Daily Market Overview by IFC Markets

Greenback Gains Ground Ahead of NFP Report

The US dollar on Thursday and early on Friday gained against the most of its peers due to ISM Manufacturing PMI released at 55.4, stronger than forecasts at 52.1 and surprisingly better Jobless Claims. The FED decided not to touch on asset purchases program giving a dovish tone on its statement on Wednesday but there is an extra focus now on economic data until next meeting. Early signs indicate that macros are going to be nicely improved. Next major release is for US Non-Farm Employment for July expected to increase by 184K. The US dollar index after finding support at 81.38 climbed back to previous resistance at 82.12 and breached that during US session rising as high as 82.43, ahead of the NFP the index is more likely to remain unchanged.

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Risk Sentiment Worsens as CHN Markit Composite PMI Displays Contraction

Early on Monday’s opening currency markets participants appear less willing to take risk, with the USDJPY falling to 98.38 as traders prefer a safer currency. After Friday’s disappointing US NFP the greenback kept its downside bias, losing against its major counterparties with the US dollar index falling to 81.80 after drawing a resistance at 82.43. Moreover, the HSBC Market PMI Services for July stood at 51.3 the same like in June, indicating expansion in July since it is above 50, defying global concerns over Chinese weakening economic activity. However at Markit report Composite PMI signaled a contraction in July, also it is said that business decreased and the Services PMI remained unchanged due to profit margin squeeze, meaning prices dropped to support demand. The latter added pressure on risk appetite inducing further traders to abandon riskier assets, as a consequence NIKKEI 225 closed lower by 1.44%.

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RBA Cut Key Rate to 2.5% Still AUDUSD Gains Ground

The Reserve Bank of Australia cut key rate by 0.25% to a new record low at 2.50%. At its statement the RBA though did not sounded as dovish as expected providing some support for its currency. More specifically Glenn Stevens said that growth has been a bit below trend over the past year, unemployment rose while inflation remained low providing space for rate cut. Lastly said for forward guidance, the policy would be adjusted as needed to foster sustainable growth after assessment of the outlook with inflation consistent with its target. Indicating that RBA does not plans to ease further this level of accommodation. Still, market participants have been expecting more dovish comments by RBA and that could explain AUDUSD advancement from 0.8904 to 0.8988. In contrary Aussie Trade surplus was at 600 million in June, lower than expected but higher from previous month trade surplus, while House price Index surprisingly increased by 2.4% in June from 0.8% the previous month.

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USD/JPY Declines on FED Comments, Sterling Steady Ahead of Inflation Report

The US dollar is losing ground against the Japanese Yen as equities were under pressure on comments that FED would reduce asset purchase facility. In addition the Bank of Japan starts today its two day meeting and is mostly expected to maintain the same course. US indices closed lower last night with Asian indices following the same direction, NIKKEI 225 dropped substantially, by 4.00% closing below 14,000, Hang Seng also declined by 0.93%. As a virtue of that traders were abandoning equities and placing their money in safer places like Yen. Earlier on Wednesday we saw the USDJPY breaching key support at 97.57, triggering more sell orders and driving the pair to more than a month low at 96.82.

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JPY Strengthens as BOJ Holds Policy, Aussie Surges on Increased Chinese Imports

The Bank of Japan at its monetary statement announced that will continue with quantitative and qualitative monetary easing for as long is needed to achieve inflation of 2% with CPI data signaling that is on the right path as inflation turned positive in June. BOJ maintained current monetary stance of increasing monetary base by 60-70 trillion Yen per annum, as well as key rate at record low level of 0.0-0.10%.

The Japanese Yen strengthened against its major counterparty with the USDJPY pair drawing a resistance earlier at 96.82 and falling to fresh 1 ½ month low at 96.11. The downtrend is well established with recently supportive data for the Yen, thus we would expect lower levels in the intraday but we will minimize exposure before US Jobless Claims.

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Risk-on drives USDJPY to 98.33, Upbeat French and German GDP Lift Euro

US Shares last night closed in positive ground reflecting investors improved risk sentiment after US Retail Sales excluding auto sector rose by 0.5% in July, beating estimates of 0.4% increase. Asian shares followed at the same momentum with NIKKEI 225 advancing by 1.32% underpinned as well by Shinzo Abe’s yesterday comments that could cut corporate tax. The USDJPY has been in a bullish development rising to 61.8% Fibonacci level of 99.90 to 95.79, at 98.33. As of writing it spiked slightly above 98.33 and we would expect the pair to continue higher should it maintain ground above that key resistance.

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The greenback value appreciated as expectations are increasing towards FED withdrawal from current $85B level of asset purchases in the next meeting amid more indications add that recovery is solid. In addition, corporate earnings have been in general stronger than projected reinforcing speculation of reducing bond buying program. The US dollar index rebounded to resistance at 81.84 yesterday on a 3-day surging buoyed by key support at 80.84.

In the European continent, cheerful GDP data kept coming as the French GDP figure displayed an increase of 0.5% up from expectations at 0.1% for the second quarter, beating previous quarter reading of -0.2% and becoming positive after 2-year time. Followed by German GDP report indicating 0.7% increase, above expectation of 0.6% expansion in the 2nd quarter and up compared to previous quarter 0.1% growth. The Euro against the greenback was well underpinned and recovered back to resistance at 1.3276. Against the British pound the Euro retraced to 0.8595 from 0.8556. Looking ahead, Euro-zone GDP release later today is likely to beat estimations further backing the Euro, also traders are focusing UK Job data.

US Dollar Lower on Tapering Uncertainty, Major Counterparties Strengthen

Overnight the greenback was weighed by dovish comments of St. Louis FED member James Bullard. He said that FOMC must see more macroeconomic data of the 2nd quarter of 2013 ahead of any monetary decision. In addition, he stressed that policy makers should not base their decision to reduce pace of asset purchases on future forecasts but on recent growth data. Recent macroeconomic data have been weak in last quarters while forecasts are optimistic with projection performance being poor in last years. Concerning inflation he added that the FED would not normally taper asset purchases with inflation below target. Investors stepped back on expectations for reducing the monthly $85B of asset purchases at the next meeting with the US dollar index falling back to 81.38 from recent peak at 81.84.

Greenback’s weakness helped the GBPUSD to retest its yesterday session high at 1.5545 and we would expect the pair to rise to 1.5570 should the resistance at 1.5545 is breached. Moreover, the British pound surged on Wednesday amid stronger than expected Claimant count report and on BOE meeting minutes. The Euro was also advancing versus the US dollar, reaching as high as 1.3309 and then consolidating back to 1.3286, the currency pair was backed by uncertainty on FED asset purchases and on recent Euro-zone GDP upbeat data. Euro zone entered into growth figures for the first time after the 3rd quarter of 2011.

Lastly, we saw the USDJPY falling back to 97.56 and that is mainly because of two reasons. First, like the most major counterparties of the US dollar they are strengthening on concerns about FED tapering. Secondly corporate tax-cut hopes faded as the government spokesman and Finance minister devalued its importance. Japanese stock index, NIKKEI, retreated by 2.12% to 13,752.94 and the Yen strengthened on risk aversion as well as on profit taking. Technically the USDJPY found resistance at 61.8% of the 99.90 to 95.79, at 98.33 and resumed its downside. For that reason, we consider the 95.79 to 98.33 a corrective move with prices likely to head lower to next support at 96.86.

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US Dollar Loses Previous Gains as Mixed Data Created Tapering Uncertainty

The US dollar jumped yesterday on better than expected Jobless Claims as people claiming unemployment benefits dropped to 320K the previous week much lower than 334K expected and down from 335K two weeks ago. US claims were coupled with CPI release indicating that all item 12-month to July inflation increased to 2.0% from 1.8% as expected and the core inflation rose to 1.7% from 1.6% in June.

Therefore the US dollar initially was supported by upbeat jobs report, with the US dollar index surging to 81.88 but then uncertainty on asset tapering came back to markets pushing the index lower to 81.06. Weaker than projected US Industrial production and disappointing Philadelphia Manufacturing index also made the US dollar heavier. Chances were increased in favor of asset tapering with treasury yields rising, the 10Y bond rose from 2.71% to 2.77% and the 5Y bond from 1.48% to 1.54%.

The Euro increased to as high as 1.3360 as the US dollar was losing value and now consolidated to 1.3335. Looking ahead Euro zone CPI figures are going to be released today , expected to remain mostly unchanged and that could impact EURUSD in terms of ECB monetary decision.

The British pound against the greenback had one more reason to gather value, the UK Retail Sales increased surprisingly more than projected by 1.1% in July up from 0.2% the previous month. Positive data keep coming in for the British pound that advanced to $1.5650, rising to fresh 2-month high. we would expect the pair to climb to key resistance at 1.5753 where the upper boundary of a long term wide range is located. Looking ahead, US Housing news later today could increase volatility though in US dollar’s counterparties.

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Currencies Almost Unchanged on Monday Morning Trading

FX markets are steady today with majors opening around the same level like ending on Friday night. The Euro against the greenback is fluctuating around 1.3320 just below the top of 1.3398/1.2755 long term wide range. The greenback retreated on Friday amid weaker than expected US Housing data. US indices also closed lower on Friday on risk averse and on uncertainty on FED asset tapering. On Wednesday investors would focus on US FOMC minutes of the 31st July meeting for further clues regarding FED’s intentions on September meeting.

Japanese equities were positive in today’s trading after Exports increasing by 12.2% in July compared to 7.4% in June, however Imports also increased by 19.6% in July up from 11.8% in June, widening adjusted Trade deficit to ¥944.0 bln from ¥663.7 bln the previous month. The USDJPY drew a support line at 97.35 and rose back to resistance at 97.80. The Japanese aggressive monetary policy seems to have a positive effect on inflation that became positive in the last reading but does not seem capable to achieve 2% target. Moreover, the GDP latest figure slowed to 0.6% down from 0.9% in the previous release. Adding to that Moody’s reviewed the economic growth of Japan as credit negative.

Elsewhere, the British pound remains firmly near 1.5650 against the US dollar with no major releases to expect this week for the sterling apart the 2nd estimate of quarterly GDP on Friday. The greenback versus the loonie expands into 1.0358/1.0292 sideways with traders looking towards Retail Sales on Thursday. Lastly, concerning Euro zone Manufacturing and Services PMI reports on Thursday would reveal further indications for growth prospects.

US Dollar Index Steady Ahead of Minutes, Aussie Loses on Dovish RBA Minutes

Again during overnight we saw the US dollar index changing slightly by falling from 81.30 to 81.15. Recently there have been talks on who is going to be the Fed chairman with Larry Summers and current Vice Chairman Janet Yellen the most likely candidates. Chances are rising for the former adviser of Obama who previously expressed his concerns on inflation risks and sounded hawkish on the 6.5% unemployment threshold. As a result of that US 10 Year bond yields have been advancing to more than 2-year high at 2.88.

The Australian dollar against the greenback kept falling and was weighed additionally by RBA minutes of the August 6 meeting. RBA has also decided on that day to cut key rate to 2.50% from 2.75% and at its considerations for Monetary Policy said that “growth is below trend pace” and “inflation remained low”. Also added that “inflation outlook might afford some scope to ease policy further” sounding more dovish and making the Aussie heavier. The AUDUSD is falling further as of writing breaching support at 0.9058 and heading to next support at 0.90, followed by 161.8% extension of 0.9058 to 0.9219, at 0.8959.

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Elsewhere, the USDJPY retreated lower weighed by falling Equity indices around the globe, the pair dipped to support at 97.16. The US S&P 500 dropped by 0.59%, the Dow Jones also dropped by 0.47% and then were followed by Asian stocks with NIKKEI 225 losing 2.63% and Hang Seng down by 1.87%. Thus, traders sought for a safer currency like the Japanese Yen. Uncertainty on US asset tapering is increasing volatility and for that reason FOMC minutes of the 31st July meeting are highly anticipated.

US Dollar Heavier on Cautious Trading Ahead of FOMC Minutes

The greenback eased against its major counterparties in yesterday evening trading ahead of FOMC meeting minutes tonight. The US dollar index drew a support line at 80.72 and then scaled back to 81.03 on short covering. US equities managed to close mostly in positive light, S&P 500 was up by 0.38%, Dow Jones dropped by 0.05% and NASDAQ advanced by 0.68%, with stocks underpinned by stronger than estimated earnings.

Asian equities were under pressure early in their session with Hang Seng and Shanghai composite being in negative territory. NIKKEI 225 was losing earlier as investors were cautious ahead of FOMC meeting as well as on reports that Japan’s government raised the Fukushima severity of the leak to Level 3 in an 8 level international scale. However the NIKKEI recovered back previous lost territory to close higher by 0.21% on Haruhiko Kuroda comments that the Bank of Japan has the capacity to enhance further monetary policy. The USDJPY also dropped to support at 96.90 as investors were buying safer Japanese Yen but then as NIKKEI started recovering the pair retraced up to 97.65.

The common currency spiked above the top of the longer term range at 1.3417 against the US dollar but the daily candlestick of Tuesday did not close above the top of the range with prices returning back to 1.3410. Sideways trading prevails at the moment in the EURUSD and could go lower on technical weakness or could to remain like that until the release of the FOMC meeting minutes tonight. Market participants are expecting Fed monthly bond buying program reduction in September which is currently sized at $85. It is speculated that the Fed would decrease asset purchases to $75 bln per month but further clues are anticipated to be revealed tonight. Also it is expected that the Fed once more would stress out that asset purchases and interest rates would follow a separate path with interest rate projected to remain at record low levels until 2015.

US Dollar Rises on Minutes, Risk-on Amid Stronger CNY Manufacturing PMI

FOMC Minutes release of the meeting on the 30-31 July revealed that the members recognize labor improvement and that inflation could pose risks on financial stability. Also, the Commitee stated that is ready to change “the pace of its purchases to maintain appropriate policy accommodation”. That meeting was before unemployment rate drop to 7.4%, and that further increased expectations that the asset purchases would reduce in September meeting.

The US dollar strengthened after the release of FOMC minutes since the market participants were more convinced that the FED would slow down the pace of bond buying, likely to tighten its monetary policy for the first time since July 2007. Again the FED reassured that the other tool for performing monetary policy, the interest rate, would remain at record low at 0-0.25% for as long as unemployment rate is above 6.5% and inflation projection for 1-2 years no more than 2.5%. The US dollar index rose to resistance 81.49 maintaining an upside bias after drawinf a support line at 2-month low around 80.72.

The Euro remained under selling pressure against the greenback retreating to 1.3330, while on Tuesday trading inched above upper level of the 1.3414/1.2755 longer term range but then quickly retreating, creating the what is called in technical terms “bull trap”.

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In Asian trading, equity indices started with losses as risk appetite worsened due to minutes revealing that the FED is going to cut stimulus should further signs of improvement appear in the US economy. However, Asian stocks rebounded due to HSBC Flash Manufacturing PMI rising more than projected and above 50 mark for the first time since April, lifting risk appetite. The USDJPY was underpinned by both the increasing expectations that FED would tighten stimulus and the improved Manufacturing PMI for China, advancing to 98.31 from 96.90, ahead of key resistance at 98.60.

Yen Weakens as Risk Sentiment Improves Driving Yen Crosses Higher

The Japanese Yen weakened further against its major counterparts as stronger PMI data from China, Europe and US suggested that expansion prevails in global economy lifting risk appetite, thus investors abandoned the safety of the Yen. Furthermore, US 10 year treasury yields rose to new high at 2.89% indicating that investors move their money out of bond markets to riskier assets as asset tapering expectation is growing among market participants. All that underpinned US equities last night followed by NIKKEI 225 that close higher by 2.21%, helping USDJPY to breach resistance at 98.63 yesterday and surging earlier today to 99.10.

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In addition, the EURJPY penetrated the resistance at 130.97 yesterday and rose to 132.33 as Japanese Yen was weakening further. Yen crosses bias is turning bullish on recent data as well as on speculation that Haruhiko Kuroda BOJ governor could take further stimulus measures because inflation is still well below target and growth was less than projected in the 2nd quarter. We consider though the USDJPY is overextended and near major resistance at 100 in the intraday with the EUJPY also close to top of the longer term range at 132.75. Thus we are cautious that pairs may consolidate in the immediate term but next week fundamentals could drive them above their upside limitations.

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Elsewhere, we saw the EURUSD bouncing up to 1.3371 from 1.3297 on profit taking as the US Jobless Claims were disappointing inducing the greenback to make a correction. Early today final GDP figure for Germany confirmed growth and we expect the EURUSD to consolidate between 1.3371/1.3343 tight zone, because both currencies’ fundamentals are supportive. Aussie pulled back to resistance at 0.9044 yesterday on Chinese PMI and is consolidating currently near 0.90. USDCAD strongly advanced from 1.0358 to 1.0542 most likely to go up to 1.0604 before we see some profit taking. Main events today are 2nd estimate UK GDP, CPI figures for Canada, US New Home Sales and Jackson Hall Symposium second day.

Steady Start of the Week with Major Currency Pairs in Sideways Trading

Currency market started the week steadily with most of the pairs fluctuating in sideways zones. The greenback has been barely changed on Monday morning with the US dollar index remaining around 81.33 while on Friday evening dropped sharply from 81.56 to 81.18 on disappointing housing data. US New Home Sales decreased to 394K in July, substantially more than expected and down from 455K the previous month. The latter could weigh further on the greenback however expectations that asset purchase facility would reduce on FED September 18 meeting, underpins the US dollar.

At the Jackson Hole Symposium academics referred to asset tapering saying that the FED should reduce the $45 bln monthly treasury purchase and continue the $40 bln monthly mortgage purchase. Treasury yields rose to record peak at 2.90% on speculation of cutting down asset purchases on September and as Lawrence Summers gains chances for Bernanke successor as FED Chairman.

Concerning Europe, the common currency against the greenback recovered back to resistance at 1.3408 on Friday to ease back early on Monday around 1.3379. Later on the week Euro zone Unemployment Rate would be released expected to remain unchanged at 12.1% and CPI to drop to 1.4% from 1.6%. Recent data revealed that Germany, Europe’s largest economy is increasing its growth rate and PMI data are improving further, strengthening recovery. Regarding monetary policy of ECB, on one side has low inflation, providing some room for further easing however on the other side recent upbeat data offset that chance. Technically the Euro was limited by daily top of the range at 1.3451 and moved to support at 1.3297, currently found resistance at the 61.8% of 1.3451 to 1.3297, at 1.3393 and thus we consider corrective move has ended.

Lastly, the USDJPY drew resistance at 99.10 near major psychological resistance at 100 and turned its bias to the downside, falling to support at 99.41. BOJ governor’s comments that highly aggressive monetary policy starts to show results as job sector improves and inflation expectations appear to rise with no risk to financial stability, eliminated speculation for further monetary easing inducing the Yen to recover. Thus we consider the USDJPY could breach the support at 98.41 falling lower towards downside boundary at 97.76.

US Dollar in Sideways, Aussie Negative Bias Resumes, German IFO Expected to Improve

The greenback did not move much from yesterday; it was volatile during Durable Goods Orders release on Monday but mainly the US dollar index remains in 81.44/8.18 short-term tight range. US Durable Goods Orders dropped by 7.3% in July, much more decline than anticipated at 3.0% while in June Orders rose by 3.9%. The US dollar index dipped suddenly from 81.44 to 81.24 but then quickly recovered back its losses and extended further into previously mentioned sideways zone.

There is much of discussion about asset tapering and recently the NABE survey indicated that only 10% of its responders expect that FED would begin lowering asset purchase program at the 3rd quarter of 2013 while 39% expect that in the 4th quarter of 2013. Thus, traders are cautious at their trading; we believe that the current market price for the US dollar incorporates asset tapering on Sep. 18. Should that expectations fade the greenback would lose value and perhaps could revisit support at 80.72.

The Japanese Yen strengthened on risk averse after the weaker US Durable Goods Orders report. US indices closed in negative ground followed by Asian indices with NIKKEI225 closing lower by 0.69%. In addition, NIKKEI was weighed by Japanese government strongly supporting implementation of Sales-Tax increase from 5% to 8% in April 2014. The USDJPY dropped to key support at 98.04 and as of typing bounced slightly up, currently at 98.18.

The Aussie against the US dollar is falling towards support at 0.8932, below that level follows the 3-year low at 0.8850. Previous week meeting minutes revealed that RBA is willing to further reduce interest rates below 2.50% as the economy goes through a transition period. The mining sector significant role to growth declines, according to Governor Glenn Stevens, with demand from other parts of the economy expected to improve as Aussie depreciates.

Looking ahead, investors are focusing on German IFO business climate expected to increase to 107.1 for August from 106.2 in July. Recent European data revealed that Eurozone is on the right path to recovery supporting the common currency. One more positive sentiment indicator today, would further support the Euro and likely to drive it back above 1.34 against the US dollar.

Risk-off Shadows Currency Markets as War Concerns Accumulate over Syria

Currency markets have been moving by risk averse due to concerns over military strike of USA, France and UK against Syria. The Japanese Yen has been strengthening considered safer currency while Aussie and Sterling have been losing as riskier currencies, the Euro and the US dollar were mostly unchanged.

US equities closed with losses on Tuesday session with S&P 500 falling by 1.59% and the Dow Jones Industrial Average declining by 1.14%. Asian shares followed also weighed by possible attack to Syria with NIKKEI 225 closing lower by 1.51% and Hang Seng dipping by 1.48%. The USDJPY last night continued all the way to a new 2-weeks low at 96.87 and then made technical retracement back to 97.33 as oscillators went into oversold zones.

Concerning losing currencies, the Aussie against the greenback dropped below support at 0.8932 and is moving towards 3-year low at 0.8846. The Australian dollar is under selling pressure due to investor’s risk- off as well as on dovish comment by RBA Governor, Glenn Stevens the previous week, in addition the S&P/ASX 200 declined by 1.05% earlier today. The sterling drew resistance at line at 1.5549 and then plummeted to 1.5505 versus the US dollar, as the USA, UK and France are finalizing plans for military operations against Syria. It is likely that we would see further selling pressure on these currency pairs because comments by UK Prime Minister David Cameron and US Secretary of State, John Kerry, indicating that are convinced of the use of chemical gas by Syrian government.

Lastly, the Euro against the US dollar remains in 1.3408/1.3328 sideways zone, losing slightly in immediate trading due to weaker than expected German Consumer Climate. On the data front, M3 Money Supply for EZ would be released and then investors will focus on BOE Governor Speech and US Pending Home Sales.

Risk Aversion Gets Milder With Global Equity Indices Rebounding, US Dollar Strengthens

Milder risk aversion has led the USDJPY to recover previous losses as the military strike to Syria is delaying. UN Security Council is not convinced about the use of chemical weapons with Russia and China opposing military action. US President Barack Obama did not decided on whether to launch a retaliatory strike with just his allies, UK and France sidestepping UN, while UK and France say that they are ready to go.

Last night, US indices bounced up on technical retracement as well as on calmer risk aversion, S&P 500 rose by 0.27%, Dow jones industrial Average gained 0.33% and NASDAQ closed up by 0.41%. Asian indices followed in recouping previous session’s losses with NIKKEI 225 surging by 0.91%. NIKKEI was also supported by weakening Japanese Yen, with the USDJPY bouncing back and rising as of typing above the 50.0% resistance of 99.14 to 96.82, at 97.89. Retracement is likely to be capped by 61.8% at 98.23 because most probably risk aversion will return stronger in the market with the military strike launch.

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The greenback is getting stronger as of writing against its major peers. The US dollar index penetrated its key resistance at 81.68 and is heading for 81.88 ahead of Preliminary US GDP release for the 2nd quarter, expected to improve to 2.2% and Unemployment Claims. The Euro versus the US dollar was under increased selling pressure and dipped from 1.3382 to currently 1.3269 earlier today with investors anticipating German unemployment and CPI report later on Thursday.

Elsewhere, the British pound rebounded yesterday against the greenback on less hawkish than anticipated BOE Governor, Mark Carney speech reaching resistance at 1.5549. It seems though that the Syria risk still weighs on the currency pair, likely to drive it back below 1.55. The USDCAD found key resistance near almost 2-year high at 1.06 the previous week and retraced to 1.0472, at the moment is consolidating due to stronger US dollar and recently rising Oil prices are not helping loonie.

Greenback Gets Stronger, USDJPY Eases on Data and on Risk of Syria

The US dollar soared to 4-week high on growing expectations that the FED will reduce the amount of asset purchases per month as macro data have been positive in the recent sessions. Yesterday the US Bureau of Economic Analysis said that the GDP grew by 2.5% in the 2nd quarter, faster than earlier estimated at 1.7% and today is expected that the Consumer Spending will display increase in July as well. The US dollar index advanced to 82.03 which is the 161.8% of the correction from 81.68 to 81.08, thus we would expect some consolidation before the upside resumes, ahead of next resistance at 82.50.

The USDJPY eased lower to support at 98.06 firstly due to stronger CPI and Unemployment for Japan and on consolidating equities. The Japanese National CPI for July was in line with expectations rising by 0.7%, up compared to 0.2% in June, while National CPI excluding fresh food rose by 0.7%, higher than projected and up from previous month of 0.4% increase. Unemployment rate surprisingly dropped to 3.8% in July from 3.9% in June and lastly Industrial Production advanced by 3.2% in July up from -3.1% in June. The recent data supported well the Japanese Yen, setting pressure on the USDJPY which was also weighed by falling NIKKEI225 on risk of military strike against Syria by USA, UK and France. Downside momentum resumed as of writing with the USDJPY sinking lower, was lastly seen at 97.91.

The Euro was one of the biggest losers against the greenback in the recent trading as risk averse sentiment increased selling pressure on the common currency. In addition, yesterday weaker German jobs report and CPI, as well as previous comments of German Chancellor Merkel about Greece that was a mistake to accept it as a full member in the Euro zone, made the Euro heavier. However, the August 20 CFTC report indicated that the net long position in the Euro increased by $3.5B to $6.2B, it seems now that the pair is getting into correction phase and could head towards the 61.8% of the 1.2755 to 1.3451, at 1.3020.

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Aussie Strengthens as RBA Holds Key Rate at 2.5%, USDJPY Continues Upside

The RBA earlier today at its meeting decided as it was expected to maintain key rate at 2.50%. In its statement, the RBA reiterated that expects the mining investment to drop with the economy in a transition phase, growth is a bit below trend, unemployment rose slightly and inflation is under control. Moreover, RBA said that even though the Australian dollar depreciated still remains at high levels and its value could reduce further, helping growth. The AUDUSD rose above psychological level at 0.90 and was lastly seen at 0.9044. We consider that the currency pair is in 0.9232/0.8847 range trading pattern with longer term prevailing downtrend likely to drive prices lower eventually.

The USDJPY yesterday breached key cap at 99.14 and continued higher today underpinned by BOJ data that the monetary base growth pace increased to 42% from 38%. That improved risk sentiment driving NIKKEI 225 higher by 2.81% which dragged the currency pair to fresh 1-month peak at 99.69, which is a bit away from the psychological 100 level. We expect the USDJPY to be weighed by resistance at 100 and likely the risk on Syria to resume increasing pressure on the pair, in addition we are eagerly anticipating the BOJ monetary statement on Thursday although no change is projected.

Elsewhere, the US dollar against the swissy surged as high as 0.9371 straight from support at 0.9168. The USDCHF found support near the bottom of the 0.9750/0.9145 longer term wide range and turned to upside bias. Surprisingly stronger GDP data for Switzerland did not helped much its currency that kept losing against the greenback.

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Looking ahead, the most important event to watch today is the US ISM Manufacturing PMI indicator. Tomorrow we will be focusing on Aussie GDP figure, European Services PMI, EZ Retail Sales and later on the Bank of Canada Rate Statement.

Aussie Gains on Upbeat GDP, USDJPY Capped by Syria and Key 100 Level

Yesterday’s upbeat US ISM Manufacturing PMI reinforced speculation that the Federal Reserve will start unwinding asset purchases, underpinning USDJPY pair. Nonetheless, USDJPY is weighed as a military strike by USA and France against Syria is getting more likely. US congressional leaders are pushing for action while UK parliament denied operation before UN report. The US dollar against the Japanese Yen jumped on manufacturing data to 99.84 but quickly retreated slightly, weighed by key resistance at 100 and ahead of BOJ monetary statement the currency pair most probably will remain in 99.84/99.14 consolidation zone.

Australian economy surprised traders yesterday by growing more than expected, defying forecasts and recent RBA concerns that falling mining investment is hurting its performance. The Aussie GDP grew in the 2nd quarter by 2.6% in annual terms beating estimates of 2.4% and up compared to previous quarter at 2.5%, quarterly grew by 0.6%, more than estimated 0.5%. The AUDUSD resumed its upside bias and surged to cap at 61.8% of 0.9231 to 0.8890, at 0.9102. As of writing though the pair breached that resistance shifting focus to lid at 0.9231.

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RBA’s recent comments that is ready to cut further key rates “should the economy materially worsens” are likely not to be repeated after stronger growth. At the moment market is discounting possible reversal of RBA’s dovish tone and for that reason we would expect the Aussie to remain bullish in the intraday.

Looking ahead, European PMI reports are watched followed by GDP release for the second quarter. The EURUSD dropped to 5-month low in recent trading as the greenback was strengthening on tapering expectations while concerns over Euro zone debt crisis persist. Back to data front, Canadian monetary policy decision is also in focus, widely anticipated that the BOC will maintain 1% key rate. The USDCAD has been in 1.0566/1.0472 tight range ahead of the monetary decision.

Yen Weakened as BOJ Held Unchanged Monetary Policy, Eyes on ECB, BOE

Bank of Japan decided to leave its monetary policy unchanged as it was broadly expected, maintaining its key rate near zero levels and monetary base to continue expanding by ¥60-70 trillion yen per annum. In addition, BOJ restated its goal to achieve inflation of 2% and will continue with quantitative and qualitative tools for as long as necessary. The Japanese Yen softened as slight risk improvement was reflected on NIKKEI 225 that rose by 0.08%, pushing the USDJPY pair to inch as high as 99.97. The pair though was capped by concerns on Syria as the Senate Foreign Relations Committee voted in favor of military action. Moreover, in technical terms it would be hard for the USDJPY to overpass the ultra-strong cap at 100 nevertheless an upbeat NFP report could give the appropriate boost to breach it.

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Turning now to Bank of Canada decision, the central bank held key rate unchanged at 1% as it was widely anticipated but sounded a bit hawkish saying that” the considerable monetary policy stimulus currently in place will remain appropriate… gradual normalization of policy interest rates can also be expected”. The US dollar retreated against the Canadian to the lower level of the 1.0566/1.0472 sideways area.

The US dollar on the other hand was underpinned by US Beige book suggesting that economic activity has expanded by modest to moderate pace including data from early July to August 26 for twelve US districts. The economic activity improved as consumer spending increased in most of the twelve districts amid strong demand for autos and dwelling products. The US dollar index drew support line at 82.04 and bounced up to 82.35. Lower volatility though has been expected ahead of NFP report. The greenback gained the most against the Swissy surging by 0.50%, breaching resistance at 0.9380 and reaching as high as 0.9404, upside bias is most likely to continue in the intraday.

Looking ahead, investors turn their attention to European currencies as the ECB and BOE are going to release their monetary decisions. Both are expected to maintain current policies unchanged. ECB is facing recently improved data for Germany and France but peripheral members did not escape debt crisis yet, lastly most of EZ PMI reports suggest activity is picking up. The Euro though has been down trending against the US dollar, currently is consolidating between 1.3217/1.3137 tight zone before major fundamental events.

US Dollar Strengthens Ahead of Non-Farm Payrolls, Unchanged ECB and BOE

In yesterday session data favored the greenback that has been strengthening against the Euro, the Japanese Yen and Swissy but has been in consolidation versus the Aussie, the Canadian and the Sterling. In general the US dollar index surged to resistance at 82.62 underpinned by stronger US Jobless claims, followed by private sector ADP non-farm report coming out in line with expectations.

Moreover, the US ISM Non-Manufacturing PMI rose to the outstanding 58.6 for August, beating estimates at 55.2 and was up compared to 56 for July. Confidence indicators are further strengthening increasing potentials for reducing asset purchases in addition to that we are closely monitoring NFP report since this would be a determining factor for Fed’s policy.

The Euro sank from resistance at 1.3217 to a new 6-week low at 1.3110, against the US dollar after ECB left its monetary policy unchanged with the key rate at 0.50%. Mario Draghi said that economic activity is picking up but downside risks remain strong. Addionaly, ECB growth forecast for the 2013 was upgraded to -0.4% from -0.6% but for 2014 growth downgraded to 1% from 1.1%. We consider the ECB current policy not so clear compared to BOE and FED with investors being concerned about it and that weighs on the Euro that drops even though recent confidence indicators and GDP data should have underpinned it.

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For sure US dollar’s strength in recent sessions also had its own significant part in EURUSD downward development. Another currency pair displaying greenback’s strength was the USDJPY that inched above 100 reaching at 100.23 but quickly retreated to 99.70 as major resistance area around 100 weighs on the pair. At the same time the cable advanced yesterday to resistance at 1.5661 backed by stronger Service PMI reading as well as on unchanged monetary policy by BOE, however as soon as US data were released the pair dipped to support at 1.5572, consolidating mainly in the area of 1.5661/1.5574.

We would prefer in today’s trading to hold a limited trading position in market before Non-Farm Payrolls report to avoid surprises, even though we believe that it would be in line with estimates.