By Andrew Wilkinson at IB:
While central bank activity came and passed smoothly in London and Frankfurt today, the same can’t be said of the weekly jobs report on the other side of the pond. A revision higher to previous data and an unexpected jolt in the latest reading has once again created a pitfall for the dollar, which is losing ground across the board today with its index slumping another half percent. The turnaround comes despite an inspirational performance midweek caused by an equally unexpected expansion in core service sector activity in the United States. The ISM index breathed life back into a dollar frozen by fears that the Fed might have to resort to further stimulus measures.
U.S. Dollar – The dollar index peaked around the first week in June and on the charts has created a 45-degree line lower ever since. Today’s 0.5% decline is pushing on a new low for the move dragging the greenback to its lowest in four months. However, the dollar appears to be surviving an early onslaught following the release of initial claims data. The market was sorely disappointed with a claimant count of 479,000 when a dip to 455,000 was written in pencil. Adding to the woe is the upwardly revised 460,000 reading of the previous week. Continuing claims, however, managed to dip by 34,000 to 4.537 million. This data is less reliable than it used to be given the extension of benefits distorting the overall reading. Still, the market was unable to take much comfort from that bigger picture view and the dollar continues to trade on the back foot in advance of the monthly employment report on Friday and next week’s FOMC meeting. Expect a crescendo of dollar shorts into the Fed meeting as dealers worry about the potential for further stimulus moves.
Japanese yen – The yen weakened overnight as local stock markets advanced and signs remained that risk appetite was growing. The dollar currently buys ¥85.89.
Euro – The ECB painted a picture of a healthily recovering economy past the second quarter as it left monetary policy static at 1% earlier today. The euro reached an intraday peak versus the dollar afterward and touched $1.3235 before profit-taking pushed it back to $1.3175. German factory orders for June rose 3.2% on the month to stand 24.6% higher than the previous year. A revision to May data almost eradicated the initially reported decline.
Aussie dollar – The Aussie reached a four-month high against the dollar overnight trading at 91.83 U.S. cents. Demand for commodities and rising regional stock markets helped encourage demand for high-yielders. The Aussie has pulled back to 91.23 following the initial claims data.
British pound – The Bank of England left policy unchanged at its monthly meeting today. The pound has met a wall of resistance at $1.5925 today and repeated failure has caused some follow-through selling to $1.5870.
Canadian dollar – Ongoing improvements in risk appetite and rising demand for commodity prices saw the Canadian dollar rise to within an ace of 99.00 U.S. cents for the first time since April. However, crude oil prices have reversed recent days’ gains and the worry over Friday’s employment report has forced bulls back on the defensive sending the loonie south to a low of 98.10 cents.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.