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European and US summary

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Dollar Bounces on Confidence

Tue, Jul 29 2008, 23:26 GMT
by Korman Tam

Forexnews.com

7/29/2008 3:26 PM: EUR/$..1.5582 $/JPY..108.12 GBP/$..1.9781 $/CHF..1.0450 AUD/$..0.9513 $/CAD..1.0241

Dollar Bounces on Confidence

The greenback rallied across the board in the Tuesday, pushing the euro lower by over two big figures to 1.5554 – its highest level in a month and rising to 108.30 against the yen. A combination of a further retreat in oil prices and a better-than-expected reading in the Conference Board’s consumer confidence survey sparked the dollar’s gains and a rally in the US equity bourses.

Traders shrugged off a disappointing Case-Schiller home price survey, which posted its steepest fall on record, down by 15.8% in May versus 15.3% a month earlier. Instead, markets lauded the better-than-forecast consumer confidence report, which bested estimates for a decline to 50 from 50.4, printing at 51.9 in July. The upbeat confidence survey marked its first increase since December and revealed a decline in 1-year consumer inflation expectations to 7.6% from the record high of 7.7% a month earlier.

Tomorrow will see the release of the ADP private sector payrolls report, which is estimated to improve to -60k in July versus -79k a month earlier. The report will be viewed closely ahead of Friday’s key July non-farm payrolls, seen posting a loss of 65k jobs from a 62k job-loss a month prior. However, the key focus may be on the unemployment rate, which is expected to creep higher to 5.6%, up from 5.5% in June – highlighting persistent weakness in the US labor market.

 
Euro Tumbles

The euro broke through key support level, falling from 1.5756 to 1.5555 and piercing through its 100-day moving average located at 1.5650. Inflation reports from Germany released were slightly worse than expected with the monthly CPI figure rising to 0.6% from 0.3%, while the annualized figure remained unchanged at 3.3%. Despite buoyant inflation reports, we now anticipate the ECB to leave policy unchanged over the remainder of the year given the sharp slowdown in Eurozone economic growth. In the session ahead, markets will turn to Eurozone sentiment surveys due out at 5:00 AM on Wednesday. The consumer sentiment report in July is seen deteriorating to -18, from -17 in June, while the economic sentiment is expected to decline to 93.5 from 94.9 in the previous month.

The breach of the 100-day moving and ascending trendline support suggests further declines to come barring a sharp recovery of the 1.5650 region. As such, we expect an initial test of the 1.55-level. Failure to sustain losses may result in steeper declines toward the 1.53-region, which marks neckline support from a potential triple top formation on the weekly chart.

Published on  Tue, Jul 29 2008, 23:27 GMT