US session review: dollar gains after ISM report

Data released: 

14:00 US Construction Spending (MoM) (Jul) 0.6% 0.3% 0.0%

14:00 US USD ISM Manufacturing PMI (Aug) 55.7 54.0 55.4 

The dollar rose to a seven-week high after a report showed U.S. manufacturing expanded in August to the fastest pace since June 2011, fueling expectation the Federal Reserve will start cutting bond purchases this month.

The ISM’s manufacturing index increased to 55.7 in August from 55.4 a month earlier, the Tempe, Arizona-based group said today. Economists’ estimates ranged from 51 to 55.8. Construction spending increased 5.2%in the 12 months ending July after adjusting for seasonal variations, according to the Commerce Department figures.

“Dollar strength is definitely a combination of concerns over Syria and expectations of tapering,” Christian Lawrence, a foreign-exchange strategist at Rabobank International in London, said in a telephone interview. “We’re still structurally bullish on the dollar on the back of QE tapering.”

EURO

The European Union’s statistics office will probably confirm tomorrow that gross domestic product in the 17-nation currency bloc expanded 0.3% in the April-June period, ending the longest recession on record, according to the median estimate of economists.

EUR/USD trades under $1.3160 and remains under pressure. Below rate may test $1.3060 (Jul 18 lows) and $1.3000 (Jul 15 lows). Initial resistance comes at Asian highs on $1.3200, above - at $1.3250 (yesterday’s hourly highs) and $1.3400 (Aug 23 highs). 

POUND

The recent revised GDP estimates in the United Kingdom suggest the economy grew by 0.7% in Q2 and even though better weather was a health factor, various indicators point to an underlying strengthening in activity.

Experts have nudged their GBP/USD forecasts up to +1.3% this year and +2.4% next. Following the BoE Governor Mark Carneys Inflation Report press conference, the central case is now that there will be no further QE.

The Bank of England may be ready to respond to tightening in monetary conditions, while the European Central Bank might strengthen its forward guidance by releasing longer-term inflation projections, limiting euro’s drop against the British currency, according to Citigroup Inc.

The two central banks will announce interest rates decisions on Sept. 5.

GBP/USD trades within the 60-points range, below yesterday’s high on $1.5590/00 (initial resistance). Above resistance comes at $1.5640 (Aug 23 high) and $1.5715 (Aug 21 highs). Initial support is near $1.5480 (channel suppoort line from Jul 9), extending to Friday’s lows at $1.5460.

YEN

The yen touched a one-month low as signs of economic improvement across the globe damped demand for refuge assets while data from Japan signaled progress in the central bank’s easing efforts. Japan’s currency slid after data showed the nation’s monetary base expanded by the most in 40 years as Bank of Japan policy makers prepare to meet this week. 

USD/JPY holds near Y99.50. Resistance extends up to Y99.80/90 (channel resistance line from Aug 27). Above bulls may lift the rate to Y100.80/85 (Jul 2 and 18 highs). Initial support is around Y99.00 (yesterday’s hourly lows), but back below Y98.70 (earlier broken channel line) may drag the rate down to Y98.00/Y97.90 (Aug 30 lows) and Y97.40 (Aug 29 lows). 

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