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Wednesday, August 26

EUR/ USD Daily Technical Trend

The US New York Empire manufacturing index strengthened to 12.1 in August from -0.6 the previous month which provided some degree of reassurance over the manufacturing sector. The Philadelphia Fed index also improved to 4.2 from -7.5 the previous month, maintaining the positive tone.

In contrast, the jobless claims data was weaker than expected with initial claims rising to 576,000 froma revised 561,000 the previous month while continuing claims also increased. The jobless data does lag behind the economy as a whole and the manufacturing data has been firmer, but there were fears that the economy will stall quickly under the weight of credit contraction and consumer debt levels.

The construction-related data was slightly weaker than expected with housing starts edging slightly lower to an annual rate of 0.58mn from 0.59mn the previous month while permits were also slightly lower at 0.56mn. The headline data was held back by notable weakness in the multiple-units sector while there was still evidence of an underlying improvement in conditions.

The latest US Treasury capital flows data recorded net long-term inflows of US$90.7bn for June after revised net outflows of US$19.4bn the previous month. Overall capital flows were still negative for the month and monthly data will inevitably be volatile.There was strong buying of US Treasuries for the month which may ease fears over reserve diversification to some extent, although there was a decline in Chinese holdings over the month.

The Euro was unsettled temporarily by a sharp drop in Chinese equity prices which undermined international risk appetite while there was also a sharp fall in German producer prices which reinforced speculation over deflation pressures.

The German ZEW business sentiment index rose to 56.1 in August from 39.5, the highest headline reading for over two years, although ZEW officials were cautious over the outlook due to the underlying vulnerabilities. There were also further concerns over the threat of a credit crunch developing over the next few months which limited any positive Euro impact.

The Euro resisted more than limited selling pressure during the week and was able to secure modest advance as global risk appetite improved from initial lows. The Euro consolidated just above 1.42 against the dollar.

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