Market Preview

The dollar gained against almost all its peers The weakest currency overnight was the NZD. The country’s Q2 unemployment rate fell to 5.6% from a downwardly revised 5.9%, beating forecasts of a drop to 5.8%. However, the weaker employment change which slowed to 0.4% from 0.9% and the decline in the participation rate was more than enough to offset the five-year low Q2 unemployment rate. The New Zealand dollar weakened after the release of the results, which were not seen as adequate to shift the Reserve Bank from its current pause in interest rates. On top of that, dairy product prices collapsed to the lowest level since October 2012 in the latest auction causing further declines to kiwi. Recently, the country’s biggest dairy exporter reduced its milk price forecast for the 2014/15 season citing strong global production, build-up of inventory in China and declining demand in EM. Nonetheless, if New Zealand’s strong trade surplus expected end of this month is confirmed I would expect the NZD to regain its strength after a period of consolidation.

The dollar traded higher against almost all of its counterparts, including the EM currencies, with JPY and GBP being the only exceptions where the greenback was virtually unchanged. On Tuesday the ISM non-manufacturing index jumped to an eight-year high, adding to the rise in the ISM manufacturing index last Friday to a three-year high and showing that the pace of growth in manufacturing and services sector accelerated in the US. I believe the USD is likely to continue its strengthening on Wednesday as well, as there are no major market-affecting US economic data coming out to change its course during the day.

Today: During the European day, German factory orders for June are expected to have risen, a turnaround from the previous month.

UK industrial and manufacturing production for June are anticipated to have rebounded on a mom basis. On top of Tuesday’s strong service-sector PMI reading, if the forecasts are met, the figures will most likely be GBP-supportive as they should reassure that the recovery is not losing momentum.

In the US, we get the trade balance for June. The forecast is for the nation’s trade deficit to widen marginally from the previous month. The MBA mortgage applications for the week ended on the 1st of August are also released. These are secondary importance economic data and will most likely pass unnoticed at their releases.

We have no speakers scheduled on Wednesday.