Euro Extends Losses on Disappointing Data (page 1 of 2)

DailyFX Fundamentals 07-24-08

By Kathy Lien, Chief Strategist of DailyFX.com

- US Dollar: The Best of the Worst?
- Euro Extends Losses on Disappointing Data
- British Pound Gets Killed by Retail Sales

US Dollar: The Best of the Worst?

The US data released today was weak, but the reaction in the dollar has been limited. The lowest level of existing home sales in 10 years and the highest level of jobless claims since March only drove the dollar lower against the Japanese Yen. The greenback held onto its recent gains against the other major currencies such as the Euro, British pound, Australian and New Zealand dollars as the US dollar is the best of the worst which seems to be the theme of the day. Existing home sales continue to paint a gloomy picture for the housing market while jobless claims confirm that there will be further losses in non-farm payrolls next week. However a continual deterioration in the US economy has been priced into the market while the severity of the recent misses in UK and Eurozone economic data have been a big surprise. The fear now is that the pace of deceleration will be a lot worse for our friends across the pond. After consistent gains since last Wednesday, the stock market has plunged which has weighed on all of the Japanese Yen crosses and high yielding currency pairs. There is also a story in Reuters citing G7 sources as saying that Europeans want the Federal Reserve to raise interest rates in order to prop up the value of the dollar. Although the article also indicates that the Europeans concede that they are unlikely to get their wish, this is certainly helping the US dollar keep its head above water. Durable goods, consumer confidence and new home sales are due for release tomorrow. The market that will have the biggest reaction to the data will be equities, which by extension will impact USD/JPY. In contrast, EUR/USD and GBP/USD traders will have to consider who has the direr outlook, the US, Eurozone or the UK.

Euro Extends Losses on Disappointing Data

The Euro continued to sell-off against the US dollar as incoming data tests the rigidness of the European Central Bank. Since the last ECB meeting, monetary policy officials have been nothing but hawkish despite the fact that the region's economy is weakening by the day. The German business confidence index has plummeted below the 100 mark as reported by the IFO index to the weakest level in 3 years. The same sort of deterioration was seen in the French business confidence index. Service and manufacturing PMI indices for the region as a whole remain in contractionary levels. Even the Eurozone current account surplus turned into a deficit in the month of May, reflecting the difficult conditions across the region. With oil prices holding at $125 a barrel, the ECB may be forced to reduce their degree of hawkishness, which would weigh further on the Euro. There is no major data due from the Eurozone data tomorrow which leaves the price action of the Euro dependent upon US data and market sentiment.

British Pound Gets Killed by Retail Sales

The British pound came under aggressive selling pressure following the sharpest drop in UK retail sales in 22 months. Slower global growth, a deteriorating labor market and rising prices is taking a big toll on consumer spending. This will have a big affect on UK businesses and GDP growth in the second quarter. The advance release is due out tomorrow and based upon today's retail sales number, GDP growth won't be pretty.