New York Session Recap

The U.S Dollar opened this morning lower across the board based on a Moody's report which stated 'If U.S. government budget projections are realized in coming years, the country's triple A rating would come under scrutiny', and went on to say the United States appears to have 'no plan' to deal with its fiscal outlook. Keep in mind less than 24 hours ago California Governor Schwarzenegger declared a state of emergency over the state's finances (current budget is more than a month overdue and $19 billion short) – Finally the spotlight has shined on some of the fiscal issues here in the U.S.

Today's U.S. Initial Jobless Claims came in slightly better (457K vs. Exp. 460K) than last week's 468K number which helped to stabilize the Greenback for a little while. As mentioned over the last few days, markets have been generating mixed signals; however this is rather typical of summertime trading conditions. From our take, the market's movements have been less about 'risk on' – as we have seen from the indecisiveness in U.S. Equities which finished -0.42% lower on the day – and more about 'selling US Dollars' which we believe is partially due to July month-end flows. The EUR/USD broke above the 1.31 handle for a brief time and has since remained within a 1.3060-1.3100 range. Today's strength of the CHF is linked to speculation that the SNB may be prepared to hike interest rates in September, causing the USD/CHF to be a notable underperformer for the day. Since the NY market open; Cable (GBP/USD) remained largely flat, Gold rallied $6 to $1168, Crude Oil finished $2 higher to $78.25 and USD/JPY made a fresh new low for the week trading below 86.80.

Comments from U.S. Fed officials didn't provide further clarity and if anything seemed to confuse traders further. Dallas President Fisher said the U.S. economy faces a 'slow slog' and that further monetary accommodation may not help revive businesses. He believes they are confused and distressed by the lack of any consistent direction coming from Washington, thus people will refrain from making decisions that will provide any real economic growth. Meanwhile, St. Louis President Bullard said 'the U.S. is closer to a Japanese-style deflationary outcome today than at any time in recent history' and he believes a better policy response is to further expand the QE program through the purchase of U.S. Treasuries. The combination of softer economic data and conflicting opinions among Fed members has clearly weighed on the dollar.

There is no shortage of data tonight; New Zealand June Building Permits, Japan has multiple announcements: June Employment Numbers, June Building Permits, June CPI, June Industrial Production & July Manufacturing PMI, Australia June Private Sector Credit and UK July GFK Consumer Sentiment Survey are all coming out.