The dollar and yen fell on Wednesday as risk appetite increased after stronger-than-expected economic data alleviated fear on global economic slowdown. PMI manufacturing data for China and the US were better than anticipated. Investors paid less attention on ADP's forecast of a 10K drop in August US nonfarm private payrolls and a larger-than-expected decline in July construction spending. The S&P 500 surged 30.96 to 1,080.29 and interest rates increased. The EUR/USD rose despite an unexpected decrease in July German retail sales. The GBP/USD advanced. The Canadian dollar rose as stocks and commodities rallied.
The global-growth-sensitive AUD/USD surged following better-than-expected Australian and Chinese economic data. China's manufacturing expanded at a faster rate in August and Australia's Q2 2010 GDP grew at the fastest pace since Q2 2007. Last week the AUD/USD found support from the uptrend and today the pair broke its 0.90 resistance. In an uptrend, the AUD/USD will likely test the strong resistance in the 0.92 area. If the support from the uptrend in the 0.8950 area is broken, the outlook will turn bearish.
Financial and Economic News and Comments
US & Canada
US nonfarm private payrolls unexpectedly fell 10,000 in August, the first fall in seven months, according to estimates by Automatic Data Processing, Inc. and Macroeconomic Advisers, LLC. The September 3 employment report by the Labor Department will possibly show overall job losses approximately 100,000 for August, with the unemployment rate increasing to 9.6% from July's 9.5%.
The ISM US manufacturing index unexpectedly rebounded to 56.3 in August from 55.5 in July, indicating US manufacturing activity expanded above the 50.0 growth level for a 13th successive month and at the highest level in three months, data from the Institute for Supply Management showed. The index' key components were mixed in August but above 50.0, signaling growth. The employment index advanced to 60.4 from 58.6, showing manufacturing employment grew for a ninth consecutive month and at a faster pace. The production index increased to 59.9 from 57.0, suggesting manufacturing production expanded for a 15th straight month and at a faster rate. The new orders index slipped to 53.1 from 53.5, indicating new orders grew for a 14th successive month but at a slightly slower pace. The supplier deliveries index declined to 56.6 from 58.3; however, having remained above 50.0 for 15 straight months. The prices paid index rose to 61.5 in August from 57.5 in July, suggesting price pressures increased for a 14th consecutive month and at a 3-month high.
US construction spending slid a more-than-expected 1.0% m/m in July, a third consecutive monthly decline, to a seasonally adjusted $805.2 billion, the lowest level in a decade, after a downwardly revised 0.8% m/m decrease in June (vs. initially reported +0.1% m/m), according to data from the Commerce Department. Construction spending fell 10.7% y/y in July, continuing its year-on-year falls since November 2007.
The eurozone manufacturing PMI declined to 55.1 in August (vs. preliminarily reported 55.0) from 56.7 in July, indicating the manufacturing sector expanded for an 11th straight month but at the slowest pace in six months, final August manufacturing PMI data from Markit Economics showed.
The German manufacturing PMI fell to an unrevised 58.2 in August from 61.2 in July, suggesting the manufacturing sector grew for an 11th successive month but at the slowest rate in six months, according to final August manufacturing PMI data from Markit Economics.
German retail sales, adjusted for calendar and seasonal variations, unexpectedly fell 0.3% m/m in July, the fourth fall in five months, after an upwardly revised 0.3% m/m decline in June, data from the Federal Statistical Office showed. Retail sales grew 0.8% y/y nsa, a third consecutive year-on-year gain, following June's upwardly revised 4.7% y/y advance.
The UK manufacturing PMI declined to a lower-than-expected 54.3 in August from a downwardly revised 56.9 in July, showing UK manufacturing grew for an 11th consecutive month but at the slowest pace since November 2009, according to data from Markit Economics and the Chartered Institute of Purchasing and Supply.
The SVME Swiss PMI fell to a lower-than-anticipated 61.4 in August from 66.9 in July, indicating Switzerland's manufacturing activity expanded for a 12th straight month but at a slower rate, a survey from the Swiss Association of Purchasing and Materials Management and Credit Suisse showed.
Australia's GDP grew a more-than-expected 1.2% q/q in Q2 2010, a sixth straight quarterly expansion and the most in three years, after an upwardly revised 0.7% q/q advance in Q1, according to data from the Australian Bureau of Statistics. The Q2 GDP rose 3.3% y/y, following a downwardly revised 2.6% y/y Q1 rise.
The Australian Industry Group-PricewaterhouseCoopers Australian performance of manufacturing index decreased to 51.7 in August from 54.4 in July, showing Australia's manufacturing sector expanded for an eighth consecutive month but at the weakest pace in five months, the AiG and PwC reported.
The Chinese manufacturing PMI increased to 51.7 in August from 51.2 in July, indicating China's manufacturing expansion continued at a slightly faster pace, PMI data from the Federation of Logistics and Purchasing showed. The HSBC/Markit China manufacturing PMI rose to 51.9 from July's 49.4, according to a separate report from HSBC Holdings Plc and Markit Economics.
FX Strategy Update
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