After a solid start to the month of August, global market sentiment waned overnight as investors balanced mixed corporate earnings with more lacklustre signs of economic growth.
Key economic news missed estimates with factory orders showing a surprise contraction of 1.2 percent against expected growth of 0.1 percent. Pending home sales also fell 2.6 percent in June against the expected 1.2 percent rise, albeit surpassing May’s contraction of 29.9 percent. Personal spending and income both recorded flat results for June. ABC/Washington Post Consumer Confidence fell to -50 from a previous -45. Analysts expected a more subdued fall to -46. The DOW and S&P closed in the red .36 and .48 percent respectively.
Despite an overall cautious undertone, the appeal for the US dollar as a safe haven was short lived, with a short burst of strength after Factory orders/Pending home sales before resuming weakness against major counterparts. The US dollar price activity appears to have adopted a one-sided relationship with sentiment and on a path to finish lower for the 9th consecutive week. It’s no coincidence US equities have risen over 7 percent in July, whilst the US dollar continues to slide. However, it’s the cautious undertone that's not providing support for the Greenback. US investors remain perplexed as to where the broader economy is heading. On one hand we have an overall strong earnings season with the majority of US corporates releasing better-than-expected earnings, on the other, investors continue to battle with a string of economic news which shows the economic activity is growing at a slower pace amidst a switch in mood from the fed.
Overnight the Euro continued to take a step closer to testing the 200 day MA, rising to highs of US$1.3265 briefly touching the 200 day expediential moving average. Sterling also continued to post standout gains against the greenback for the ninth day straight reaching 6 month highs of 1.5970.
After a rocky domestic session yesterday the Aussie dollar continued to go from strength-to-strength rising to overnight highs of 91.5 US cents coinciding with strength in key commodities. Going forward, given we see some strength from Asian and local equities this should act as a stabiliser in domestic trade, however upside appears to be limited with the exception of standout numbers from Trade Balance/housing data due at 11.30 AEST this morning.
From a technical perspective the latest burst of energy from the Aussie dollar coincides with the RSI (Relative Strength Index) showing overbought signals with the price action around the ‘70’ levels. Technical analysts believe an RSI reading of ‘70’ or greater suggests a reversal of price action is imminent. The local unit may be technically poised for a reversal; however important considerations need to be made to the lacklustre appeal of the greenback with both positive and negative market environments providing very little support. At the time of writing the local unit remains well bid around the 91.3 US cent levels.