Forex: Daily Wrap Up – Mixed US jobless numbers muddy the waters

on Jul 18, 2013
Listen Thursday July 18th:

Yesterday’s words by the US Fed chairman have continued to weigh on the foreign exchange markets today, with this pair falling through the Asian session before recovering in European trading, only to fall again, to 1.3070 after release of the US labour market data.
Economists broadly agree that the most recent US economic indicators are falling short of the Fed’s own forecasts and targets, a stance supported today by a mixed report on US jobless claims.

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According to the US Department of Labor, in the week ended July 13, the advance figure for seasonally adjusted initial jobless claims was 334,000, a healthy drop of 24,000 from the previous week’s revised figure of 358,000, and well below the expected reading for 345,000. The four-week moving average was 346,000, a decrease of 5,250 from the previous week’s revised average of 351,250.

But the advanced number for seasonally adjusted continuing claims for state-funded unemployment assistance – the hardcore number with American unemployment – during the week ending July 6 was 3,114 million, an increase of 91,000 from the preceding week’s revised level of 3,023 million and well up on the forecast 2,959 million.
Bernanke told the House Financial Services Committee yesterday that the bond-buying programme could be pared back at a “moderate” pace later this year if unemployment continued to fall and inflation also stayed on track. He stressed that there was no “preset course” being followed by the Fed and that it, like everyone else, was ‘following the data’.

On the Old Continent today, the Eurozone’s current account surplus fell in May, due mainly to a greater deficit in current transfers and a decline in revenues, according to data released by the European Central Bank at 09:00 BST today. Seasonally adjusted, the current account surplus narrowed to €19.6 billion in May from April’s revised €23.8 billion. Analysts had been expecting the surplus to come out at €20.0 billion.

And on an unadjusted basis, the current account in the euro area showed a surplus of €9.5 billion in May, significantly lower than April’s revised €16.6 billion, and well below forecasts for €13 billion.
The Conference Board’s US Leading Indicator checked in as unchanged in June, following a 0.2 percent rise the previous month. Analysts had expected 0.3 percent growth.
On a more positive note, the Philadelphia Federal Reserve Bank’s Manufacturing Survey came in at 19.8 points in July, easily beating expectations for 7.8
Ben Bernanke is currently appearing before the Senate Banking Committee.
The yen has been weakening against the greenback today since opening in the Asian session around the mid-99’s, with a climb to a three-day high at 100.66 as the European session morphed into the American and the US jobless claims report was digested by the market.
The USD remains underpinned by continuing belief in the market that the Fed will reduce its $85 billion bond buying before the end of the year. This even though in his report yesterday, Chairman Bernanke said that the 7.6 percent unemployment rate in June was “well above” normal levels and that labour market conditions remained “far from satisfactory.”
The yen has fallen for a second day against most of its major peers ahead of the two-day meeting of the Group of 20 finance ministers and central bankers, starting tomorrow in Moscow.
The pound was also lower than USD in Asian trading today, until the pair reached 1.5158 at the beginning of the European session at which point there was a rally to 1.5242 ahead of the opening in New York. But despite the mixed tone of the US labour market releases, the pair subsequently retraced to 1.5182 after that event, and possibly bolstered by the positive Philly Fed Manufacturing number.
As the session has continued, the GBP/USD has seemed stable near 1.5200.
The UK’s Office for National Statistics reported today that retail sales rose by 0.2 percent in June m/m, in line with expectations, and by 2.2 percent compared to the same month last year, above expectations for a 1.7 percent gain. Additionally, core retail sales, a measure which excludes motor vehicles, rose by 0.2 percent in June in line with forecasts, after increasing 2.1 percent in May.
According to its assessment published yesterday, the International Monetary Fund believes that the UK economy is showing signs of recovery but that the process continues to be “slow and fragile”. It recommends that, in addition to further gilts buying, the BoE should provide “reassurance that interest rates will remain low until recovery reaches full momentum”.
The Swiss franc has firmed against the USD today, seemingly in disdain of the strengths behind the American dollar. The day’s uptick has added almost 70 pips so far, with the pair rising to a two-day high at 0.9472 in the New York session.
An apparent ground for support for the franc today was the news that Switzerland made CHF2.73 billion more in exports in June than it spent on imports, with the surplus comfortably up on May’s CHF 2.2 billion and analyst expectations for a bottom line of CHF2.15 billion.
The gain was somewhat two-edged though, since a fall in exports of 5.5 percent, to CHF16.707 billion from CHF17.434 billion in May, was more than offset by imports down even more, at 6.5 percent to CHF13.975 billion from CHF15.21 billion in the prior month.
The aussie has given up some of its two-day gains in trading since the opening in Asia through to current American trade, with the pair having fallen by more than one percent (110 pips) so far today.
The AUD came under particular pressure from a release earlier in the day, when the National Australia Bank’s Business Confidence Index for the second quarter of this year came out at negative 1, well down from the reading of positive 2 in the prior quarter.
Also, the Australian Conference Board released its Leading Indicator reading for May earlier today. This important measure of Australian economic conditions remained unchanged for the month at 123.2, following only modest gains in the preceding four months.
Always of interest to traders in the AUD, China’s House Price Index was released earlier today for the June year, revealing that prices for new homes rose 8.81 percent, bettering May’s 7.84 percent rise and logging the biggest monthly increase in three years.
Canada’s dollar was softer against the USD until the beginning of the European session today, when the pair started to decline as bulls galloped in to rescue the loonie.
Since then in the US trading session, the pair has fallen below the 1.04 level with the quote currently at 1.0392.
The CAD didn’t immediately react to the positive Canadian wholesale sales data released earlier in the session, but the release has since appeared to be giving the pair some direction.
According to the Canadian Statistics Office, wholesale sales rose 2.3 percent to $50.3 billion in May, the highest rate of growth since the beginning of 2011. Sales increased in all subsectors, with miscellaneous and food, beverage and tobacco accounting for more than 70 percent of the growth.
At a press conference yesterday, Bank of Canada governor Stephen Poloz said the country’s economy still had significant slack, that imbalances in the household sector continued to ‘evolve constructively’ and that inflation remained muted. Last month Poloz signalled that the BoC would not contemplate any rise in interest rates until more durable signs of an economic recovery were discernible.
Yesterday, the BoC raised its GDP forecast for this year to growth of 1.8 percent, from the April prediction of 1.5 percent, while lowering its 2014 projection to 2.7 percent from the prior 2.8 percent.


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