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• Euro Mostly Lower as ECB Officials Remain Cautious on Economic Outlook
• British Pound the Weakest of the Majors on Bleak Macro Outlook
• Canadian Dollar Gains on Surprisingly Strong Retail Sales
US Dollar, Japanese Yen Price Action to Remain Choppy Ahead of US Consumer Confidence Report
The US dollar and Japanese yen fell against the commodity dollars on Monday as risk appetite drove carry trades higher through the start of the US trading session. However, the greenback gained versus the euro, yen, Swiss franc, and British pound, but for what it's worth, the majors remain within the same trading ranges that have contained price for weeks, if not months. Meanwhile, the S&P 500 has shown some signs of topping, as the index was not able to push above resistance at 1035 and ultimately ended the day down 0.56 points at 1025.57. Looking to US economic news, the Chicago Fed's National Activity Index rose to -0.74 in July from -1.82, as production-related indicators made a positive contribution to the index for the first time since October 2008. This is in line with most other manufacturing reports, adding to the number of indicators showing that the only signs of recovery we're seeing in the US are related to cars or exports.
On Tuesday, the August reading of the Conference Board's measure of US consumer confidence is expected to rise slightly to 47.8 from 46.6 in July, but overall, there are some downside risks for this report. Indeed, preliminary readings of the University of Michigan's consumer confidence index show that sentiment soured in August, with the index hitting a 5-month low of 63.2 from 66.0, as the economic conditions component dove down to 64.9 from 70.5, while the economic outlook slipped to 62.1 from 63.2. Furthermore, the latest consumption results were disappointing, as advance retail sales, excluding autos, fell 0.6 percent in July. Disappointing numbers could have especially negative repercussions for risk appetite, especially as Friday's rally in equities and carry trades was due to speculation that the US economy is making its way out of recession.
Related Articles: FX Carry Trade Direction Hinges Upon Proof of Global Economic Recovery, US Dollar Weekly Trading Forecast
Euro Mostly Lower as ECB Officials Remain Cautious on Economic Outlook
The euro fell slightly against the US dollar on Monday and didn't show much of a reaction to the release of Euro-zone industrial new orders, which rose at the fastest pace in 19 months. New orders jumped by a better-than-expected 3.1 percent in June, bringing the annual rate of growth down to -25.1 percent from -30.3 percent. In general, the manufacturing sector has seen the most improvement in recent months as export demand has risen, but the sustainability of this growth is questionable as it is due, primarily, to various stimulus measures and extraordinarily accommodative monetary policy. Even European Central Bank (ECB) President Jean-Claude Trichet is not confident in the outlook, as he said on Saturday at the Jackson Hole symposium that while he's seen some signs confirming that the real economy is starting to get out of the period of freefall, it doesn't mean that we do not have a very bumpy road ahead of us.
Looking ahead to Tuesday, the final reading of Q2 German GDP shouldn't be market-moving for the euro, as no revisions are expected. Indeed, the government is anticipated to confirm preliminary estimates showing that the German economy expanded by 0.3 percent during Q2 (seasonally adjusted), the first increase since Q4 2007, and contracted 5.9 percent from a year earlier (working days adjusted), compared to a contraction of 6.7 percent in Q1. The news may only impact the euro if we see revisions, especially given Trichet's cautious stance.
Related Article: Euro Weekly Trading Forecast
British Pound the Weakest of the Majors on Bleak Macro Outlook
The British pound was the weakest of the majors on Monday, with GBPUSD closing out the day in a consolidation above support at 1.6400. More critical support sits at 1.6300, though, where we have the potential neckline of a head-and shoulders patterns (shoulders at 1.6585). While there was no UK data on hand, the macroeconomic outlook for the nation remains bleak, especially after traders learned last week that the UK government posted a deficit of 8 billion pounds in July, the biggest since recordkeeping began in 1993, highlighting the dour state of the nation's finances. Standard & Poor's lowered its outlook on the UK's AAA credit rating to negative from stable in May for this very reason, and if we see this trend continue, the risk for an actual downgrade will grow and put greater pressure on the British pound.
Related Article: British Pound Weekly Trading Forecast
Canadian Dollar Gains on Surprisingly Strong Retail Sales
The commodity dollars were the strongest of the majors on Monday, but the Canadian dollar was the only one with fundamental forces contributing to the move. Indeed, the currency shot higher against the US dollar after the release of Canadian retail sales proved to be better than anticipated. Consumption rose 1 percent in June, marking the second straight increase, with auto and gas sales providing the biggest boost to the overall index. The figures suggest that the nation's recession may have bottomed, and that growth may be partially driven by consumers.
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Written by: Terri Belkas, Currency Strategist for DailyFX.com