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Weak Manufacturing and Claims Data Allows Dollar to Take a Respite

David Becker
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Weak Manufacturing and Claims Data Allows Dollar to Take a Respite

EURUSD touched 1.3399 highs after the weak Chicago ISM data, though has since been pushed back to 1.3385. The 1.3400 level appears to have become good resistance. While activity is likely to slow ahead of Friday’s U.S. employment report, the currency pair has likely bottomed despite the weaker than expected EU inflation data.

U.S. Chicago ISM dropped a surprising 10 points to 52.6 in July after dipping 2.9 points to 62.6 in June. That’s the lowest print since June of 2013. The index hit a relative high of 66.6 in October 2013. Weakness was broad-based, though the employment component increased on the month. The large, unexpected drop in the regional ISM may help cap Treasury yields, thereby reducing the attractiveness of the greenback.

Employment claims were also a negative for the dollar. U.S. initial jobless claims rose 23k to 302k in the week ended July 26 , after a revised 279k (was 284k) from the prior week. That brought the 4-week moving average to 297.25k from 300.75k previously. Continuing claims were 31k from 2,539k for the week ended July 19, versus the prior 2,508k.

EMU HICP inflation dropped to 0.4% in July, from 0.5% in the previous month. This was weaker than expected, following the lower than anticipated German and Spanish HICP rate. The headline rate is now at the lowest since 2009, which will keep deflation concerns alive, but won’t change the immediate policy outlook as the central bank.

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The Euro found support above Wednesday’s low and is poised to test resistance near the 10-day moving average at 1.3450. Momentum remains negative as the MACD (moving average convergence divergence) index prints in negative territory with a downward sloping trajectory. The RSI has recovered slightly but is printing a reading of 26, which is below the oversold trigger level of 30 and could foreshadow a correction.

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