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Weak US data keeps currencies in flux

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Weak US data keeps currencies in flux

The dollar gained traction early in the US trading session despite a weaker than expected retail sales report, and a softer than expected Chinese GDP report.  Manufacturing in the US received a slight uptick, with the July Empire State manufacturing index printing a reading that was better than expected.

Economic data in the US on Monday was mixed with retail sales disappointing and manufacturing doing better than expected.  Retail sales in June increased by 0.4%, helped by an increase in auto’s and gasoline sales, but was less than the 0.8% expected by economists. Excluding autos, retail sales declined by  0.1%. The weak number will likely spill over into GDP growth for the second quarter, 60% of which is consumer demand.  Offsetting the weak retail sales figures was the better than expected New York Federal Reserve’s July Empire State index of manufacturing activity.  The manufacturing report which rose to 9.46 from June’s 7.84 reading, was above the 4.3 expected by economists.

In Europe there has been little reaction to Fitch’s decision before the weekend to removed France’s triple-A credit rating.  The other two major rating agencies, S&P and Moody’s, had previously removed Frances perfect deb rating, making Fitch’s move a catch-up to the other ratings agency’s.

The movements in the currency markets have been tempered as investors await addition data including Ben Bernanke’s semi-annual speak to congress on the state of monetary policy later this week.  The Fed Chairman has made it clear to investors that interest rates will remain low for the foreseeable future but any new information could generate volatility.

Momentum on the EURUSD has been muted, with the currency pair generating a flag pattern that will likely show continuation of the currency rebound.  Support is seen near the 10-day moving average at 1.2967.  Resistance is seen near 1.32.  Momentum is flattening with the MACD hovering near the zero index level.

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