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Posted by HY Markets on Thursday July 29, 2010 9:50 am
As extreme market volatility continues, the U.S. dollar is once again
drowning under weaker-than-expected economic data. A report released
today showed new U.S. claims for jobless benefits climbed more steeply
than anticipated, with a showing of 464,000. The report followed other
data earlier in the week showing weakness in the housing sector and
yesterdays comments from Federal Reserve Chairman Ben Bernanke, who
said that the economic outlook as "unusually uncertain."
Compounding the dollar’s weakness was the sharp contrast of the U.S.
data to that of the eurozone which today released
stronger-than-expected European economic data reviving market appetite
for risk.
The euro has strengthened on the back of strong economic data which
showed that the private sector surged ahead in July. Additionally, a
separate report showed eurozone industrial new orders rose in May at
their fastest annual rate in 10 years.
Traders are now eagerly anticipating the results of the Bank stress
tests. Though the tests are largely expected to show that all the major
European banks have sufficient capital, investors are still in a wait
and see position. Some in the foreign exchange market say the test
results could be positive for the euro if they reveal no unpleasant
surprises, but doubts linger over whether the checks are tough or
transparent enough.
Sterling was supported by better-than-expected data as British
retail sales came in higher than expected, alleviating some concerns
about the economy. UK retail sales volumes received a World Cup boost
in June after strong sales of electrical goods drove a
faster-than-expected 0.7% monthly rise. The pound surged following the
unexpectedly strong GDP recovery in the second quarter, while the other
foreign currencies futures marked time overnight and they open little
changed in the US. Even the euro is only modestly higher despite the
respectable increase in the Ifo survey. Traders don’t want to be caught
wrong footed before the release of the results of the European banks’
stress tests later today; two-thirds of the Eurozone’s banking sector
are tested to assess whether they will be able to withstand future
adversities in the financial sector. This could be a game changer
With investor appetite for risk returning, the Canadian dollar
is showing its third consecutive day of gains against the USD.
Supported by rallying global stocks and strong oil prices, Canada's
commodity-linked currency is on the rise.
The Japanese yen remained firm, near recent seven-month highs against
the USD. The rise in the yen has been hampered by caution that Japanese
policymakers may try to talk it down as it nears a 14-year high around
85 yen per dollar hit last November.
The Australian dollar held recent gains, surging to a 2-month high
against the USD. The yield advantages have limited selling pressures in
the pair.
The Asia/Pacific stock markets surged in line with the US
indexes, the European bourses are little changed on both sides of zero,
while the gold/oil spread rose. The US stock indexes are slightly
higher in pre-open market.
The short-term outlook remains sideways and dependant on the
performance of the stock indexes for all of the foreign currencies
futures. The medium-term outlook is sideways for most of the foreign
currencies futures. My model is now short only on the euro.
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