains were limited by improving risk appetite and threat of intervention. The improvement in risk appetite reduces safe haven demand for the CHF. Last week the SNB intervened to try and prevent CHF appreciation. SNB officials continue to warn that the SNB will intervene to fight CHF appreciation. The SNB is concerned about the deflationary impact of strong CHF and the impact that stronger CHF has on Swiss export sales. EUR/CHF cross continues to hold above 1.5200 and traded as high as 1.5350 last week. The SNB is expected to continue to defend the 1.5000 level in the EUR/CHF cross.

This week's Swiss economic calendar includes the August 4th consumer of July CPI expected at -1.1% compared to -1% last month. On August 6th July SECO consumer index will be released expected -42 compared to -38 last month. On August 7th July unemployment will be released expected at 3.7% compared to 3.6 % in June.

Expect USD/CHF support at 1.0590 the June 2nd low with resistance at 1.0733 the August 3rd high.

GBP
GBP traded at a nine-month high versus the USD supported by report of better than expected UK manufacturing PMI and above forecast earnings at HSBC and Barclays. UK July PMI rose to 50.8 from 47 last month. UK manufacturing PMI is at its highest level in 16 months. The rise above 50 suggests that the UK manufacturing sector is expanding. Last week the UK reported that mortgage approvals rose to the highest level in 14 months. This suggests that the UK housing market may have bottomed. GBP continues to benefit from improving risk appetite and speculation that the UK economy is nearing a bottom. This week's main focus will be Thursday's Bank of England policy meeting. Based on today's UK manufacturing report the Bank of England will likely elect to hold rate policy steady and maintain the current level of asset purchases. There is an article in the Sunday Times which says that the Bank of England is under pressure to extend quantitative ease. Extension of quantitative ease seems unlikely in light of today's UK PMI and earnings data. GBP direction will remain closely tied to equity markets, risk sentiment and speculation about the outlook for the UK economy.

This week's UK economic calendar includes the August 5th release of July consumer confidence index expected at 60 compared to 58 last month along with July services PMI expected at 51.8 compared to 51.6 last month. Also on August 5th June industrial production will be released expected flat compared to 0.6% last month. On August 6th the BOE meet, no policy change is expected. On August 7th, July PPI will be released expected at 0.2% compared to-0.8% last month.

The technical outlook for GBP is positive as GBP trades above 1.6800. The trade is targeting 1.7000 as the next short-term objective for the GBP. Expect near-term support at 1.6697 the August 3rd low with resistance at 1.6970.

 

CAD
CAD traded a 10 month high versus the USD supported by improving risk sentiment and rising commodity prices. As noted above, equity markets traded higher in reaction to a report of improving manufacturing PMI data from US, China, Australia and Europe. Commodity prices traded higher with crude trading above $71 a barrel and copper prices trading at a 10 month high. Friday's report of better than expected US GDP set the initial tone for improving risk sentiment and risk appetite continues to improve in reaction to comments from former Fed Chairman Greenspan that economic crisis is nearing an end. The improvement in risk appetite and global economic outlook coupled with last week's report that Canada's raw material prices rose 6.2% in June has encouraged speculation that the Bank of Canada's next policy move will be to hike interest rates sometime within the next 12 months. BOC rate hike speculation added support to the CAD. Focus turns to Friday's release of Canada's July unemployment. The unemployment rate is expected to rise to 8.8% from 8.6% in June. This would be the highest level for Canada's unemployment in 11 years. The net change in job creation is expected at -20k compared to -7.14k last month. A weak Canadian unemployment report could limit short-term gains for the CAD generating concern that the Canadian economic recovery will be moderate because of continuing loss of jobs. The rally in the CAD may also increase the risk of intervention rhetoric from BOC officials. BOC officials have expressed concern that strong CAD may limit economic recovery in Canada.

The technical outlook for CAD is positive as USD/CAD falls below 1.0700. Look for near-term support at 1.0550 the October 1st low with resistance at 1.0795 the August 3rd high.

 

AUD
AUD traded at 10 month high versus the USD and surged in cross trade versus the JPY supported by improving risk sentiment, rising commodity prices and report of better than expected Australian manufacturing PMI. Improving manufacturing PMI data from China and Australia was the early catalyst for AUD demand. China's July manufacturing PMI rose to 53.3 from 53.2 in June. Australia's July PMI rose 6.1 points to 44.5. This was the highest level for Australia's manufacturing PMI since last September. There was limited reaction to report that Australia's total jobs ads declined 1.7% in July. AUD rallied above 8400 as equity markets rally in the US and Europe. AUD/JPY traded over 1% higher as investors seek higher yield. AUD was the top performing currency last week rising over 2% versus the USD as the RBA signals that the next rate move will be to raise interest rates. Focus turns to the RBA policy meeting on Tuesday August 4th. The RBA is expected to hold interest rate policy steady at 3%. The trade will be looking for comments from RBA Governor Stevens and whether the RBA is preparing for an eventual interest rate hike as the global economy recovers. Last week, RBA Governor Stevens said that upside risk to the Australian economy was balanced with the downside risks and he signaled a shift in RBA policy bias to neutral from accommodative. The shift in the RBA policy bias was the main catalyst for last week's surge in AUD. According to Stevens, China's economy is strengthening and the global economy shows signs of bottoming. He also noted that Australia's labor market was performing better than expected. The main risks to further AUD gain is the possibility of intervention and potential that the global equity market rally and rebound in commodity prices is getting ahead of the fundamental news. The RBA aggressively intervened selling AUD in June. RBA officials have expressed concern that strengthening AUD could hurt the recovery. Unemployment data is due for release from the US, Canada and Australia this week. These reports may dampen risk appetite.

This week the Australian economic calendar includes the August 4th release Q2 house prices expected at -1% compared to -2.2% last quarter. June retail sales will also be released on August 4th expected to rise 0.8% compared to 1% last month. On August 5th, June trade balance will be released expected at -350 mln compared to -556 mln last month. On August 6th July unemployment will be released expected at 5.9% compared to 5.8% last month with jobs growth expected at -15 k compared to -21.4 k last month.

The technical outlook for the AUD is positive as AUD rallies above 8400. Expect AUD support at 8235 the July 31st low with resistance at 8525 the September 22nd high.