Dollar Drops on Strong Economic Data

Economic optimism returned on Thursday, supporting risk-prone currencies against the dollar and yen. Stocks, commodities and interest rates rose on better-than-expected economic and corporate earnings reports. Federal Reserve Chairman Ben Bernanke told Congress that “we are ready and we will act if the economy does not continue to improve” and reassured investors that further stimulus would be there if needed. US June existing-home sales declined less than anticipated; May FHFA house prices rose for a third consecutive month; and the June LEI fell marginally less than expected. The S&P 500 surged 24.08 to 1,093.67. The yen pared most of its overnight gains on increased risk appetite and another verbal intervention by a government official. Vice Finance Minister Motoshisa Ikeda said “we want to avoid excessive gains in the yen.” The euro rose on better-than-expected PMI data and decreasing nervousness ahead of the publication of European bank stress-test results Friday. Sterling was supported by better-than-expected UK retail sales. The Australian and Canadian dollars advanced on higher commodity prices. The aussie broke the 0.8850 resistance following several unsuccessful attempts the last eight days. The Bank of Canada said in its July 2010 Monetary Policy Report released today that it expects the Canadian economic recovery to be “more gradual” than previously forecast in April, with GDP growth of 3.5% in 2010, 2.9% in 2011, and 2.2% in 2012.

After breaking its long-term uptrend last week, the dollar index declined for the first time in five days and currently traded in a well-defined trading channel. The index fell sharply since its peak in early-June on signs of a US economic slowdown and decreasing safe haven liquidity demand. We expect the index to trade sideways for a while. There are support in the 82 area and resistance in the 84 area.



Financial and Economic News and Comments

US & Canada
US existing-home sales fell for a second month in June, falling a less-than-expected 5.1% m/m to a seasonally adjusted 5.37 million annual rate, after a 2.2% m/m May decline to a 5.66 million annual pace, figures from the National Association of Realtors showed. June existing home sales rose 9.8% y/y. The June month-on-month fall was led by sales drops in the Midwest, South and West. Sales increased in the Northeast. Sales decreased for both single-family home sales and condos/coops. The median existing-home price increased to $183,700 in June, up 1.0% y/y. The existing-home inventory increased 2.5% m/m in June to 3.99 million available for sale, which represented an 8.9-month supply at the current sales pace, the most since August 2009, up from May’s 8.3-month supply.


The Conference Board US leading economic indicators index, a measure of future economic activity, was down 0.2% m/m to 109.8 in June, the second decline in three months, after an upwardly revised 0.5% m/m advance in May and a downwardly revised 0.1% m/m decline in April, according to LEI data from the Conference Board, pointing to slowing economic growth in H2 2010. The coincident index, measuring current economic activity, was unchanged at 101.4 in June, following an upwardly revised 0.5% m/m gain in May and a downwardly revised 0.3% m/m increase in April.


US initial jobless claims in the week ending July 17 climbed 37,000 to a higher-than-anticipated 464,000 from the previous week’s downwardly revised 427,000, figures from the Labor Department showed. The 4-week moving average increased 1,250 to 456,000. However, continuing claims in the week ending July 10 dropped 223,000 to 4,487,000 from the preceding week’s upwardly revised 4,710,000. The 4-week moving average of those continuing claims fell 21,500 to 4,567,000. The insured unemployment rate for the week ending July 10 declined to 3.5% from the prior week’s 3.7%.

FHFA US house prices unexpectedly grew 0.5% m/m sa in May, a third consecutive monthly gain, after an upwardly revised 0.9% m/m advance in April, according to the Federal Housing Finance Agency’s monthly house price index. May house prices fell 1.2% y/y, a sixth straight year-on-year fall.

Canada’s retail sales fell for a second month in May, unexpectedly declining 0.2% m/m to C$36.0 billion ($34.7 billion), after a revised 2.2% m/m April decrease, data from Statistics Canada showed. May retail sales grew 5.2% y/y, a seventh straight year-on-year gain. Retail sales excluding car and parts dealers slipped 0.1% m/m to C$28.4 billion in May following a revised 1.4% m/m decline a month earlier; however, they rose 5.2% y/y.

Europe
Eurozone industrial new orders unexpectedly grew 3.8% m/m sa in May, a fourth successive month-on-month advance, after a downwardly revised 0.6% m/m increase in April, according to data from Eurostat. Industrial new orders rose 22.7% y/y nsa, a sixth straight year-on-year rise, following April’s downwardly revised 21.9% y/y gain.


Eurozone consumer sentiment improved significantly in July, with the euro-area consumer confidence indicator advancing to -14.1 from June’s -17.3, a flash July estimate released by the European Commission showed.

The eurozone composite PMI unexpectedly rose to 56.7 in July from 56.0 in June, indicating euro-area services and manufacturing industries expanded for a 12th straight month to the highest level in three months, according to flash July PMI data from Markit Economics. The manufacturing PMI advanced to 56.5 from June’s 55.6, suggesting the manufacturing sector grew for a 10th consecutive month to a 3-month high. The services PMI increased to 56.0 in July, a 2-month high, from 55.5 in June.

The German composite PMI unexpectedly advanced to 59.3 in July from 56.7 in June, indicating Germany’s services and manufacturing sectors expanded for a 12th successive month to the highest level in three months, flash July PMI data from Markit Economics showed. The manufacturing PMI rose to 61.2 from June’s 58.4, indicating the manufacturing sector expanded for a 10th straight month to a 3-month high. The services PMI increased to 57.3 in July, a 35-month high, from 54.8 in June.

The seasonally adjusted volume of UK retail sales increased a slightly more-than-expected 0.7% m/m in June, the fourth gain in five months, after an upwardly revised 0.8% m/m advance in May, according to data from the Office for National Statistics. The retail-sale volume rose 1.3% y/y, following May’s downwardly revised 1.7% y/y rise. Excluding automotive fuel, the seasonally adjusted retail-sale volume was up 1.0% m/m and 3.1% y/y in June.

Asia-Pacific
Japan’s all industry activity index was up 0.2% m/m to 96.1 in May after an upwardly revised 1.9% m/m increase in April, indicating overall production by all sectors of the Japanese economy grew for a second consecutive month, data from the Ministry of Economy, Trade and Industry showed. The index rose 3.4% y/y, a fifth straight year-on-year rise, following April’s upwardly revised 4.0% y/y advance.

Australia’s business sentiment slumped in Q2 2010, led by global uncertainty and the unpopular resources super tax, according to a survey released by National Australia Bank Ltd. The NAB business confidence index dropped to 3.1 in Q2 from 16.5 in Q1. The business conditions index, a measure of hiring, sales and profits, declined to 5.9 in Q2 from 7.6 in the prior quarter.


Bank of Japan board members agreed that the latest lending program will help stabilize consumer prices, according to minutes of the June 14-15 BOJ monetary policy meeting released today. The members said the central bank “should take care to ensure that it would not become directly involved in the allocation of funds to individual firms and industries and that, in terms of the amount and duration of funds provided, the measure would not hamper the smooth conduct of interest rate policy and money market operations.”

Источник: Hans Nilsson

22.07.2010