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US Dollar Index Backtracks on Disappointing Data

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US Dollar Index Backtracks on Disappointing Data

The US dollar was on its heels Thursday amid signs the US economy contracted at a faster rate than forecast in the first quarter, while pending home sales increased only slightly in April.

The US dollar index, a weighted average of the greenback’s performance versus six major peers, declined 0.16 percent to 80.44. Analysts were hopeful economic data could send the index to 80.77, the high from April 4.

The index is still on pace for a weekly advance.

In economic data, the Commerce Department’s second estimate of first quarter GDP showed the US economy contracted at an annual rate of 1 percent between January and March. The initial estimate showed GDP expanded 0.1 percent in the first quarter.

Economists forecast a downward revision to -0.5 percent.

A bigger than expected drop in private inventories was largely to blame for the revised figures, official data showed. Declining exports and a drop in residential and nonresidential fixed investment were also factors.

In a separate report, the National Association of Realtors said pending home sales increased only 0.4 percent in April, following a gain of 3.4 percent the prior month. Economists called for a gain of 1 percent.

The NAR said the housing market would not get any reprieve from mortgage rates, which are expected to rise next year to an average of 5.5 percent on a 30-year fixed-term basis. This means the housing recovery will depend largely on income growth and labour market improvements.

The Labor Department said today jobless claims declined 27,000 to 300,000 in the week ended May 24, supporting the view the labour market continues to improve after three consecutive months of strong jobs growth.

The four-week moving average for jobless claims declined 11,250 to 311,500, the lowest average since August 11, 2007.

Continuing jobless claims eased from 2.648 million to 2.631 million, official data showed.

Labor economists will report on nonfarm payrolls for the month of May next week.

The EURUSD rebounded Thursday, advancing to an intraday high of 1.3625. The pair consolidated at 1.3615, advancing 0.16 percent. The trend line shows initial support at 1.3665 and resistance at 1.3615. A breach of the initial resistance would expose 1.3649 as the next target.

Germany will close out the week with April retail sales data, and Italy will report on consumer inflation for the month of May.

The USDCAD declined 0.4 percent to 1.0833. Initial support is now at 1.0831 and resistance at 1.0907. Canada will post first quarter GDP data Friday.

The USDJPY declined 0.28 percent to 101.55. Initial support is likely found at 101.54 and resistance at 101.95. A fall below the initial resistance would expose 101.28 as the next target.

The Japanese government will release headline CPI figures in the Asian session. The report may help investors determine whether or not the Bank of Japan will introduce added stimulus this year in an effort to meet its inflation target. The BOJ expects inflation to rise to 1.3 percent in the current fiscal year ending March 2015.

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