The British pound failed to push back above the 50-Day moving averaged and pared the overnight advance following the unexpected drop in consumer credit, and the GBP/USD may continue to retrace the advance from earlier this year as the prospects for a sustainable recovery remains uncertain.
[B][U]Talking Points
[/U][/B][B][/B]
· [B]Japanese Yen: Remains Bid as Risk Appetite Wanes[/B][B][/B]
· [B]Pound: Mortgage Approvals Increase, Consumer Credit Falters[/B][B][/B]
· [B]Euro: Unemployment Jumps to 10-Year High[/B][B][/B]
· [B]US Dollar[/B][B]: ISM Manufacturing, Pending Home Sales on Tap[/B][B][/B]
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The British pound failed to push back above the 50-Day moving averaged and pared the overnight advance following the unexpected drop in consumer credit, and the GBP/USD may continue to retrace the advance from earlier this year as the prospects for a sustainable recovery remains uncertain. Net consumer credit unexpectedly slipped to -0.2B in July to mark the first decline since April 1993, and households may continue to lower their temperament to take on secured debt as they face a weakening labor market paired with fears of a slower recovery.
At the same time, mortgage approvals in the U.K. rose to a 15-month high of 50.1K in July from a revised reading of 47.9K in the previous month, while the M4 money supply grew 1.5% during the same period amid an initial forecast for a 1.0% rise, and banks may continue to increase their willingness to lend throughout the second half of the year the Bank of England takes unpredicted steps to ease the flow of credit. However, manufacturing unexpected contracted in August, with the PMI reading falling back to 49.7 from a revised reading of 50.2, and the data reinforces fears of a slower recovery as businesses continue to scale back on production and employment. As the economic outlook remains highly uncertain, the downturn in the interest rate outlook is likely to weigh on the exchange rate going as the Bank of England maintains a dovish policy stance, and we may see the GBP/USD fall towards the 100-Day SMA at 1.6020 over the week as it fails to cross back above the 50-Day moving average.
The euro pushed to an intraday high of 1.4380 against the greenback following the better-than-expected data from Germany but failed to hold ground as the annual rate of unemployment in the Euro-Zone increased to 9.5% in July from 9.4% in the previous month, which is the highest since June 1999. As investors continue to weigh the outlook for future policy, we may see the euro-dollar continue to trend sideways throughout the week as the European Central Bank is widely expected to hold the benchmark interest rate steady at the record-low of 1.00% on Thursday, and the commentary following the rate decision is likely to shake up the currency market as investors anticipate the central bank to tighten policy over the next 12 months.
U.S. dollar price action was mixed during the overnight session, with the greenback advancing against most of its currency counterparts however, the EUR/USD is likely to face increased volatility going into the North American trade as economists forecast manufacturing activity to expand for the first time since November 2007. The ISM manufacturing index is widely anticipated to increase to 50.5 in August from 48.9 in the previous month as businesses look to replenish their stockpiles of unsold goods, while the gauge for prices paid is forecasts to increase to 57.8 from 55.0 in July. Moreover, pending home sales is expected to rise1.6% in July to mark the sixth consecutive monthly increase, while construction spending is anticipated to hold flat during the same period after growing 0.3% in June. The data is likely to encourage an improved outlook for growth and inflation as businesses look to boost their rate of production, and the rebound in home sales
[B]Will The EUR/USD Remain Above 1.4000? Join us in the [/B][B]Forurm[/B]
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[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I][/B]
