Dollar Rally Likely To Stall Ahead Of US GDP Data

The US dollar’s rally against major currencies from Tuesday, as a result of better-than-forecast US consumer confidence, was carried over to Wednesday, albeit at a slower pace. EUR/USD dipped to another 1-month low of 1.5520 today while USD/CHF rose to a 6-week high of 1.0520 after the release of an unexpectedly positive jobs report from ADP which showed that private employers added 6000 jobs last month, versus an average forecast cut of 60,000 jobs.

This surprising outcome is leading many to think that maybe, just maybe, this Friday’s release of the government NFP report won’t be as bad as forecast. The estimate is for a cut of 75,000 jobs in July, following a decline of 62,000 in June. The dollar later gave up some of its gains when oil shot up $5 after US DOE oil inventories data showed crude inventories fell unexpectedly. Nymex crude oil closed at $126.77 after falling to $120.42 on Tuesday, the lowest level since May 6.

Another factor that could capped dollar’s gains for the moment has been a Fed announcement Wednesday that it will extend its emergency credit facilities, established in March, through January 30. Both the Primary Dealer Credit Facility for direct loans to securities firms and the Term Securities Lending Facility for loans of Treasuries will now be extended to non-banks “in light of continued fragile circumstances in financial markets”.

Such an action suggests that the financial firms are still having much difficulty and credit conditions remain very tight. Not a good sign for the US financial system as a whole, but then again, it could be seen by market players as a positive sign that the Fed is doing something concrete to help the markets. People only see what they want to see.

For now, EUR/USD has a cushion of support between 1.5480-1.5510. Further selling could pull the currency pair towards 1.5440-50. USD/CHF’s next challenge is to tackle 1.0540-50 before it can reach for 1.0600.

Watch out for Thursday’s release of US GDP estimate for the second quarter which is expected to increase 1.8%, up from 10% in the first quarter and 0.6% in the fourth quarter of 2007.

Economic Calendar For Thursday:

Australia retail sales 0130 GMT

Swiss CPI 0545 GMT

Eurozone CPI 0900 GMT

Canada GDP 1230 GMT

US GDP, core PCE 1230 GMT

Posted in Categories: Australia, Canada, Economy, Eurozone, Forex, Switzerland, USA.

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