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• Euro, British Pound Still Confined to Ranges With Little Data Due Out Through End of Week
• Canadian Dollar: USDCAD Ends Day Above Support at 1.1143, CPI Could Trigger Directional Move on Friday
• New Zealand Dollar Hit Hard by Fitch Credit Rate Outlook Downgrade to ‘Negative'

US Dollar Falls, Japanese Yen Gives Up Some Gains as JPMorgan Earnings Surge, Jobless Claims Plunge

The US dollar drifted lower and the Japanese yen gave up some of its gains from the Asian and European trading sessions amidst a a flurry of US releases today, which yielded mixed results. Starting with the good news, JPMorgan Chase reported better than expected Q2 earnings, as profits surged 36 percent. Meanwhile, initial jobless claims fell by 47,000, or 8.3 percent, during the week ending July 11 to 522,000 and continuing jobless claims fell a whopping 642,000, or 9.3 percent, to 6,273,000 during the week ending July 4. While these are definitely notable moves that signal improvements in labor market conditions during July, we also have to consider that the continuing claims result is for a holiday week.

Now, on to the bad news: the Federal Reserve Bank of Philadelphia's manufacturing index fell more than anticipated to -7.5 in July from -2.2, indicating that activity in the sector continued to contract for the tenth month. Adding to the mix, the latest TIC data showed that international investors sold, on net, $19.8 billion worth of long-term equities, notes and bonds in May, compared to net purchases of $11.5 billion in April. A closer look at the data shows that the bulk of sales were in Treasury notes and bonds, while stock purchases rose by the most since January 2008, highlighting how strong risk appetite was during the month of May. Adding to evidence of this, typical safe haven currencies like the US dollar, Japanese yen, and Swiss franc were the weakest of the majors during that period time.

Since these market correlations still hold, it is very important to watch what's going on in broad financial market news. Through the end of the week, there are a few companies to watch: CIT, Bank of America, Citigroup, and BB&T. CIT Group, a large and troubled commercial lender, was denied additional federal aid and a bankruptcy filing could be on the way, which would highlight the fact that financial market conditions remain unstable. Also, Bank of America, Citigroup, and BB&T will publish their Q2 earnings results on Friday. Of the three banks, only Citigroup is expected to announce another quarter of losses, but following the astonishingly strong results we saw from Goldman Sachs on Tuesday, there's a risk that the bar has been set too high and any disappointing result could resonate deeply with investors and spark flight-to-quality toward the US dollar and Japanese yen, while weighing on carry trades and stocks. On the other hand, additional round of surprisingly strong results could help to boost investor sentiment even further.

Related Articles: USD Forecast Bearish on Sentiment - Range Levels Critical, JPY Driven by Risk Trends, Threat of Political Instability Looms

Euro, British Pound Still Confined to Ranges With Little Data Due Out Through End of Week

The euro and British pound ended Thursday mostly higher, but there was little in the way of economic data on hand. For what it's worth, many of the US dollar pairs remain range bound, including EURUSD and GBPUSD, and until we see a directional move in the greenback, range conditions should remain. Key resistance levels to watch for EURUSD include 1.4150 (immediate resistance) and 1.4325 (June 2 highs), while major support looms at 1.3885 (rising trendline) and 1.3750 (June 16 lows). Meanwhile, GBPUSD is a bit more clear-cut, as heavy resistance looms at 1.6625 and support rests at 1.6000.

Canadian Dollar: USDCAD Ends Day Above Support at 1.1143, CPI Could Trigger Directional Move on Friday

While the Canadian dollar has been quite strong recently, it hasn't shown much of a sustained reaction to surprisingly strong economic data upon release, as the net employment change, housing starts, and Ivey PMI were all better than expected last week. However, inflation reports could have a bigger impact the Canadian dollar as the news could impact future decisions by the Bank of Canada. Headline CPI for June is projected to fall to an annual rate of -0.3 percent, while the BOC's core measure is projected to hold fairly steady at 1.9 percent, down from 2.0 percent. Such results would suggest that any price declines are due purely to falling commodity costs, and as long as the core measures don't fall sharply, the Canadian dollar shouldn't react too strongly. However, if broader price pressures start to fall more steeply, concerns about deflation may arise and weigh on the currency. That said, the USDCAD pair ended Thursday trading above the 61.8 percent fib of 1.0783-1.1723 at 1.1143, which could offer solid support through Friday. On the other hand, a break lower could target the next level of support at 1.0985/1.1000.

New Zealand Dollar Hit Hard by Fitch Credit Rate Outlook Downgrade to ‘Negative'

Last night we saw the New Zealand dollar pull back very sharply, but this actually had little to do with the New Zealand data on hand. While the consumer price index rose 0.6 percent during Q2, and the annual rate of growth fell less than expected to 1.9 percent from 3.0 percent. Ultimately, this leaves inflation within the Reserve Bank of New Zealand's target range of 1 percent - 3 percent, and since the decline wasn't as steep as anticipated, suggests that there is little need for the central bank to cut rates. Instead, the currency responded to news that Fitch Ratings had cut New Zealand's long-term sovereign credit rating outlook to negative due to a risk that the nation faces a low-growth trap as foreigners demand higher returns and on concerns regarding the medium-term growth outlook for New Zealand given its persistently large current account deficit and rising foreign indebtedness.

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Written by: Terri Belkas, Currency Strategist for