• The dollar and yen fell on Wednesday as US stocks rallied on earnings and economic recovery optimism. US industrial production posted the smallest drop in eight months. The New York Fed manufacturing report showed that manufacturing orders are expanding and the sector contracted at the slowest pace in over a year. The S&P 500 rallied 26.84 points to 932.68. Fed officials thought last month that the US recession would end before long, according to meeting minutes, but worried that the economy remained vulnerable to shocks. The yen plunged on increased risk appetite and signs that the Bank of Japan is getting more optimistic after extending its credit-easing programs less than expected. The euro rose on improved risk sentiment and comments by ECB member Vitor Constancio who said EMU interest rates are appropriate. Better-thanexpected UK employment data supported the pound. The high-yielding Australian dollar advanced as stocks and commodity prices rose.
  • The USD/CAD fell for a third day as stocks rallied and crude oil rose back above $60 a barrel. Canadian data were mixed; Canadian manufacturing shipment dropped more than expected, but housing starts rose more than anticipated. There are support in the 1.10 area and resistance in the 1.15. A US/global economic recovery will likely continue to pressure the pair.

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Financial and Economic News and Comments

US & Canada

  • US consumer prices increased a slightly more-than-expected 0.7% m/m in June on higher energy and automobile prices, after a 0.1% m/m increase in May, CPI data from the Labor Department showed. June CPI declined 1.4% y/y, the largest 12-month drop since January 1950. The core CPI, which excludes food and energy, was up a slightly more-than-anticipated 0.2% m/m, following May's 0.1% m/m increase. June core CPI rose 1.7% y/y, as forecast. Energy prices rose 7.4% y/y in June but dropped 25.5% y/y. Food prices were unchanged. Real average hourly earnings decreased 0.9% m/m in June but increased 4.5% y/y.

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  • US industrial production fell a less-than-expected 0.4% m/m in June, the smallest decline in eight months, after a downwardly revised 1.2% m/m slide in May, data from the Federal Reserve showed. June IP fell 13.6 y/y. Capacity utilization declined to 68.0% from May's downwardly revised 68.2%. Capacity utilization in June 2008 was 78.7%. Manufacturing production decreased 0.6% m/m in June. Manufacturing capacity utilization declined to 64.6% from May's downwardly revised 64.9%.

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  • The New York Fed manufacturing index climbed more than expected to -0.6 in July from -9.4 in June, indicating New York manufacturing contracted the least in more than a year, according to data from the Federal Reserve Bank of New York. The new orders index rose above zero for the first time since September 2008, rising to 5.9 in July from -8.2 in June, indicating the biggest increase in orders since the recession began in December 2007. The employment index increased to -20.8 from June's -21.8.

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  • Canada's manufacturing shipments declined a more-than-expected 6.0% m/m in May to C$38.4 billion ($34 billion), the lowest since November 1998, figures from Statistics Canada showed.

Europe

  • Eurozone consumer prices increased 0.2% m/m in June, as forecast, but declined as expected 0.1% y/y, the first annual drop since records began in 1996, according to CPI data from Eurostat. The core CPI rate eased to 1.4% y/y from May's 1.5% y/y.
  • UK jobless claims rose a less-than-expected 23,800 in June, the smallest monthly increase since May 2008, to 1.56 million, the highest level since July 1997, data from the Office for National Statistics showed. Overall unemployment in the quarter through May jumped 281,000, the most since records started in 1971. The claimant count rate remained at 4.8% in June. The unemployment rate based on International Labour Organization methods was at 7.6% in the three months through May, up 0.9 over the previous quarter. Average earnings including bonus increased 2.3% y/y in the three months through May. Average earnings excluding bonuses rose 2.6% y/y, the least since records began in 2001.

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  • Switzerland's retail sales declined 1.4% y/y in May after a 1.2% y/y gain in April, the Swiss Federal Statistical Office said.

Asia-Pacific

  • The Westpac-Melbourne Institute Australian leading economic indicators index, measuring future economic activity in Australia, was down 0.2% m/m to 248.2 points in May, the first decline in three months, after a downwardly revised 0.5% m/m increase in April, Westpac Banking Corp. and the Melbourne Institute reported. The LEI's annualized growth rate was -3.9% in May, still deep in negative territory but a slight improvement from April's downwardly revised -4.1%. The coincident index, measuring current economic activity, increased 0.2% m/m to 238 points in May, but its annualized growth rate was -0.1%.
  • Japan's machine tool orders in June fell 72.8% y/y, revised upward from a preliminarily reported 73.1% y/y drop, according to final June data from the Japan Machine Tool Builders' Association.
  • The Bank of Japan kept its key interest rate unchanged at 0.10%, as forecast, and signaled it may end crediteasing programs. We decided to extend the measures by three months this time, rather than six months, because financial conditions are improving and we expect this improvement to continue, Governor Masaaki Shirakawa said, adding that if this situation develops further, we will end the programs.

FX Strategy Update

 EUR/USDUSD/JPYGBP/USDUSD/CHFUSD/CADAUD/USDEUR/JPY
Primary TrendNeutralNeutralNeutralNeutralNeutralNeutralNeutral
Secondary TrendNeutralNegativeNeutralNeutralNeutralNeutralNeutral
OutlookPositivePositivePositiveNeutralNegativePositivePositive
ActionSellNoneBuyNoneNoneBuyNone
Current1.411194.251.64331.07451.11280.8040133.01
Start Position1.3904N/A1.4845N/AN/A0.6601N/A
ObjectiveN/AN/AN/AN/AN/AN/AN/A
Stop1.4235N/A1.5845N/AN/A0.7670N/A
Support1.380091.501.60001.07001.10000.7700128.00
1.355090.001.55001.04001.08000.7500125.00
Resistance1.420094.501.66001.10001.15000.8200135.00
1.430099.501.70001.13001.18000.8500140.00