Dollar Not So Durable as Rally Fizzles

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Market Drivers for July 25, 2013
US Open – Dollar loses ground as Durables not so durable.
IFO comes in line with Expectations a but soft triggering sell off in EUR/USD
Cable drops after GDP prints in line as 5300 gives way.
Nikkei -1.14% Europe -1.05%
Oil $104/bbl
Gold $1310/oz.

Europe and Asia:
JPY Japan Buying Foreign Bonds 549.3B vs. 1105.0B
EUR German IFO – Business Climate 106.2 vs. 106.1
EUR German IFO – Current Assessment 110.1 vs. 109.7
EUR German IFO – Expectations 102.4 vs. 102.5
GBP GDP 0.6% vs. 0.6%

North America:
USD Initial Jobless Claims 8:30 343K vs. 339K
USD Durable Goods Orders 8:30 0% vs. 0.5%

The dollar surrendered most of the day’s gains in morning North American trade after the Durable Goods report missed its mark. Although the headline number printed at 4.2% versus 1.1% eyed handily beating expectations, the vast bulk of the gains was due to the volatile transportation sector.

On a core basis Durable Goods came in flat at 0.0% versus 0.5% forecast. In addition shipments were very weak suggesting that Q2 GDP estimates will likely come down. The weak Durable Goods numbers on the back of disappointing Retail sales data last week paint a disappointing picture of US final demand and suggest that the pace of economic growth may be slowing.

The dollar quickly reversed its gains in the aftermath of the release with USD/JPY falling through the 99.50 level while EUR/USD recovered all of its losses sustained earlier in the day.The recent weakness in US economic data is clearly creating some doubt in the currency market regarding Fed’s timetable to taper QE.

The greenback, which was enjoying a steady rally just a fe weeks ago now finds itself near monthly lows versus the euro and the pound. Just as US economic fortunes appear to have hit a bump, the news from the EZ continues to show improvement.

Today’s IFO survey increased to 106.2 from the 105.9 the month prior but the expectations component came in a little bit weaker at 102.4 versus 102.5 expected. Given the sharp improvement in yesterday’s PMI readings the market was primed for a bigger upside surprise, but given the weaker US data the euro is starting to look better in comparison.

For now EUR/USD remains capped at the 1.3250 line, but if the pair can break beyond that level there is little resistance to hold it back until the 1.3400 figure. With so many traders positioned on the short side of that trade, the pair could see some squeeze action if it manages to reach those levels.

Boris Schlossberg
Managing Director

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