The market moods are still pessimistic to the dollar, which dropped even lower against the euro and the yen. The Moody’s cautioned that if the US government had to suggest a real plan to fight a continuing debt crisis, or its AAA credit rating would be damaged. Initial claims for jobless benefits declined by 11,000 to 457,000 in the week ended July 24. However, the previous week's level of claims was revised upward, from 464,000 to 468,000, besides, the number of second-time claims increased by 81 thousand to 4565 against 4484 3 weeks earlier. This brought more even more frustrations - job market is a major issue and any little change downwards is always seen negative. Today’s news from the US are centered around the GDP data for the second quarter, where we expect a decrease to 2.5% (q/q) after 2.7% q/q. and University of Michigan consumer confidence index with estimated growth from 66.5 to 67.5. Of interest today is also Chicago PMI – a serious weakening from 59.1 to 56.1 is anticipated. As for the dollar, it has all chances to get its positions back, unless anything negative turns up.
EUR
Good statistics from the eurozone helped the euro along to strengthen against the dollar. Germany’s unemployment rate decreased from 7.7% to 7.6% in June, as it was projected, and proved that assumptions about a continuing economic recovery make sense. Sentiment Indices (business confidence, industry confidence, services confidence etc.), released on Thursday by the Euro Commission, also increased and came out above expected.
Today’s statistics will provide some important EU economic indicators. Retail sales in Germany are released first, but no significant changes are observed here: 0.0% m/m. The next to come is the eurozone unemployment rate, which also remains at the same level of 10.0%. As for the Consumer Price Index, it’ll probably grow from 1.4% up to 1.7%. Technical factors, like psychological resistance levels and profit-fixation attractiveness, have now become the main risk to the euro and can initiate a sell off.
GBP
The British pound, influenced by the negative dynamics from the “Islands”, ended the day with just a slight growth against the dollar. British Home Prices decreased in July, annual growth has also slowed down. Nationwide reported, that home prices decreased by 0.5% m/m and grew by 6.6% y/y, which gave support to the previous Hometrack and Rightmove reports, which also registered a fall in homes prices on monthly results. Released data also show a slowdown in money supply. M4, being a useful background indicator to the strength of demand for credit, showed a very poor dynamics. The number of mortgage approvals has decreased from 49.5 to 47. 6 thousand in June, net consumer credit totals 567.0 million pounds after 1.13 billion in May, net mortgage lending dropped to 665 million against 838 million a month earlier.
Therefore, yesterday’s reports raised doubts over Britain’s economic recovery. Besides, the Euro commission stressed that Consumer Confidence Index in Great Britain hit its 12 months low and now equals -17. Today’s publications also showed a decrease in consumer sentiment – according to GfK it came to -22 points in July. There’s no statistics for today, which means that sterling will stay under the influence of external information and a technical picture, which anticipates growth stop, because strong resistance has all chances trigger GBP/USD correction.
JPY
The yen has been strengthening against the dollar for the second day in a row. Today’s economic data didn’t reflect any cardinal changes. Deflation remains a key issue – core CPI decreased by 1.0% y/y, and by -1.3% y/y in Tokyo. PMI also fell from 53.9 to 52.8 in July. The only bright spot is workers household spending data – it showed +0.5% y/y in June after -0.7% in May. Nevertheless, the yen keeps growing today. Economic slowdown in the United States is obviously the major reason for the yen growth. At the same time the government is said to be planning on interventions – this will probably have a chilling effect on investors.
Analysis prepared by:
Arkady Nagiev
Forex4you analyst
