Data from the US today came out poorer than expected. Durable Goods Orders ex Transport were down below analyst’s expectation to -0.6%, from 1.2% last month and a forecasted 0.4%. Whilst the composite index was down too. MBA Mortgage Applications were surprisingly low at -4.4% compared to 7.8% last month. However this metric is not considered as important as Durable Goods. Yesterday consumer confidence saw a fall below expectation whilst the S&P/Case Schiller House Price Index saw a slight gain but nothing that would set the world on fire. This comes after New Home Sales jumped 26.3% on Monday. The ambivalence of the data suggests contradictory economic crosscurrents at work and seem more representative of the inadequacies of statistics. Take for example the New Home Sales jump of 23.6%, whilst this sounds awesome, it doesn’t mention the fact that in May there was a record drop of over 30% so, the gain was from an unusually low starting point. Whilst the improvement is encouraging it may be more as a result of an elastic pullback to the 'mean' rather than representative of true growth. For true growth the US needs higher GDP, a better balance of trade and most importantly something still lacking which is higher employment. At midday GMT the dollar traded at $1.2990 to the euro and $1.5581 to the pound.

   The euro has been having a sideways day at the old highs, bumping around under 1.30. There was no new economic data but the continued belief that Europe may be through the worst persists somewhat. Positive data showing mildly inflationary tendencies in price indexes and a surprise rise in EUR July Money Supply have also helped shore up the common currency’s previously precarious position. However sceptics argue that mild inflation will not be anywhere near enough to encourage a change of monetary policy since the inflation rate is still below the 2% target. The high July money supply failed to take into account the ending of the ECB’s 12-month repo – a lending facility allowing European banks to secure access to the central bank’s funds for a year – which amounted to large liquidity drain and put upward pressure on short-term borrowing costs. Technically the euro looks overbought and there is no new news to help inflate its value further. At midday GMT the euro traded at $1.2990 to the dollar and £0.8335 to the pound.

   There was no data out today for the UK which has enjoyed a good run of late with retail sales beating analysts estimates and of course the 1.1% growth in GDP. Instead Mervyn King’s statement to the treasury select committee was closely watched for any comments which might give investors a clue as to whether the BOE’s stance on monetary policy had changed or not. In any event they would have been disappointed as he seemed to promote an unchanged view, saying that there was “some considerable distance to travel before we can begin to use the word ‘normal’". He also dismissed most of the arguments about cuts leading to double dip recessions and the difficulties businesses face with tight credit, saying such matters were inconsequential compared to the need to restructure the economy to make it more export orientated and the effect of the economic health of trading partners on the UK. Sterling went sideways mostly today and at midday GMT it was trading at $1.5581 to the pound and ¥136.84 to the yen.

   Not much data for Japan with just small business confidence which showed a small increase. The yen however did start to see a small rise after the negative Durable Goods Orders release out of the US and on the back of lacklustre profits from big-hitter Boeing drove down risk appetite and sent some investors scurrying to safety. At midday the yen stood at ¥87.83 to the dollar and ¥114.09 to the euro.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst