Month-end flows pull EUR and AUD higher

MARKET RECAP July. 30 2010:

By Saxo Bank

The greenback hits 3 month lows; data remains soft and Moody’s rekindles talk of a US downgrade

THEMES TO WATCH – UPCOMING SESSION

GE Retail Sales (0600)

Norway Unemployment (0700)

Sweden Q2 GDP (0730)

EU Euro-zone Unemployment (0900)

Swiss KOF Leading Indicator (0930)

CA May GDP (1230)

US Q2 GDP (1230)

US Chicago PMI (1345)

US Final Michigan Confidence (1355)

US NAPM – Milwaukee (1400)

Market Comments:

Better than forecast Euro-zone sentiment data and further dollar weakness contributed to EUR’s rally to near 3-month highs, though the journey higher took its time to take out resistance at 1.3050 along the way. Month-end fixing demand was also a factor and this was also evident in the AUD which rallied through the 0.90 handle again. Star performer was the CHF which rose 1% against the EUR amid talk of a September SNB rate hike. The dollar’s weakness was compounded by comments from Fed’s Bullard about the possibilities of Japan-style deflation while Fisher viewed a grinding economy, hampered by slow business hiring and spending and an uncertain regulatory regime. Revived talk from Moody’s of a possible review of the US’ AAA rating if debt projections are realized and no clear remedial plan is laid out early added to the downward pressure. The USD index finished at 81.63, its lowest since April 27.

The sole data release showed US initial jobless claims slightly better than expected at 457k vs. 460k and 468k last, but the 4-week average remained stubbornly above pre-Lehman levels. Wall St eased a fraction lower, the third day of losses albeit very small ones, though the S&P remains currently above the 1,100 mark.

The Asian session was another tepid affair, though expect month-end flows to come back into play as the London fixes near. Asian bourses were on the defensive leading to mild risk aversion among the risk currency pairs -not enough to trouble important support levels though USDJPY support at 86.0 was starting to look vulnerable on the plethora of weak dollar inputs. Data releases held no real surprises, with unemployment in Japan and Singapore just a touch worse than expected. Japan’s CPI was also in line with expectations and the only blot on the landscape was a weak industrial production number (-1.5% m/m vs. +0.2% expected). Markets showed no reaction.

The European session kicks off with German retail sales followed by Norway unemployment, Sweden’s Q2 GDP, Euro-zone unemployment and Swiss leading indicators. The highlight for the US session will be US Q2 GDP (median forecasts suggesting a number marginally lower than Q1’s 2.7% q/q), Chicago PMI and final Michigan confidence.

Have a great weekend.