The Dollar fell against most major currencies on Friday, despite strong US economic data, as calmer credit markets sparked renewed interest in riskier overseas assets. US data on Friday showed durable goods orders in July hit were at their highest level since last September while sales of new homes rose by 2.8 percent. Both numbers beat expectations, boosting both the major US stock indexes and shorter-dated Treasury yields.
The Euro saw its biggest weekly gain against the Dollar since mid-March and its best one-day performance since early July. On Friday, the Euro briefly trimmed its gains against the dollar after central bank sources told market that the European Central Bank is not necessarily committed to raising interest rates in September. On Wednesday, the ECB said there had been no changes to its policy stance, which, when articulated by ECB President Jean-Claude Trichet on August 2nd, hinted at a rate rise.
News and Events:
The Dollar fell against most major currencies on Friday, despite strong US economic data, as calmer credit markets sparked renewed interest in riskier overseas assets. The Euro saw its biggest weekly gain against the Dollar since mid-March and its best one-day performance since early July.
Friday reports showing July US durable goods orders growth recorded the biggest rise since September and a better-than-expected showing in New Home sales helped calm market nerves, even though the data largely predated the start of the global liquidity squeeze in the past few weeks.
Analyst said that US economic data has reinforced “the calm that we’re seeing in markets and contributing to downward pressure on the dollar and on the yen, which had been primary beneficiaries to the risk reduction that we have seen in recent weeks”. The reports also helped offset overnight news of Asian and European bank exposure to the US mortgage sector, which briefly revived credit concerns.
On Friday, EurUsd was up 0.83% at 1.3683. The Euro was also up 1.19% at 159.32 against Yen. It was on pace for the largest weekly rise since March 2001, up 3.39%. A week ago, the euro had slipped below 150 yen, its lowest level in 2007. GbpUsd rose 0.48% to 2.0144 while the high-yielding Australian and New Zealand dollars also gained, respectively 1% to 0.8274 and 0.98% to 0.7217 against Dollar. UsdJpy recovered some ground in late trade to exit +0.32% at 116.44, though it spent much of the session below 116 yen.
The Euro briefly trimmed its gains against the dollar after central bank sources told market that the European Central Bank is not necessarily committed to raising interest rates in September. On Wednesday, the ECB said there had been no changes to its policy stance, which, when articulated by ECB President Jean-Claude Trichet on August 2nd, hinted at a rate rise.
US data on Friday showed durable goods orders in July hit were at their highest level since last September while sales of new homes rose by 2.8 percent. Both numbers beat expectations, boosting both the major US stock indexes and shorter-dated Treasury yields. But some strategists said the next couple of months’ data should provide a clearer picture of what impact the credit crisis is likely to have on US and global growth.
Today’s Key Issues (time in GMT):
U.K. Summer Bank Holiday
12.30 US UBS Gallup Optimism
14.00 US Existing Home Sales units (July) 5.7m vs. 5.75m
14.00 US Existing Home Sales (July)
16.00 US Midwest manufacturing (July) 103.5 vs. 104.9
The Risk Today:
EurUsd: The pair has stalled at the 38.2 retracement level of 1.3552. There is strong resistance at 1.3610, but if broken and the pair can hold above it after its close, look for a second leg move up to 1.3687. On the downside, we see strong support all the way down to 1.3380 should 1.3479 be broken.
GbpUsd is back in its upward channel, and stalling at 38.2% retracement level of 2.0043. Look for a move back up to 2.0043 to be long again. On the downside, the market will test 2.0000 and if 1.9894 is broken, we can expect a target of 1.9654 easily.
UsdJpy 117.90 is the next target after breaking yesterday through 117.00. Support is found at 115.53 but a move below it could signal another sell-off to 114.57.
UsdChf has been undecided for four days now, bouncing between 1.2113 and 1.2013. Buying a breakout would target 1.2181 and selling one would target 1.1962 on the downside.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland