The dollar and yen fell versus most of their key rivals on Monday. Risk appetite increased following betterthan- expected US and European manufacturing data and positive news about bank earnings in Europe. US stocks rallied, with the S&P 500 jumping 24.26 to 1,125.86, a 10-week high.

The GBP/USD broke the 1.57 resistance and climbed to an almost 6-month high. The euro may rise to $1.39 this month for the first time since February, Citigroup Inc. said. The EUR/JPY strengthened to 114.00 at 5:15 pm in NY from 112.56 on Friday. The Australian and Canadian dollars gained against the greenback for a third consecutive day.

The dollar index plunged for a third straight day. The Chinese PMI declined less than expected and European PMIs were higher than estimated. The dollar index peaked in early-June. The falling dollar is easing deflationary pressures and supporting asset prices. The dollar index is trading in a downward sloping trading channel. There are support in the 80-81 area and resistance from the upper trading band in the 82 area. We expect the index to find support in the 80-81 area and trade sideways.


Financial and Economic News and Comments

US & Canada

The ISM US manufacturing index declined less than expected to 55.5 in July from 56.2 in June, indicating US manufacturing activity expanded above the 50.0 growth level for a 12th successive month but at the slowest pace since December, according to data from the Institute for Supply Management. The index' key components were mixed in July but above 50.0, signaling growth. The employment index rose to 58.6 from 57.8, showing manufacturing employment grew for an eighth consecutive month at a faster rate. The supplier deliveries index increased to 58.3 from 57.3, signaling supplier deliveries expanded for a 14th straight month at a faster pace. The new orders index fell to 53.5 from 58.5, showing new orders grew for a 13th successive month but at the slowest pace since June 2009. The production index declined to 57.0 from 61.4, suggesting manufacturing production expanded for a 14th consecutive month but at a slower rate. The prices paid index advanced to 57.5 in July from 57.0 in June, suggesting price pressures increased for a 13th straight month at a slightly faster pace.


US construction spending unexpectedly increased 0.1% m/m to a seasonally adjusted $836.0 billion annual rate in June, the third gain in four months, after a revised 1.0% m/m decline in May, data from the Commerce Department showed. June construction spending fell 7.9% y/y, continuing year-on-year falls since November 2007



The eurozone manufacturing PMI increased to a higher-than-estimated 56.7 (vs. flash estimate of 56.5) in July from 55.6 in June, suggesting the eurozone manufacturing sector grew for a 10th consecutive month to a 3- month high, according to final July manufacturing PMI data from Markit Economics.

The German manufacturing PMI rose to an unrevised 61.2 in July from 58.4 in June, indicating Germany's manufacturing sector expanded for a 10th straight month to a 3-month high, final July manufacturing PMI data from Markit Economics showed.

The UK manufacturing PMI slipped to a marginally higher-than-expected 57.3 in July from an upwardly revised 57.6 in June, showing UK manufacturing grew for a 10th successive month but at the slowest pace in five months, according to data from Markit Economics and the Chartered Institute of Purchasing and Supply.

The SVME Swiss PMI unexpectedly advanced to 66.9 in July from 65.7 in June, suggesting Switzerland's manufacturing activity expanded for an 11th straight month to a record high, a survey from the Swiss Association of Purchasing and Materials Management and Credit Suisse showed.

Switzerland's real retail sales increased 0.9% y/y nsa in June after an upwardly revised 3.9% y/y gain in May, the Federal Statistical Office said.


Japan's labor cash earnings increased a more-than-expected 1.5% y/y to ¥437,677 ($5,061) in June, a fourth consecutive year-on-year gain, after a 0.1% y/y increase in May, according to figures from the Ministry of Health, Labor and Welfare.

Australia's new home sales declined 5.1% m/m in June after a 6.4% m/m decrease in May, reinforcing the case for a period of sustained interest rate stability, the Housing Industry Association said.

The Australian Industry Group-PricewaterhouseCoopers Australian performance of manufacturing index increased to 54.4 in July from 52.9 in June, showing Australia's manufacturing sector expanded for a seventh consecutive month at a faster pace, the AiG and PwC reported. The July manufacturing gain was led by stronger growth in production (57.3 in July vs. 53.5 in June), new orders (56.7 vs. 51.2) and supplier deliveries (54.6 vs. 54.4). However, manufacturing employment contracted in July, with the employment index declining to 47.7 from June's 53.0


FX Strategy Update

Primary TrendNegativeNeutralNegativePositiveNegativeNeutralNegative
Secondary TrendNeutralNegativePositiveNegativeNeutralPositiveNegative
Start PositionN/A87.75N/AN/A1.0247N/AN/A

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