The dollar gained against most of its rivals on Thursday as risk aversion increased on concern US economic growth is faltering. US initial jobless claims in the week ending August 14 climbed to a 9-month high and the August Philadelphia Fed manufacturing index turned negative for the first time since July 2009. Two-year bond yields touched a record low and commodity prices declined. The S&P 500 plunged 18.53 to 1,075.63.
The low yielding yen and Swiss franc rose but pared gains in the New York session. The euro advanced overnight after German producer prices rose more than expected and Bundesbank raised its German GDP forecast to 3%. Sterling was little changed after gaining from higher-than-expected UK retail sales and lower-than-expected budget deficit. The Australian dollar fell to the neckline support in the small head-and-shoulder formation. The Canadian dollar dropped on disappointing US and Canadian economic data.
After finding support at the 82-hanldle, the dollar index rose for the first day in four. Last week the index broke its downtrend; thus, indicating further gains. Support is in the 82 area and resistance in the 83.50 area. If the resistance is broken, the dollar index will possibly test the 85 area.
Financial and Economic News and Comments
US & Canada
The Conference Board US leading economic indicators index, a measure of future economic activity, increased modestly as forecast 0.1% m/m to 109.8 in July, the second gain in three months, after a downwardly revised 0.3% m/m decline in June, LEI data from the Conference Board showed, suggesting US economic growth is slowing down in H2 2010. The coincident index, measuring current economic activity, was up 0.2% m/m to 101.4 in July, following downward revisions for a 0.1% m/m decline in June and a 0.4% m/m increase in May.
US initial jobless claims in the week ending August 14 unexpectedly rose 12,000 to 500,000, the highest level since November 2009, from the previous week's upwardly revised 488,000, according to figures from the Labor Department. The 4-week moving average increased 8,000 to 482,500, the highest level since the week ending December 5, 2009. In contrast, continuing claims in the week ending August 7 fell 13,000 to 4,478,000 from the preceding week's upwardly revised 4,491,000. The 4-week moving average of those continuing claims declined 1,500 to 4,526,750. The insured unemployment rate for the week ending August 7 was unchanged at 3.5%.
The Philadelphia Fed manufacturing index unexpectedly dropped to -7.7 in August from 5.1 in July, indicating Philadelphia-area manufacturing contracted for the first time since July 2009, the Federal Reserve Bank of Philadelphia's August 2010 business outlook survey showed. The new orders index declined to -7.1 from July's -4.3, signaling new orders shrank at a faster pace.
The Canadian leading economic indicators index was up a less-than-expected 0.4% m/m to 241.8 in July, a 14th straight monthly rise but the slowest since June 2009, after a downwardly revised 0.7% m/m increase in June, according to LEI data from Statistics Canada.
Canadian wholesale sales unexpectedly declined 0.3% m/m to C$43.9 billion ($42.2 billion) in June after an upwardly revised 0.0% m/m (vs. previously reported -0.1% m/m) in May, figures from Statistics Canada showed. June wholesale sales rose 7.7% y/y.
Germany's producer prices grew a more-than-expected 0.5% m/m in July, a fifth straight month-on-month advance, after a 0.6% m/m gain in June, according to PPI data from the Federal Statistical Office. Producer prices rose 3.7% y/y, a fourth consecutive year-on-year rise, following June's 1.7% y/y advance.
The seasonally adjusted volume of UK retail sales climbed a more-than-anticipated 1.1% m/m in July, a third consecutive monthly gain and the most since February, after a 0.7% m/m increase in June, data from the Office for National Statistics showed. The retail-sale volume rose 1.3% y/y, a sixth straight year-on-year rise, following June's downwardly revised 1.1% y/y advance. Excluding automotive fuel, the seasonally adjusted retail-sale volume grew 0.9% m/m and 2.4% y/y in July
Britain's budget deficit narrowed to £3.2 billion ($5.0 billion) in July from a £5.5 billion shortfall in July 2009, the Office for National Statistics said. Net debt was £927.4 billion in July, equivalent to 63.7% of GDP, compared with £799.1 billion (57.3%) a year earlier. The public sector net cash requirement showed a £4.1 billion surplus in July, compared with a £0.9 billion deficit in July 2009.
Switzerland's trade surplus widened to a record CHF2.89 billion ($2.80 billion) in July from CHF1.77 billion in June, the Swiss Federal Customs Administration said. Seasonally adjusted imports fell 4.0% m/m in July after a revised 10.2% m/m drop in June, while seasonally adjusted exports gained 1.9% m/m following June's revised 5.5% m/m decline.
Japan's all industry activity index unexpectedly increased 0.1% m/m to 96.1 in June after a downwardly revised 0.1% m/m gain in May, showing overall production by all sectors of the Japanese economy grew for a third consecutive month, according to data from the Ministry of Economy, Trade and Industry. The index rose 3.0% y/y nsa, a sixth straight year-on-year rise, following May's downwardly revised 3.3% y/y advance.
Japanese machine tool orders soared 144.9% y/y (vs. preliminarily reported 144.8% y/y) in July, an eighth successive year-on-year gain, after a 139.5% y/y advance in June, final July data from the Japan Machine Tool Builders' Association showed. Foreign orders surged 175.5% y/y (vs. preliminarily reported 176.1% y/y) in July after a 165.7% y/y jump in the prior month. Domestic orders climbed 102.7% y/y (vs. preliminarily reported 101.7% y/y), following June's 102.3% y/y gain.
Australia's seasonally adjusted average weekly earnings grew 0.8% in the three months to May to A$1,253.10 ($1,117.92) and rose 5.2 y/y, the Australian Bureau of Statistics said.
FX Strategy Update