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The overnight session was quiet, as a lack of meaningful new data and a holiday in London magnified already thin summer (in the Northern Hemisphere) trading conditions. For the most part major currencies were range bound and traded in the regions established last week.

The only meaningful piece of data released overnight was the New Zealand trade balance for the month of July. According to a Bloomberg survey, expectations had been for deficit of NZD 50-Million. The actual result was a deficit of NZD 774-Million, the worst printing in almost a year. The key drivers of this disappointing number were a 4% decrease in exports, led by declines in dairy shipments, and a 27% increase in imports; crude oil and aircraft purchases accounting for the majority of the increase on the import side of the equation.

The trade statistics added to the Kiwi’s woes leaving the unit languishing near the lows of its recent 5-day decline against the USD.   This puts the pair within striking distance of the 0.7700, where it has found support multiple times since June 2013. When it comes to the NZDUSD, all eyes are on the Federal Reserve, a strong Taper in September could give the pair incentive enough to break the 0.7700 level, after which 2012 lows at 0.7450 would come into play.

Elsewhere in Pan-Pacific currencies the Japanese Yen picked up some minor ground against the Euro and the Greenback. The JPY was bid as investors digested a dip in US bond yields, however action was short lived as the European session saw the Greenback take back lost ground, though the EURJPY continues to be soft. Once again the direction of the JPY going forward will be defined as much by the actions of the Federal Reserve, and their choice to Taper, as it will be by domestic economic activity.

Quickly looking to equities, both the European and Asian sessions have been mixed. Hong Kong & Shanghai rallied, while Japanese indices retreated. In Europe, at the time of writing British shares are stronger on the day, the FTSE up 0.70%, however the German DAX is a touch softer at -0.16%, as is the French CAC at -0.54%. Looking at futures prices, it looks like it’s going to be a negative open in New York today.

In European currencies, the Swiss Franc pressed lower versus its European and British neighbours. Recent data out of the EU has been encouraging leaving many analysts optimistic about a Eurozone recovery. Though the moves have been contained to narrow ranges, the Sterling has outperformed many of its major counterparts, taking ground from the CHF, as mentioned above, as well as the Euro and the Greenback. Sentiment for the British Pound has been strong of late as the unit has made good headway over the last few weeks against many major currencies, with notable gains against the USD and commodity linked currencies like the AUD, CAD, & NZD.

Turing to the American session, US Durable Goods orders for the month of July were released. The results were broadly disappointing, with the headline and core numbers printing -7.3% and -0.6% respectively.  According to a Reuters survey, expectations had been for a core reading of +0.5% and a headline number of +4.0%.   This is the biggest drop in almost a year for this particular indicator and ends streak of 3 consecutive positive prints. The soft data again calls into question the resiliency of the American manufacturing sector and casts some doubt on the notion that the local economy is strong enough to handle Tapering at this point in time. Following the data the USD has taken a more defensive tone, though moves have been muted.

Further reading:

US New Home Sales plunge to 394K – Dollar Falls

EUR/USD August 26 – Quiet Start to Week After Dismal US Housing Numbers