Dollar sidelined against Europe but softening against the yen in AsiaThe Australian August Westpac Leading Index saw a rise of +0.3% in August to 5.6%. Westpac pointed out that the index has remained firmly above the long-term trend of 4.3% and has shown a clear recovery in economic growth from the July low which itself was still above the long term average. Westpac also commented that the results are in line with the government’s latest growth forecasts in which it raised the forecast of growth in the year to June 2008 to 4.25% from 3.75%. Consumer spending remains strong with employment growth and business investment still pointing to a sustained period of growth over the coming year.
From Japan the Tertiary Index saw a rise of +1.3% in August, above the forecast of +1.0%. A strong number was expected after the Niigata earthquake induced decline of -0.5% in July. The figure was also boosted by a very hot August which boosted consumer spending and does suggest a small degree of objectivity is required with two one-off factors boosting the underlying number.
The Ministry of Economy, Trade and Industry of course took the opportunity to highlight that “The tertiary index shows a firm trend, in line with developments in the overall economy, but we need to watch closely further developments because one high reading does not mean it will continue rising.”
For now the numbers are good but will not induce the BOJ to hike rates at this point. However, there are mixed signals and this was quickly highlighted with the release of a revision to the August Leading Indicator which was revised lower from 30% to 27.3% and thus still points to potential contraction in the economy. The coincident index which measures the current state of the economy was actually revised higher to 85% from 83.3% showing a more healthy state of the economy at this stage.

The following economic releases are due today:
September
Bank of England Minutes
U.K. Claimant Count Rate 2.6%
U.K. Jobless Claims Change - 4.0K
U.S. CPI (MoM) +0.2%
U.S. CPI (YoY) +2.8%
U.S. CPI Excl food & energy (MoM) +0.2%
U.S. CPI Excl food & energy (YoY) +2.1%
U.S Housing Starts 1283K
Building Permits 1288K
The FED’s Beige Book is due to be published

The first half of yesterday went well with the Dollar seeing a little more in the way of strength but the second half failed to the anticipated weakness. Now whether we are just seeing the pattern develop in a slightly slower manner or whether we are seeing an alternative pattern is still subject to debate. Whichever, I really can’t see the Dollar gaining too much further but the alternative pattern could actually open up the risk of a really boring few days with limited range trading.
Both are possible at this stage though given the G7 meeting at the weekend the range trading is a scenario that would slot in well. However, this doesn’t alter the medium term with Dollar cycles still pointing lower into year end. So this is more of a case of identifying the right selling levels for the Dollar.
Even Dollar-Yen, having bounced well from just a few points below the 116.47 support has broken down this morning. Again, I can’t see too much further with the area between 115.75-116.30 likely to produce support and here too then the risk will be for range trading ahead of the weekend. Dollar cycles remain bullish here but do note that the smaller daily cycle is due to find its first low following the August low over next week. Time is ticking and the next larger moves are due…
Dollar-Canada has done well and there does seem to be risk of gains up to 0.9900 over this week. The Aussie on the other hand does seem to be going through a deeper correction than anticipated – if the 0.8794-0.8821 area gives way we could find losses extend to below 0.8700 – possibly even closer to 0.8600

Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 117.10-50 1.4242-81 1.1893-27 2.0436-73
Res: 116.50-70 1.4190-19 1.1844-61 2.0363-80
Spt: 115.75-00 1.4121-43 1.1769-90 2.0275-84
Spt: 114.91-40 1.4068-00 1.1668-07 2.0174-21
See Also