The Greenback fell yesterday as rebound in crude oil and equities reduced demand for the relative safety of the U.S. currency. The S&P 500 advanced 2.86 points to 1,030.98. The Dow Jones climbed 37.11 points to 9,580.63, rallying for the eighth straight day, while Crude oil for October delivery gained 10 cents to $72.59 a barrel.
The pressure on the US Dollar came after US economic released data showed less contraction in the GDP for Q2 which contracted 1%, below the 1.5% contraction expected, while corporate earnings rose by 5.7% from the first three months of the year, the most since the first quarter of 2005. Consumer spending fell less than anticipated to 1%, but more than a 0.6% increase in the prior quarter. Whereas, initial jobless claims were a bit worse than forecast at 570K after a 580K print the prior week. Overall the data released this week is supporting the idea that the global economy is gradually improving.
The Euro climbed to its highest level since 3 weeks topping at 1.4404 against the Dollar. The Pound also added more than100 pips after reaching the low at 1.6153 to close at 1.6268, but still we're not so optimistic on the Cable. Commodity currencies also made good move against the Dollar as the Aussie closed at 0.8387 after bottoming earlier in the Asian Trading Session at 0.8238.
As suggested in yesterday's report, it seems we're still in the risk appetite/aversion theme, where good data is supporting higher yield and commodity currencies whereas bad ones support the dollar and the Yen. The question who many traders are asking their selves now, is when are we going back to fundamentals? I think we still need some time for this correlation to break, but we should be ready for any changes in the near future.
While Japan is anxiously waiting this weekend lower house election (and potential Democratic opposition landslide win), Japanese economic data didnt looked encouraging. The national core CPI jumped to -2.2% y/y in July (vs. June -1.7%). However the big story was in consumption and labor markets data. Real spending posted a fall of -2.0% y/y in July, well short of the market expectation of -0.3% while unemployment spiked to an all-time high of 5.7%, exceeded the market expectation for July for 5.5%. The lethal combination of , soft labor markets, trepid consumption and deflation, is a puzzle Japans ,solution devoid officials, have never been able to figure out.