The dollar pared earlier gains after the Federal Reserve downgraded its economic forecast and said it would buy more US government debt. The Federal Open Market Committee said it would reinvest principal payments on its mortgage holdings into long-term Treasury securities to keep its balance sheet from shrinking. Bonds and gold prices rose, but commodity prices fell.

The S&P 500 recovered most of earlier losses but still declined 6.73 to 1,121.06. The yen advanced. The Bank of Japan left the key interest rate unchanged at 0.10%, as expected, and maintained its credit programs for lenders by a unanimous vote. The euro pared loses following the Fed's announcement. Sterling found support at 1.57 and recovered most of its earlier losses. The Australian and Canadian dollars also pared losses.

The dollar index surged but later pared gains after the FOMC eased debt deflation fears. The Fed said the US economic recovery will be more modest and that the central bank will keep its balance sheet at current levels. The dollar had rallied overnight on rumors that China's banking regulator ordered banks to transfer offbalance- sheet loans onto their books and make provisions for potential losses.

Slowing Chinese import and export growth also raised concerns about global economic growth. The dollar index rose but failed to stay above the 81-area resistance. Support is in the 80 area. The index is trying to form a bottom. If the downtrend is penetrated, the USD outlook will improve.

Financial and Economic News and Comments

US & Canada

The US NFIB small business optimism index declined to 88.1 in July from 89.0 in June, indicating US small business optimism fell for a second month to the lowest level in four months, according to data from the National Federation of Independent Business. The sales expectations index increased to -4.0 from June's -5.0.


US nonfarm productivity unexpectedly fell at a 0.9% q/q annualized rate in Q2 2010, the first decline since Q4 2008, after rising at an upwardly revised 3.9% q/q annualized pace in Q1, preliminary Q2 data from the Labor Department showed. Q2 nonfarm productivity rose 3.9% y/y. Unit labor costs increased less than expected at a 0.2% q/q annualized rate in Q2, the first gain since Q2 2009, after declining at a revised 3.7% q/q annualized pace in Q1. Q2 unit labor costs decreased 2.8% y/y.


US wholesale inventories increased a less-than-expected 0.1% m/m to $399.2 billion in June, a sixth straight monthly gain, after a 0.5% m/m advance in May, according to figures from the Commerce Department. Wholesale sales fell 0.7% m/m to $347.4 billion, a second consecutive monthly fall and the most since March 2009, following May's revised 0.5% m/m decline. The inventories/sales ratio increased to 1.15 in June from 1.14 in May, compared with June 2009's 1.30. Inventories declined 0.3% y/y in June, but sales grew 12.9% y/y.

Canada's seasonally adjusted housing starts fell 1.6% m/m in July, a third consecutive monthly fall, to a 189,200 annualized rate, the lowest level in seven months, from an upwardly revised 192,300 annualized pace in June, data from Canada Mortgage and Housing Corporation showed. Housing starts rose 36.0% y/y, a ninth successive year-on-year rise, following June's upwardly revised 34.1 y/y gain.

Canadian new housing prices increased a slightly less-than-expected 0.1% m/m in June after a 0.3% m/m advance in May, according to data from Statistics Canada. New housing prices rose 3.3% y/y, following May's 2.9% y/y rise.


Germany's consumer prices rose an upwardly revised 0.3% m/m in July, a third consecutive monthly rise, after a 0.1% m/m increase in June, final July CPI data from the Federal Statistical Office showed. The consumerprice inflation rate quickened to an upwardly revised 1.2% y/y from June's 0.9% y/y. The harmonised index of consumer prices, calculated for European purposes, advanced an unrevised 0.3% m/m in July after 0.0% m/m in June. The HICP rate accelerated to an unrevised 1.2% y/y from June's 0.8% y/y.

German wholesale prices fell for a second month in July, falling 0.3% m/m, after a 0.2% m/m June decline, according to data from the Federal Statistical Office. Wholesale prices rose 5.3% y/y, an eighth straight yearon- year rise, following June's 5.1% y/y advance.

The UK deficit on trade in goods and services narrowed more than expected to £3.3 billion ($5.2 billion) in June from a £3.8 billion shortfall in May, figures from the Office for National Statistics showed. The deficit on trade in goods shrank to £7.4 billion in June from a revised £8.0 billion shortfall in the previous month; exports rose 4.3% m/m to £22.4 billion, the highest since June 2008, and imports increased 1.0% m/m to £29.8 billion. The deficit with EU countries narrowed to £3.1 billion in June from a £3.5 billion shortfall in May. The deficit with non-EU countries shrank to £4.3 billion from May's £4.5 billion shortfall.


The Conference Board UK LEI, a measure of future economic activity, rose 0.5% m/m in June to 103.0, following revised increases of 0.2% m/m in May and 0.7% m/m in April, the Conference Board reported. The coincident index, measuring current economic activity, was up 0.1% m/m to 103.1 in June, after increasing 0.3% m/m in May and 0.3% m/m in April.

UK house prices rose a slightly more-than-expected 9.9% y/y nsa in June, an eighth straight year-on-year gain, after a downwardly revised 10.6% y/y advance in May, according to data from the Department of Communities and Local Government. Seasonally adjusted, house prices were unchanged m/m, the first time prices did not rise in four months, following May's downwardly revised 0.6% m/m increase.


Japan's machine tool orders soared 144.8% y/y in July, an eighth straight year-on-year advance, after a 139.5% y/y gain in June, preliminary July data from the Japan Machine Tool Builders' Association showed. Foreign orders surged 176.1% y/y in July after a 165.7% y/y jump in the previous month. Domestic orders climbed 101.7% y/y, following June's 102.3% y/y gain.

The NAB Australian business confidence index declined to 2 in July from 4 in June, indicating Australia's business sentiment fell for a fifth straight month to the lowest level in 14 months, according to a survey released by National Australia Bank Ltd. The business conditions index, a measure of hiring, sales and profits, decreased to 5 from June's 8.

FX Strategy Update

Primary TrendNegativeNeutralNegativePositiveNegativeNeutralNegative
Secondary TrendPositiveNegativePositiveNegativeNeutralPositiveNegative
Start PositionN/AN/AN/AN/A1.0247N/AN/A

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