• FOMC minutes send dollar, yields lower
  • Ball in Greece’s court
  • Data Watch: China PMI

FOMC minutes send dollar, yields lower

The dollar came under pressure after comments from the Fed indicated that many FOMC participants favored easing if there is no sustained pickup in growth and that they viewed new asset purchases (QE3) as an option to bolster the economy. The dovish comments weighed on the buck, however we note that the recent batch of economic data has been surprising to the upside and indicate a pickup in economic growth as retail sales jumped, the trade deficit narrowed, and job growth accelerated in the past month. The pullback may provide an opportunity to fade dollar weakness if the data continues to show improvement and the Sept. 7 release of the employment report will be key ahead of the next Fed meeting.

Today’s data showed a 2.3% monthly increase in US existing home sales to 4.47M in July (prior 4.37M). In Canada, June retail sales unexpectedly fell by -0.4% m/m which initially put pressure on the Loonie. Bank of Canada Governor Mark Carney acknowledge that recent data has been soft and “bears watching”, however maintained his hawkish stance that a rate increase may become appropriate.

Ball in Greece’s court

Greek Prime Minister Samaras began a busy few days of meetings with Eurogroup head Juncker today. Juncker said that an extension will depend on the troika report and that the ball is in Greece’s court. Samaras responded saying that much will soon change in Greece and that the state will speed up reforms and meet all targets. We remain skeptical as several Greek leaders in the past have pledged strict reforms but have had trouble with implementation of such programs. Germany’s Merkel also spoke early and remained firm that Greece must keep to its commitments and that no decisions will be made until the troika report. The common currency was mostly higher today with EUR/USD rising above the 1.25 figure for the first time in over a month. The pair now sees the next key resistance level around the 100-day simple moving average (SMA) which is currently around 1.2620.

U.S. equities finished the day mixed with the Dow Jones Industrial Average falling by about -0.23% while the S&P 500 edged higher by around +0.02%. Commodities are broadly higher as the dollar traded on the back foot with the precious metals gold and silver are currently up about +1.05% and +1.88% respectively. Oil is higher after being supported by a sharper than expected decline in weekly US crude oil inventories which fell by -5.41M barrels (cons. -0.25M barrels). UST yields are lower across the curve on prospects of more Fed stimulus. The 10-year yields shed about 10bps to around 1.697% putting pressure on USD/JPY which plunged to session lows of around 79.30 after breaking through several key daily SMA’s. The pair is now trading below the weekly ichimoku cloud base (currently around 78.75) and we will be monitoring this level closely into the end of the week.

Data Watch

Tonight will see the release of China’s unofficial flash manufacturing PMI which was last at 49.3 indicating contraction in the manufacturing sector. Also due out of China is the Conference Board July leading economic index and a press conference in Bejing by Chicago Fed President and known dove, Charles Evans.