• USD: Mixed, imports rise by a record amount, jobless claims fall more than expected
  • JPY: Higher, concern about China's economic recovery
  • EUR: Lower, ECB's Mersch says the economy is stabilizing, sees volatility ahead, SNB intervention rumors
  • GBP: Higher, BOE holds rate policy and level of asset purchases unchanged
  • CAD and AUD: AUD & CAD lower, below forecast Australian employment, Canada's trade deficit widens

Overview     
USD traded mixed Thursday posting a modest rebound versus the high yield currencies supported by a dip in risk appetite sparked by concern about China's economic outlook. China's premier Wen said China's rebound is unstable, unbalanced and not yet solid. Wen went on onto say that China will not withdraw economic stimulus. AUD and CAD were also pressured by weaker gold prices. Canada's trade deficit came in wider than expected adding to weaker CAD trade. The BOC elected to hold monetary policy steady as expected and said the persistent strength of the CAD remains a risk to growth and to the BOC's inflation target. Australian employers shed more jobs than expected in August. GBP traded higher supported by the BOE's decision to leave monetary policy unchanged and the level of quantitative ease unchanged. US economic data was mixed with jobless claims falling more than expected and US trade balance posting a larger than expected deficit in July. Imports rose a record 4.7% and exports rose by 2.2%. The improvement in US jobless claims and import /export demand are further confirmation that the US and global economy are stabilizing. USD firmed after the release of today's US jobless claims and trade data as US equities trade lower. Although it's not clear if the improvement in the jobless claims report partly reflects the running out of employment benefits for a number of the unemployed. There was little reaction to report that US mortgage foreclosures remain near record level exceeding 300k for the sixth month in a row. USD may be set to rebound as the global equity market rally stalls. 

Today's US data:
US jobless claims for week ending 9/5 declined by 26k to 550k, a decline to 560k was expected. US July trade balance widened to 31.96 bln, well above market expectations of a 27.4 bln deficit. 

Upcoming US data:
On September 11th August import prices will be released expected at 0.9% compared to -0.7% last month along with preliminary University of Michigan consumer sentiment expected 65.3 compared to 65.7 last month. July wholesale inventories and the Treasury budget for August will be released on September 11th as well. Wholesale inventories are expected to fall by 1% compared to -1.7 last month the Treasury budget is expected to -161.50 bln compared to -111.91 bln last month.

JPY
JPY traded higher supported by light safe haven demand on concern about China's growth outlook and by a rebound in cross trade versus the high yield currencies. European equities and the Shanghai Index traded lower in reaction to comments from China's premier questioning the outlook for China's economic recovery.  Weaker global equity market trade sparked demand for the JPY. Commodity currencies were also pressured by weaker gold prices and liquidation pressures as Canada posts a larger than expected trade deficit in July and Australia lost more jobs than had been forecast in August. Japanese economic data was mixed with corporate good prices flat, export prices rising 1.1%, import prices up 0.3% and July machinery orders fell by 9.3%. Japan's revised GDP will be released Friday and is expected to show the economy grew at 0.9%. The GDP will confirm that Japan's economy has emerged from recession in Q2 of 2009. Tuesday a Japanese government report stated that the Japanese economy is improving but the government warned that rising unemployment clouds the outlook for the economy. For most of the week, JPY has benefited whether equity markets have been rising or weakening. This appears to confirm that the close inverse correlation to equity market direction and risk sentiment is partly breaking down. JPY is expected to extend its current rally. There was little reaction to report that Asian forex reserves rose to a new record in August. 

Key technical levels to watch in USD/JPY include support at 91.15 the February 16th low with resistance at 93.30 the September 7th high.

 

EUR
EUR traded mixed  initially supported by a recovery in risk appetite sparked by the release of better than expected US jobless claims and US trade balance report which showed a record jump in US imports. Today's US economic data fuels speculation that the US economy is on the verge of recovery and helps offset concern about China's economic rebound. EUR was also supported by positive comments from the ECB's Mersch. Mersch says that the EU economy is stabilizing and will likely recover gradually, he however expects the recovery to be volatile. ECB's Weber said the ECB will maintain accommodative policy for now and interest rate level is appropriate. Weber's comments suggest that the ECB is in no hurry to withdraw monetary stimulus and this may dampen fears that the ECB could take action that would choke off the EU recovery. EUR traded at new highs for 2009 Wednesday supported by improving risk sentiment and concern about USD reserve status. The UN issued a report Monday which calls for a diminished role of the USD as the global reserve currency. The UN report said that the USD should be replaced with the new currency to protect emerging markets. The UN report suggests something equivalent to the Bretton Woods or European Monetary System is needed to replace the current world currency system. This type of currency regime involves set ranges for currencies and intervention to maintain those ranges. EUR is also supported by G-20 pledged to maintain fiscal and monetary stimulus until the global recovery secured. G-20 pledged has contributed to improving risk sentiment and optimism about the global recovery as G-20 members are in no hurry to withdraw stimulus. EUR turned lower in US session pressured by weaker US equity market trade, rumor of SNB intervention and selling in cross trade to GBP. 

The technical outlook for the EUR is positive as EUR breaks to upside of its recent range trade. Expect EUR support at 1.4329 the September 8th low with resistance at 1.4650.



GBP
GBP traded higher supported by the BOE's decision to leave monetary policy unchanged at 0.5% and maintain the current level of quantitative ease at £175 bln. There had been a great deal of uncertainty ahead of the BOE policy meeting as to whether the BOE would expand quantitative ease. The fact that the BOE maintained the current level of quantitative ease was seen by some as a mild surprise and sparked demand for the GBP. GBP was also supported by report that August Halifax House Index rose by 0.8%. The rise in Halifax House prices is another sign that UK housing market is stabilizing and that UK economy is nearing the end of recession. GBP has been firming supported by recent UK economic data which suggest that the UK recession has ended. UK exports rose sharply last month, consumer confidence continues to rise and manufacturing and industrial output was reported stronger-than-expected. These report reports fuel speculation that the UK Q3 GDP will turn positive and this may have encouraged the BOE to maintain the current level of quantitative ease.

On September 11th PPI will be released expected at 0.6% compared to 0.5% last month.

The technical outlook for GBP is improving as GBP rises above 1.6600. Expect near-term support at 1.6455 the 9th low with resistance at 1.6820.

CAD
CAD traded lower as the BOC elects to hold rate policy steady and expressed concern about the strength of the CAD. The BOC also refrained from implementation of nonconventional monetary measures as the board sees the start of recovery in the major economies supported by aggressive policy stimulus and the stabilization of global financial markets. The BOC reaffirmed its pledge to maintain the current level of the overnight rate at 0.25% until the end of the second quarter 2010. According to the BOC, persistent strength of the Canadian dollar remains a risk to growth and the return to the inflation target. CAD was also pressured by report that Canada's trade balance turned to wider deficit than was expected in July. Canada's July trade deficit was reported at C$1.43 bln, the trade had expected a 100 mln surplus. The widening of Canada's trade deficit reflects a sharp rise in imports reported up 8.3% with exports rising 3.3%. Similar to today's US trade data the Canadian import rise suggests that the Canadian domestic economy is recovering. CAD may continue to underperform with gains limited by threat of intervention as the BOC remains concerned about the impact of the strength of the CAD on the Canadian recovery.

July New Housing Price Index will be released on September 11th expected at 0.1% compared to -0.2% last month. 

The technical outlook for CAD is positive as USD/CAD falls below 1.1080. Look for near-term support at 1.0675 the August 8th low with resistance at 1.10975 the September 4th high.

 

AUD
AUD traded lower pressured by concern about China's recovery and report of weaker than expected Australian employment data. As noted above, China's Premier expressed concern about the uncertain outlook for China's recovery. His comments sparked selling of the Shanghai Index and the AUD continues to closely track the direction of the Shanghai Index. China is a major export destination for Australia and the Chinese growth outlook will be key to the strength of the Australian economic recovery. In addition, gold traded lower encouraging additional selling pressure in the commodity currencies. Australia's August unemployment rate came in unchanged at 5.8% with jobs lost reported at -27.1k, the trade had expected jobs loss of -12.5k. Wednesday the AUD traded to a new high for 2009 supported by improving risk sentiment and report of a sharp rise in Australia's consumer confidence. Westpac consumer confidence rose to its highest level in two years reported up 5.2%. The sharp jump in Australia's consumer confidence will increase pressure on the RBA to hike interest rates and the report confirms improving outlook for Australia's domestic economy. The RBA is expected to be the first central bank to hike rates as the global economy recovers. Australian press reports that a number of analysts expect the AUD to trade above 9000 in the months ahead.

The technical outlook for the AUD is positive as AUD rises above 8600. Expect AUD support at 8528 the September 8th low with resistance at 8695 the August 28th high and 8800.