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- Euro Gains as Q2 GDP Falls Less Than Expected, British Pound Consolidates
- Swiss Franc Still Faces Intervention Risks as Producer and Import Prices Gall by Most in Nearly 34 Years
- New Zealand Dollar Gains Ahead of Key Consumption Report - Trading Opportunity?

US Dollar Under Pressure, Japanese Yen Gains After US Retail Sales Disappoint
The US dollar may have been the weakest of the majors, but most of the losses occurred during the European trading session. Indeed, the greenback actually started making headway following a flurry of US economic releases at 8:30 ET that triggered yet another bout of risk aversion, though the Japanese yen was arguably the bigger beneficiary. Looking to the data on hand, US advance retail sales slipped 0.1 percent in July, missing forecasts for a 0.8 percent increase, while sales fell 8.3 percent from a year earlier. A breakdown of the report shows a 2.4 percent rise in sales of motor vehicles and parts, thanks to the US government's cash for clunkers program, but beyond that factor most other components fell, including building materials (-2.1 percent), gasoline stations (-2.1 percent), and electronics & appliance stores (-1.4 percent). All told, consumer spending habits remain lackluster, suggesting that last week's surprisingly strong non-farm payrolls report may have been a misleading sign of an economic turnaround in the US.

Other evidence of this comes from initial jobless claims, which rose by 4,000 during the week ending August 8 to 558,000, indicating that some of the improvements we saw in July may have started to deteriorate once again in August. In other US news, import prices fell by 0.7 percent in July led by petroleum costs, while business inventories dropped 1.1 percent in June thanks to a 0.9 percent rise in total sales that brought the inventory/sales ratio down to 1.38 from 1.41.

On Friday, the preliminary reading of the University of Michigan's consumer confidence index is forecasted to show a rise to 69.0 in August from 66.0, which would be supportive of claims that the US economy is showing signs of recovery. Indeed, based on the latest US non-farm payrolls results, the pace of job losses has slowed markedly, which may help to boost investor sentiment. On the other hand, the latest retail sales results may indicate that NFPs were somewhat deceiving. That said, the major issue we want to point out with this report is that the official time of release is 10:00 ET, but it typically hits the wires at 9:55 ET, which can exacerbate any surprise factor from the actual results.

Related Article: US Dollar Weekly Trading Forecast, Japanese Yen Weekly Trading Forecast

Euro Gains as Q2 GDP Falls Less Than Expected, British Pound Consolidates
The euro and British pound both made headway against the US dollar and Canadian dollar on Thursday, but only the former had relevant news on the wires. Data showed that the economic contraction in the Euro-zone slowed markedly during Q2 as the advanced reading of GDP only fell by 0.1 percent, following a 2.5 percent drop in Q1. The news was much better than forecasts for a 0.5 percent decline, which helped push the year-over-year rate of growth up to -4.6 percent from -4.9 percent. A breakdown of the index shows that a 0.3 percent increase in GDP in Germany and France, the first and second largest economies in the Euro-zone, helped buoy the overall number thanks to improvements in export demand. That said, there will be two more rounds of estimates to Q2 GDP (preliminary and final), so traders should beware of revisions. Nevertheless, the data supports the more neutral stance the European Central Bank has started to undertake.

Related Article: Euro Weekly Trading Forecast

Swiss Franc Still Faces Intervention Risks as Producer and Import Prices Gall by Most in Nearly 34 Years
The Swiss franc experienced very choppy price action on Thursday, but ultimately gained against the US dollar, euro, and British pound due primarily to its low-yielding, safe haven status. From a technical perspective, the currency is nearing some critical levels, with EURCHF facing key support at 1.5250 and resistance at 1.5350/80, while USDCHF closed near the center of a narrowing range of 1.0560-1.0850 and GBPCHF traded near the middle of its 1.75-1.80 range. From a fundamental perspective, economic data continued to suggest that the Swiss National Bank may continue intervening in the currency markets due to the threat of deflation. Indeed, Swiss producer and import prices dropped 6.1 percent in July from a year earlier, the sharpest drop in nearly 34 years in July, as oil prices fell and the appreciation of the Swiss franc against the euro over that time period has made imports from the region cheaper.

New Zealand Dollar Gains Ahead of Key Consumption Report - Trading Opportunity?
The New Zealand dollar dominated the majors on Thursday, even beating out the Japanese yen, ahead of the release of key economic data at 18:45 ET. Focusing on NZDJPY, the pair made a bullish break above a falling trendline last week that connected the 2007-2009 highs at approximately 64.50, as well as the 38.2% fib of 97.81-44.23 at 64.67. Now that we've seen NZDJPY pull back for a test of this former resistance point (now support), and with daily RSI down from overbought levels, there may be a potential buying opportunity, especially if fundamentals underpin a move to the upside overnight.

While the monthly reading of New Zealand retail sales for June is projected to reflect a decline of 0.3 percent, the Q2 result is anticipated to rise by 0.2 percent after a steep 2.9 percent drop in Q1, and it is this measure that could impact the New Zealand dollar the most. While a 0.2 percent increase isn't remarkable by any means, it would be the first improvement in consumption since Q3 2007 and an encouraging sign that the severity of New Zealand's recession is easing. As a result, a rise in quarterly retail sales that meets or is better than forecasts should offer a boost to the New Zealand dollar, but if spending surprisingly contracts for the sixth straight quarter, the currency may tumble.

Related Article: New Zealand Dollar Weekly Trading Forecast

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Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com