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•US Dollar Up as Continuing Jobless Claims Fall for First Time Since January
•Japanese Yen Down as DJIA Bounces From 8,500
•Euro Gains Versus Swiss Franc as SNB Reinforces Intervention Efforts
•Canadian Dollar Down Despite Stronger-Than-Expect CPI - Retail Sales on Hand Tomorrow
US Dollar Up as Continuing Jobless Claims Fall for First Time Since January
The US dollar ended the day mostly higher, losing only to the Australian dollar and New Zealand dollar because of demand for carry trades. US economic data offered a boost to risk appetite, but ultimately, the greenback's latest moves mark more of a consolidation against currencies like the euro and British pound, and intraday price action has had little to do with news. Nevertheless, the economic news has been impacting risk trends, making releases important to watch.
Today, the US Labor Department said that initial jobless claims rose by 3,000 during the week ending June 13 to 608,000, but continuing jobless claims fell for the first time in six months by 148,000 during the week ending June 6 to 6,687,000. The shift in continuing claims is an encouraging development, but we need to see far more evidence before we can say that the surge in the unemployment rate may start to slow or even hold steady. Meanwhile, the Philadelphia Fed's gauge of manufacturing sector activity rose to -2.2 in June from -22.6, as new orders, shipments, and number of employees all rose. In fact, the shipments component tipped into positive territory for the first time since May 2008. Nevertheless, all of the other components remain negative, indicating that we have yet to see real signs of recovery in the sector. Adding to the mix, the Conference Board's leading index jumped for the second straight month during May by 1.2 percent to an 8-month high of 100.2. A breakdown of the report shows that increases in the pace of deliveries, building permits, stocks prices, M2 money supply, the interest rate spread, and consumer expectations all contributed to the large increase.
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Japanese Yen Down as DJIA Bounces From 8,500
The Japanese yen fell against the majors as FX carry trades bounced following their recent declines. Some of the JPY crosses have been moving in lockstep with US equities, as both the DJIA and EURJPY gained at the start of the US trading session and spent most of the day consolidating the move. As we mentioned yesterday, though, risk appetite still remains on edge and has not been helped by yesterday's downgrades of the credit ratings of 18 US banks by S&P, especially as five of them were pushed into junk territory. S&P cited the notion that [o]perating conditions for the industry will become less favorable than they were in the past, characterized by greater volatility in financial markets during credit cycles and tighter regulatory supervision. On the other hand, 10 banks returned $68 billion worth of TARP funds today, including JPMorgan Chase and Goldman Sachs, indicating that not all is equal in the banking sector at this juncture.
Ultimately, it's undoubtedly positive that some of the nation's biggest banks are returning taxpayer funds, but according to a press release published by the FDIC on May 27, their Problem List of troubled banks grew during the first quarter from 252 to 305 institutions, and total assets of problem institutions increased from $159 billion to $220 billion. As a result, it's important to keep the situation in perspective, as there are still significant downside risks to the health of the financial sector and the economy at large.
Euro Gains Versus Swiss Franc as SNB Reinforces Intervention Efforts
The EUR/CHF experienced very choppy price action today, but ultimately ended the day higher after the Swiss National Bank (SNB) announced that they would be leaving their 3-month Libor target range unchanged at 0-0.75 percent, as expected, with the aim of bringing the rate down to the lower part of the range near 0.25 percent. The market-moving part, though, was that the SNB said they would take firm action to prevent an appreciation of the Swiss franc against the euro., The SNB also reiterated that they would continue to provide the economy with a generous supply of liquidity and to purchase Swiss franc bonds with the aim of reducing risk premia on long-term bonds issued by private sector borrowers. Indeed, the central bank is ultimately concerned that there is a not inconsiderable risk of deflation, but their GDP growth forecast for 2009 has not changed from previous expectations for a real GDP decline of 2.5 - 3 percent. Looking ahead, EUR/CHF could simply remain range-bound, as it has for the past few months, but there are some notable levels to watch. For resistance, there is the 200 SMA at 1.5161 and a falling trendline at 1.5235. For support, we have the psychologically important 1.5000 mark.
Canadian Dollar Down Despite Stronger-Than-Expect CPI - Retail Sales on Hand Tomorrow
Statistics Canada released their latest inflation report, and the results initially pushed the Canadian dollar higher, but a rebound in the US dollar later in the day cut those gains short. Canada's headline consumer price index (CPI) jumped 0.7 percent in May due to increased costs for food, household operations, transportation, heath/personal care, recreation/education, and alcohol/tobacco. This rise prevented the year-over-year measure from falling negative, as had been expected, but the rate did still slow to more than 15-year low of 0.1 percent from 0.4 percent. On the other hand, the Bank of Canada's (BOC) core CP, which excludes 8 volatile components, rose 0.4 percent during the month and pushed the annual rate up to 2.0 percent from 1.8 percent, suggesting that the threat of deflation in Canada is minimal and that the BOC will not pursue a quantitative easing program.
On Friday, Statistics Canada is expected to report that Canadian retail sales rose 0.1 percent during April, which would mark the fourth straight increase. Economic data for the nation has reflected mixed results in recent months, but figures for April, such as employment and Ivey PMI, were generally optimistic which may indicate that retail sales will rise a bit more than anticipate. On the other hand, Statistics Canada said yesterday that wholesale sales fell by 0.6 percent in April, marking the seventh straight month of contraction, which doesn't bode well for the retail side of the coin.
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Written by: Terri Belkas, Currency Strategist for DailyFX.com