Reply #13: daily dollar watch

[UpInArms]

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Last trade 86.54 Change -0.09 (-0.10%)

Despite China's Warning of a Speedy Exit out of US Dollars, Strong Data Erases Losses

http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/Despite_China_s_Warning_of_a_1153862615478.html

US Dollar

Yesterday we asked the question of whether consumers can really be happy with low non-farm payrolls, rising gasoline prices and escalating tensions in the Middle East. Today we have our answer and that is YES – even in the midst of increasing risks, consumers are happy. In contrast to analysts’ expectations, consumer confidence increased from 105.4 to 106.5 in the month of July. The jump in confidence is even more surprising after retail sales dropped in June. However the mere fact that companies are not firing, which we see evidence of through the low jobless claims reports, and the fact that the homes are still being sold is enough to keep consumers happy. After an upward revision to existing home sales in the month of May, sales in the month of June fell by a less than expected 1.3 percent. It seems that every time analysts issue their warnings about how the next series of economic reports will show the clear deterioration in the US economy, data surprises to the upside. For the time being, this morning’s reports should have a positive impact on the US dollar. The stability of the economy and the housing market in the official data supports the case for a possible interest rate hike by the Federal Reserve next month. The unofficial data however continue to warn of the dangers that lie ahead especially since existing home sales is a lagging indicator that tends to reflect sales that have been agreed upon in April and May. Regional indexes are far less optimistic on the outlook for the housing market and we may glean more insight from tomorrow’s Beige Book report. According to DataQuick, home sales in California fell 16 percent in the month of June when compared to last year while the Boston Globe reported that foreclosures in Massachusetts increased 66 percent in the second quarter. Yesterday we already talked about the $1.5 trillion of adjustable rate mortgages that are scheduled to reset to market rates over the next 17 months. Of course, these alarm bells have been ringing for some time and to date, there have been limited evidence that a sharp housing driven contraction is underway. Yet it is difficult to find arguments to support a further dollar rally aside from high yield. Just this morning, China’s National Bureau of Statistics said that they “should speed up the pace of diversification of (their) country’s foreign exchange reserves to help resolve the risk of possible losses to the dollar assets in the reserves.” As the world’s second largest holder of US dollar reserves, China is estimated to own $650 to $750 billion US dollars. Their message of dumping US dollars is clear and poses a big risk to further dollar strength. However we are used to being surprised by the greenback’s resilience, especially under the leadership of mixed message Ben (Bernanke). Therefore it would not be shocking to see a prolonged tightening campaign keep the dollar propped for a few more weeks.

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US Optimism Boosts The Dollar

http://www.dailyfx.com/story/dailyfx_financial_markets_headlines/US_Optimism_Boosts_The_Dollar_1153842984670.html

With one of the busiest days this week in terms of economic data, the dollar was able to find an active yet reserved bid Tuesday morning in New York. While, on the large, the fundamental offerings out of the US were tilting in the favor of the bulls, technical levels were keeping most pairs in line and economic enthusiasm contained. In the benchmark EURUSD, a strong rally in the Asian session took the pair nearly 70 points higher to 1.2670.

From there, the mild retracements were continually corrected until the data in the New York session drove the pair down to 1.2610, before finding support. A similar pattern formed in the sterling pair. After a 90 point initial run in the overnight session to 1.8535, choppy trading eventually led to the 80 decline on dollar data. Ranges were more defined in the greenback against the Swiss and Japanese currency. A triple top developed in the USDCHF around 1.2485/90, nearly 70 points from the bands bottom. Finally, for the yen, a solid range between 116.95 and 116.50 is providing limited room for market participants to run the pair.

Amid today’s scheduled releases, a clear picture of the potential of consumer spending and manufacturing activity evolved. Hitting the newswires marginally earlier than the other data, the Richmond Federal Reserve’s survey of the area’s factory activity outpaced expectations of a slight rise from 4 in June to 5, by printing 12. This was the first of the regional indicators that showed improvement – after worse Philly and Empire reads. Only the Chicago area read stands in the way of the nationwide index that will reveal the general sentiment of US industry for the current month. The other phase of data engendered the more immediate attention of the dollar traders. Existing home sales last month had beat expectations by slowing to only 6.62 million annual deals, against expectations of only 6.60 million according to the National Association of Retailers’ report. While the figure was good when measured against expectations, the data actually supports the continued contraction in the housing market. Month over month sales had actually slowed 1.3%, bringing the overall level to its slowest pace since January. A steady deflation in the housing market is in response to mortgage rates that are near a four-year high and are expected to keep rising through the end of the year. The movement of existing residences has grown in importance since Fed Chairman Bernanke said he expected the market to be a drag on the economy in the coming year in his testimony before Congress last week. Representing the vast majority of the typical American’s wealth, slowing sales, if sustained, will eventually draw prices down and wealth with it. Offsetting this dour look on spending was the Conference Board’s read on consumer confidence. The gauge grew for the second month in a row to 106.5 for the current month as employment and income continued to raise spirits above the worries of gasoline and interest rates. What was most important from the figure was that both the outlook and current conditions portions of the measure rose. This contrasted the drop in the University of Michigan’s preliminary read for the same month that reported a drop in expectations for the future. The market will continue to weigh in on the health of the labor market in comparison to consumer confidence to help reveal when domestic spending will begin to trail.

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