The US dollar received some support from the economic releases today but gave up most of its intra-day gains towards the end of the US session. According to the data from the Department of Commerce, the advanced estimate for US July retail sales has shown a 0.7% rise (0.2% ex autos), which came below the expectation of 1% (0.4% ex autos). June retail sales were revised upwards from the initial drop of 1.1% to a more modest decline of 0.5%. The number of people filing new claims for unemployment benefits fell to 333,000 last week, down 4,000 from a revised 337,000 the week before.

Despite the weaker than expected number for July, currency traders were somewhat comforted by the revision of the June figure, triggering mild dollar buying. The equity market appeared to be much less impressed as the major indices tumbled lower on disappointing profits forecast from Hewlett Packard. Oil prices continued to grab top headlines reaching a new high of $45.75 in New York trading. Should oil prices advance further, they are likely to put stocks under additional pressure and may limit any significant upside for the US currency. Generally, today’s data did little to give direction to the undecided market. Tomorrow’s trade balance deficit could unsettle the dollar should it come in worse than $47 billion.

Euro softens on data but recoups losses

Data from the Eurozone released earlier today showed German second-quarter growth coming in line with expectations, while the estimate of French second-quarter GDP showed a rise above expectations. The Euro briefly spiked above 1.23 immediately after the US retail sales news release, but rapidly retreated to 1.2220 levels. The single currency edged higher against the dollar in late afternoon trading as high oil prices and falling stocks weighed on the dollar. Resistance is seen at 1.2305 (today’s high), followed by 1.2330 and 1.2380. Subsequent ceilings are eyed at 1.24, backed by 1.2435 and 1.25. Aug 4 hourly support line remains intact with losses likely to encounter support at 1.2220, followed by 1.22, 1.2160 and 1.2130. Additional floors are seen at 1.21, backed by 1.2040 and 1.20.

Yen awaits GDP numbers

Japan's GDP growth figures to be released at 7:50 pm NY Time are expected to show the Japanese economy growing 1.1% in Q2. The IMF report released earlier raised its forecast for Japan's growth in 2004 from 3.4 to 4.5 percent.
USDJPY is trading just below 111. Resistance is seen at 111.20 followed by 111.45 and 111.80. Subsequent ceilings are seen at 112.30, backed by 113 and 113.35. Meanwhile, losses will encounter support at 110.40, followed by 110 and 109.70. Further losses will be tempered at 109.40, followed by 109 and 108.65.

Sterling lower against the Dollar and the Euro

Sterling was trading lower against the Dollar and the Euro today. GBPUSD broke through support at 1.8250 but held the 1.82 level. Additional floors are eyed at 1.8160, followed by 1.8130 and 1.81. Upside will encounter resistance at 1.8260, 1.83 and 1.8330, followed by 1.84 and 1.8450. Subsequent ceilings are eyed at 1.8475, backed by 1.85 and 1.8540.

Aussie marginally lower

AUDUSD eased to 0.7140, with support confirmed at 0.7125, followed by 0.7075 and 0.7040. Subsequent floors are seen at 0.7020, followed by 0.6960 and 0.6920.
Resistance is eyed at 0.72 and 0.7230. Gains will encounter 0.7175 followed by 0.72. Additional ceilings emerge at 0.7250, followed by 0.7280 and 0.73.

At 8:30 US July Retail Sales (exp 1.0%, prev –1.1%) US July Retail Sales ex-autos (exp 0.4%, prev –0.2%) US Weekly Jobless Claims (exp 340k, prev 336k) At 10:00 AM US June Business Inventories (exp 0.4%. prev 0.4%) FOMC Minutes (exp n/a, prev n/a)

The dollar lost further ground against the majors overnight, continuing to relinquish its post Fed rate hike gains. Nevertheless, currencies remained mired within recent ranges as summer doldrums may be starting to set in. Further adding to impending quiet trading will be the upcoming summer Olympic games. Meanwhile, the coming session will see US July retail sales, weekly jobless claims, June business inventories and the FOMC minutes.

Euro Grinds Higher

In the ECB’s August bulletin, the Bank maintains its outlook for price stability in the medium term, in spite of short-term price pressures. It says that high oil prices are a concern, and may be sustained by strong global economic growth. However, it adds there have yet to be signs of a build-up of stronger general inflation pressures. The ECB is confident of further recovery, with the latest data in line with rising activity. Lastly, it says that it must remain vigilant on inflation expectations and risks to price stability.

Germany’s Q2 GDP was up 0.5% q/q and 2.0% annually, largely in line with consensus forecasts. According to the German stats office, the Q2 GDP growth was fuelled by strong exports and that domestic demand was nearly stagnant. Nevertheless, given the record levels of oil currently, some suspect that Germany’s economy may have peaked.

EURUSD edged higher overnight, climbing to 1.2272. Resistance is seen at 1.23, followed by 1.2330 and 1.2380. Subsequent ceilings are eyed at 1.24, backed by 1.2435 and 1.25. Losses will encounter support at 1.22, followed by 1.2160 and 1.2130. Additional floors are seen at 1.21, backed by 1.2040 and 1.20.

Cable Buoyed

The sterling jumped to 1.8335 against the dollar in London trading. Resistance is seen at 1.8350, followed by 1.84 and 1.8450. Subsequent ceilings are eyed at 1.8475, backed by 1.85 and 1.8540. Support starts at 1.83, backed by 1.8250 and 1.82. Additional floors are eyed at 1..8160, followed by 1.8130 and 1.81.

USDJPY

Dollar/yen trades near 110.65, with resistance seen at 111, followed by 111.45 and 112. Subsequent ceilings are seen at 112.30, backed by 113 and 113.35. Meanwhile, losses will encounter support at 110.40, followed by 110 and 109.70. Further losses will be tempered at 109.40, followed by 109 and 108.65.

Aussie Unchanged After Jobs Data

Australia’s employment rose 21,600 in July, albeit short of forecasts of a rise of 27,500. The July unemployment rate stood at 5.7%, also missing estimates of a fall to 5.6% and edging up from the previous month. Meanwhile, the participation rate was 63.6% and full-time employment was unchanged in July.

AUDUSD hovers near 0.7160, with resistance eyed at 0.72 and 0.7230. Additional gains will target 0.7250, followed by 0.7280 and 0.73. Support starts at 0.7120, followed by 0.7075 and 0.7040. Subsequent floors are seen at 0.7020, followed by 0.6960 and 0.6920.

USDCHF

Resistance is eyed at 1.2560, followed by 1.26 and 1.2660. Additional gains will target 1.27, followed by 1.2740 and 1.2780. Meanwhile, losses will target support at 1.25, followed by 1.2415 and 1.2370. Subsequent floors are seen at 1.2310, followed by 1.2265 and 1.2215.

At 2:00 AM Germany Q2 Flash GDP q/q (exp 0.5%, prev 0.4%) Germany Q2 Flash GDP y/y (exp 1.4%, prev 1.5%)

The majors were little changed in early Thursday trading as the summer doldrums may have set in. In the Tokyo session, the dollar held steady within its previous session’s range against the majors, trading near 1.2250 versus the euro and 110.70 against the yen.

Euro Trades Narrowly

Germany’s Q2 GDP was up 0.5% q/q and 2.0% annually, largely in line with consensus forecasts. According to the German stats office, the Q2 GDP growth was fuelled by strong exports and that domestic demand was nearly stagnant. Nevertheless, given the record levels of oil currently, some suspect that Germany’s economy may have peaked.

EURUSD traded narrowly, holding steady near 1.2250. Resistance is seen at 1.23, followed by 1.2330 and 1.2380. Subsequent ceilings are eyed at 1.24, backed by 1.2435 and 1.25. Losses will encounter support at 1.22, followed by 1.2160 and 1.2130. Additional floors are seen at 1.21, backed by 1.2040 and 1.20.

Aussie Unchanged After Jobs Data

Australia’s employment rose 21,600 in July, albeit short of forecasts of a rise of 27,500. The July unemployment rate stood at 5.7%, also missing estimates of a fall to 5.6% and edging up from the previous month. Meanwhile, the participation rate was 63.6% and full-time employment was unchanged in July.

AUDUSD hovers near 0.7160, with resistance eyed at 0.72 and 0.7230. Additional gains will target 0.7250, followed by 0.7280 and 0.73. Support starts at 0.7120, followed by 0.7075 and 0.7040. Subsequent floors are seen at 0.7020, followed by 0.6960 and 0.6920.

USDJPY

Dollar/yen trades near 110.65, with resistance seen at 111, followed by 111.45 and 112. Subsequent ceilings are seen at 112.30, backed by 113 and 113.35. Meanwhile, losses will encounter support at 110.40, followed by 110 and 109.70. Further losses will be tempered at 109.40, followed by 109 and 108.65.

Cable

Cable trades above the 1.83-level, with support seen at 1.8250, followed by 1.82 and 1.8160. Subsequent floors are eyed at 1.8130, followed by 1.81 and 1.8070. Gains will target resistance at 1.8330 and 1.8350. Additional ceilings are eyed at 1.84, backed by 1.8450 and 1.8475.

The Dollar firmed moderately against the Euro during the US session to settle around 1.2210-1.2220 as traders continued to evaluate whether the Federal Reserve Bank's upbeat sentiment over the US recovery is justified. On Tuesday, the Fed raised the overnight lending rate to 1.50%, while the accompanying statement echoed Greenspan's 'soft patch' interpretation of the recent weakness in output and jobs growth attributing it to the rise in energy prices. The stock market gave back part of yesterday's gains, with the technology heavy Nasdaq index shedding 1.45% on disappointing sales estimates from Cisco Systems. Meanwhile, crude oil continued to trade above $44.50 despite top oil exporter Saudi Arabia vowing to boost supply to meet extra demand.

According to the prevailing sentiment, the Fed needs to come up with more concrete factual evidence in support for its optimistic rhetoric. Markets will be carefully watching the US economic data releases in the weeks ahead, particularly inflation and unemployment figures. Energy prices will be monitored equally closely. As we discussed in the Articles and Ideas section, should crude oil price continue to rise, questions will be raised as to whether the effects of this rise are merely 'transitory', as implied by the Fed. So far, there is little indication that oil prices can reverse their upside momentum in the near future. Higher oil prices have accompanied all of the US economic recessions since the early 1970s.

EURUSD tests 1.22, sentiment mixed

The Euro traded marginally lower versus the dollar, but managed to hold the 1.22 support level in New York morning trading. With July retail sales and weekly jobless claims figures due tomorrow, economists are expecting to see a rebound from June's disappointing showing of ¨C1.1% to 1.0%. The reading on the weekly jobless claims figure is expected to come in around 340K. Any major deviation is likely to play into the hands of recovery optimists or skeptics and could provide fresh direction.

Support for the Euro begins at 1.22, followed by 1.2180 (Aug. 4 trend support line) and 1.2130. Additional floors will emerge at 1.21, followed by 1.2040 and 1.20. Resistance stands at 1.2240, followed by 1.23 and 1.2318 (Aug 10 high). Subsequent ceilings are eyed at 1.2380, backed by 1.24 and 1.2435.

Dollar softer against Yen

USDJPY pair dropped below 111 and is currently trading around 110.90. Despite today's modest rebound the yen has been largely in selling mood both against the Dollar and the Euro since Monday on concerns over the impact of rising energy prices for Japan's heavily oil-importing economy.

Upside resistance is seen at 111, followed by 111.45 and 112. Subsequent ceilings are seen at 112.30, backed by 113 and 113.35. Meanwhile, losses will encounter support at 110.40, followed by 110 and 109.70. Further losses will be tempered at 109.40, followed by 109 and 108.65.

Cable just under 1.83

Sterling ended the day little changed against the dollar having briefly breached 1.83 level but quickly retreating below. Support for cable is seen at 1.8250, followed by 1.82 and 1.8160. Subsequent floors are eyed at 1.8130, followed by 1.81 and 1.8070. Gains will target resistance at 1.83, backed by 1.8330 and 1.8350. Additional ceilings are eyed at 1.84, backed by 1.8450 and 1.8475.

Aussie trades higher

AUDUSD progressed to 0.7145, with resistance eyed at 0.7165 followed by 0.72 and 0.7230. Additional gains will target 0.7250, followed by 0.7280 and 0.73. Support starts at 0.7120, followed by 0.7075 and 0.7040. Subsequent floors are seen at 0.7020, followed by 0.6960 and 0.6920.

No Key Data

While the dollar held onto its post rate-hike gains overnight, range bound trading returned to the currency markets – with the major pairs trading narrowly. The dollar was steady against the euro near 1.2220 and buoyed above the 111-mark versus the yen. Spot gold continued to back off its recent highs, now trading around $395.70/oz. Meanwhile, oil prices head steady near the $45/barrel level.

Cable Little Changed from Data

The UK unemployment rate showed a drop in the claimant count of 13.7k versus forecasts for a drop of 8k. The unemployment rate was unchanged at 2.7%. Separately, in the Bank of England’s quarterly inflation report, the Bank said that CPI is expected to reach the 2% target within two years assuming market path. Little was changed in the BoE’s forecast of GDP growth and inflation than that of the May report. Lastly, the BoE projects that housing prices will decline sharply over the next two years.

BoE Governor King declined to comment on how the MPC would react to further gains in oil price, and said he wasn’t sure what the neutral interest rate is. He said that risks to the economic outlook were evenly balanced, but remain significant in both directions. King says the jobs market, and capacity pressures suggest upside risks to wages and inflation.

Cable continues to trade beneath the 1.83-level, with support seen at 1.8250, followed by 1.82 and 1.8160. Subsequent floors are eyed at 1.8130, followed by 1.81 and 1.8070. Gains will target resistance at 1.83, backed by 1.8330 and 1.8350. Additional ceilings are eyed at 1.84, backed by 1.8450 and 1.8475.

Dollar/yen Buoyed Above 111

Japan’s unadjusted current account surplus rose 15.7% y/y in June to 1.2809 trillion yen. The June trade surplus also edged up 36.8% y/y to 1.3456 trillion yen. Meanwhile, the July corporate goods price index was up 0.4% and 1.6% y/y.

Dollar/yen trades near 110.80, with resistance seen at 111, followed by 111.45 and 112. Subsequent ceilings are seen at 112.30, backed by 113 and 113.35. Meanwhile, losses will encounter support at 110.40, followed by 110 and 109.70. Further losses will be tempered at 109.40, followed by 109 and 108.65.

Euro/USD

The euro traded within a tight range versus the dollar, holding steady above the 1.22-level. Resistance is seen at 1.2250, followed by 1.23 and 1.2330. Subsequent ceilings are eyed at 1.2380, backed by 1.24 and 1.2435. Support begins at 1.22, followed by 1.2160 and 1.2130. Additional floors to emerge at 1.21, followed by 1.2040 and 1.20.

USDCHF

Dollar/Swiss trades just above the 1.26-mark, with resistance starting at 1.2660, followed by 1.27 and 1.2740. Further resistance is seen at 1.2780, backed by 1.2840 and 1.29. Floors are seen at 1.26, backed by 1.2560 and 1.25. Subsequent support eyed at 1.2415, followed by 1.2370 and 1.2310.

AUDUSD

AUDUSD hovers near 0.7125, with resistance eyed at 0.7165 followed by 0.72 and 0.7230. Additional gains will target 0.7250, followed by 0.7280 and 0.73. Support starts at 0.7120, followed by 0.7075 and 0.7040. Subsequent floors are seen at 0.7020, followed by 0.6960 and 0.6920.

The US dollar posted gains across the board after the Fed raised its benchmark lending rate by 25pb to 1.5%. The stock market rallied in late afternoon trading with Dow Jones index closing 130 points higher, posting its biggest one-day percentage gain in 3 months. Whereas the hike itself was widely anticipated by the market, traders were focusing on the Fed's statement that reiterated the 'measured' approach to further rate hikes while largely maintaining an optimistic outlook on the prospects of US recovery.

Having acknowledged that "in recent months, output growth has moderated and the pace of improvement in labor market conditions has slowed" the Fed stated that "The economy nevertheless appears poised to resume a stronger pace of expansion going forward." There was also no change with regards to the 'measured' approach to rate tightening. The Fed statement may have surprised some market participants by failing to directly address the growth implications of the recent weakness in consumer spending and jobs data. At the same time, it gave few clear-cut hints with regards to the probability of further rate hikes in Q3 and Q4.

Euro slips by 0.6% against greenback

The Euro fell from around $1.2305 immediately before the Fed announcement to around $1.2235 and is currently trading just above the 200-day moving average. Further support starts at 1.2210 and 1.2185. Additional losses will target 1.2130, followed by 1.21 and 1.2040. Resistance is seen at 1.2270, followed by 1.2318 (today's high) and 1.2380. Subsequent ceilings are eyed at 1.24, backed by 1.2435 and 1.25.

Sterling accelerates early losses

GPBUSD added to earlier losses after the unexpectedly weak UK data released early in the European session. Having slipped to 1.8355 in London trading, cable added a full cent to its losses immediately after the FOMC decision to finish the session around the 1.8260 mark. Subsequent floors are seen at 1.8220, backed by 1.82 and 1.8160. Gains will target resistance at 1.8280, followed by 1.8340 and 1.84.

Yen under pressure from oil, Fed decision

The Yen came under pressure early in the US session on implications of rising oil prices for Japan's economy. USDJPY reached 111.42 immediately after Fed's announcement and currently trades around 11.25. Further retracement will encounter support at 110.70 (Aug. 6 hourly trend support), followed by 110 and 109.70. Additional losses will be tempered at 109.40, followed by 109 and 108.65. Gains are capped at 111, followed by 111.75 and 112. Subsequent ceilings are seen at 112.30, backed by 113 and 113.35.

Swiss Franc

USDCHF was sent sharply higher by the Fed's decision quickly surging above 1.26 mark. Resistance is seen at 1.2660 and 1.2685. Additional gains will target 1.27, followed by 1.2740 and 1.2780. Meanwhile, losses will encounter support at 1.2490 (today's low), followed by 1.24.40 and 1.2415. Subsequent floors are seen at 1.2370 followed by 1.2310.