• USD: Mixed, personal income falls most since 2005, pending home sales rise 3.6%
  • JPY: Mixed, supported by a dip in risk appetite, Japan’s retail trust funds see first net inflows for 2009
  • EUR: Mixed, EU annual PPI falls at a record pace
  • GBP: Higher, UK construction PMI rises to 16 month high, Q2 money supply rises faster than expected
  • CAD and AUD: AUD & CAD mixed, RBA drops easing bias, crude prices fall below $71

Overview

USD traded mixed Tuesday rebounding from 2009 lows as the rally in global equity markets and risk appetite takes a breather. Profit-taking emerged in global equity markets and the FX markets as investors brace for this week's key event risks which include ECB and BOE central bank policy meetings Thursday and Friday's release of US July nonfarm payrolls. No major change is expected from the ECB or the Bank of England. The trade will be looking to see whether either central bank elects to expand their asset purchase programs. The White House says that Friday's US jobless data will show higher unemployment. A number of analysts expect a smaller decline in US nonfarm payrolls primarily because of seasonal factors and that the July unemployment report will confirm a slower pace of jobs destruction in the US. In overseas trade, the AUD and GBP rallied to new multi-month highs as the RBA drops its easing bias and UK construction PMI was at its best level in 16 months. EUR drifted lower pressured by report that EU PPI fell to a record low. JPY traded higher supported by profit-taking in equity markets and a modest dip in risk appetite. The recent rally in equities and commodities sparked improvement in risk appetite and sent the USD to new lows for 2009. The rally in equities and commodities is based on speculation that the worst of the global recession has passed. The key issues for USD outlook include how strong the global recovery will be and can the rise in risk appetite be sustained? Most analysts expect a weak global recovery. This may mean that USD downside will be limited. The direction of equity markets is a key gauge risk sentiment. The trade will monitor equity markets and upcoming global economic data to determine whether the current trends in equities and risk appetite can be sustained. US personal income fell at its fastest space since January of 2005. The drop in personal income raises questions about the potential strength of US economic recovery. The fall in personal income was counterbalanced by report that June pending home sales rose 3.6%. Stocks turned higher and the USD lower after the release of better than expected pending home sales. Expect near-term consolidation in the FX markets with a slightly positive bias for the USD as technical indicators suggest the USD is oversold.

Today’s US data:

July personal income fell by 1.3% and personal consumption rose 0.4%. Personal income was expected to fall 1% and personal consumption was expected to rise 0.3%.The personal income decline was the largest monthly decline since January 2005. June Pending Home Sales Index rose 3.6% to 94.6, a reading of 91.2 was expected. Pending home sales have risen 6.7% in 2009 and rose for the fifth straight month in June.

Upcoming US data:

On August 5th June factory orders will be released along with July nonmanufacturing ISM index. Factory orders are expected to fall 1% compared to 1.2% rise last month. The nonmanufacturing ISM index is expected to rise to 48 from 47 last month. On August 6th initial jobless claims for the week ending 08/01 will be released expected at 580k compared to 584k last week. On August 7th July unemployment and nonfarm payrolls will be released. The unemployment rate is expected to rise to 9.6% from 9.5% last month with nonfarm payrolls at -320k compared to - 467k in June.