- The dollar traded mostly higher on Tuesday. The dollar index rose and tested the resistance from its long-term downtrend in the 77-78 area. If this is broken, the dollar will rally. US house prices climbed the most since 2005 while consumer confidence unexpectedly fell. The S&P 500 declined 2.37 points to 1,060.61. The yen fell as Japan's Finance Minister Hirohisa Fujii warned that Japan will take necessary steps if the currency market moves abnormally. Sterling advanced on a better-than-expected UK distributive trades survey. The Australian and Canadian dollar fell modestly against the greenback.
- The EUR/USD declined as Russia's central bank said it plans to maintain its current level of US reserves (around 30%). The unexpected drop in US consumer sentiment, raising concern over the US consumer part in the US economic recovery, also pressured the pair. After making a new cycle high last week, the EUR/USD has seen profit taking and worked off its oversold position. The pair is likely to test its long-term uptrend in the 1.44-1.45 area. If this support is broken, the EUR/USD will turn bearish.
Financial and Economic News and Comments
US & Canada
- US house prices showed broad improvement in July, according to the S&P/Case-Shiller home price indices. The 10-city and 20-city composites for July declined 12.8% y/y and 13.3% y/y, respectively; however, showing improvements from their June respective drops of 15.1% y/y and 15.4% y/y. The 10-city and 20-city composites registered their third consecutive month-on-month gains in July, climbing 1.7% m/m and 1.6% m/m, respectively, after advancing at the same rate, 1.4% m/m, in June. Overall, the figures indicate a turnaround in the US housing market.
- US consumer confidence unexpectedly declined in September. The Conference Board US consumer confidence index fell to 53.1 this month from an upwardly revised 54.5 in August, but rose from February's record-low 25.3, data from the Conference Board showed. The present situation index decreased to 22.7 in September from an upwardly revised 25.4 in August. The expectations index slipped to 73.3 from an upwardly revised 73.8.
- The eurozone economic sentiment indicator increased more than expected to 82.8 in September from an upwardly revised 80.8 in August, indicating eurozone economic confidence rose for a sixth consecutive month and to the highest level since September 2008, data from the European Commission showed. Consumer confidence rose more than expected in September, with the consumer confidence gauge increasing to -19, the best reading since September 2008, from August's -22. Industrial confidence rose as forecast to -24 in September, a 10-month high, from an upwardly revised -25 in August. Confidence in the services sector improved for a sixth consecutive month in September, with the services confidence indicator increasing to -9 from August's -11. The business climate indicator also advanced for a sixth straight month, increasing to -2.07 this month, a 10-month high, from -2.18 in August, a separate measure of business confidence released by the EC showed.
- Germany's import prices increased a more-than-expected 1.3% m/m in August after a 0.9% m/m decline in July, the Federal Statistical Office reported. August import prices fell a less-than-expected 10.9% y/y, a tenth consecutive year-on-year fall, following July's -12.6% y/y slide. Excluding crude oil and mineral oil products, import prices were up 0.3% m/m in August but down 6.9% y/y. Export prices increased 0.3% m/m in August but decreased 3.2% y/y.
- UK GDP declined 0.6% q/q in Q2 2009, revised up from a previously reported 0.7% q/q drop, final Q2 GDP data from the Office for National Statistics (ONS) showed, after a downwardly revised 2.5% q/q contraction in Q1, the sharpest drop since Q2 1958. The economy shrank 5.5% y/y in Q2, unchanged from the previously reported and the steepest fall since records began in 1955. The GDP growth rate for 2008 was revised down to 0.6% from 0.7%
- The UK current account deficit widened to £11.4 billion ($18.2 billion) in Q2 2009 from £4.1 billion in Q1, the ONS said. The Q2 deficit is equivalent to -3.3% of GDP compared to -1.2% of GDP in Q1.
- According to figures from the Bank of England, total net lending to individuals increased £0.7 billion ($1.1 billion) in August, in line with the previous 6-month average. Net lending secured on dwellings increased £1.0 billion, above July's net repayment of £0.2 billion and above the previous 6-month average of £0.6 billion. The number of mortgage approvals was 52,317 in August, in line with the July figure and near the highest level since April 2008. Consumer credit declined £0.3 billion, below the previous 6-month average.
- Conditions in the UK retail sector started to stabilize with sales volumes bouncing back more than expected in September, according to the Confederation of British Industry's September distributive trades survey. The survey result showed 39% of retailers said year-on-year sales volumes increased in September, while 36% said they declined, for a resulting balance of +3, the best reading since April, following August's -16. Survey respondents predicted year-on-year sales volumes to be flat in October.
- Japan's core consumer prices, which exclude fresh food, fell 2.4% y/y in August, as forecast and the largest fall since records began in 1971, after a 2.2% y/y decline in July, CPI data from the Statistics Bureau showed. The CPI excluding food and energy decreased 0.9% y/y in August, as estimated and the fastest decline in seven years, following the same pace as July. Tokyo's core CPI fell a record 2.1% y/y in September after a 1.9% y/y slide in August. Prolonged deflation may hamper Japan's economic recovery.
FX Strategy Update