US Dollar Continues to Struggle

Daily Analysis - 31/07/2017

Advance Gross Domestic Product Figures Underwhelm

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The US dollar was last seen hovering above a two-year low against the Euro, weighed by uninspiring data that further added to investor doubts about whether the Federal Reserve will hike rates again this year. Sentiment was also hit by the continuing political uncertainty in the country as the administration deals with major changes in the ranks.

Dollar Dives as Domestic Woes Mount


Data released Friday showed US economic growth picking up to 2.60% during the second quarter, matching economist expectations for the period. However, the pace of growth during the first quarter was revised down to 1.20%. Second quarter labour costs also grew less than forecast, reigniting concerns that inflation will likely remain low for the foreseeable future.

Accentuating the bearish mode was President Donald Trump’s decision to replace his White House Chief of Staff, Reince Priebus with retired General John Kelly, in a major shake-up of his core team. In the meantime, the common currency has gained close to 3.00% against the greenback this month alone, pushing the EURUSD to just below 1.1730. The short-term trend in the currency remains overwhelmingly bullish, with any close above last week’s high of 1.1780 potentially unlocking the next leg of upward momentum.

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Japanese Industrial Output Grows


Alongside an increase in the production of industrial chemicals and cars, data produced by the Ministry of Economy, Trade and Industry earlier underlined Japanese factory output rebounded in June. Industrial output grew by 1.60% in June following a -3.60% decline in May. Last month’s reading came in just below the median estimate for a 1.70% expansion, with output growth predominantly driven by a 3.40% rise in the production of industrial chemicals while transport sector output climbed by 4.20%.

Major drags included production of electronic parts along with iron and steel. On a yearly basis, growth in industrial production decelerated to a 4.90% pace compared to a 6.50% rise in May. USDJPY hit a two-week low in Monday morning trade, with the pair currently ebbing around 110.550 amid persistent dollar weakness.

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HSBC Tops Earnings Expectation


With earnings season well underway, HSBC reported first half results that beat the average analysts’ estimate and announced a $2.00 billion share repurchase program. Europe's largest bank said pre-tax profit during the first half of 2017 stood at $10.24 billion, 5.00% higher than the year ago figure while topping the $9.50 billion that analysts were expecting. Adjusted revenue came in at $26.10 billion.

The lender indicated that its $2.00 billion share buyback was part of an effort to utilize excess capital to offset the dilution due to shares paid out as dividends. HSBC completed a $1.00 billion buyback in April, taking the total value of shares repurchased since the second half of 2016 to $5.50 billion. Shares in London closed last week at GBP 742.00, up over 20.00% from its April low.

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Canada Budget Surplus Shrinks


Figures compiled and announced by the Finance Department late on Friday revealed that Canada posted a smaller budget surplus during the first two months of the current fiscal year. For the two months ending May, the Federal Government reported a surplus of CAD$ 68 million ($55 million) compared to a surplus of CAD$ 114 million recorded during the same two months last year. On a yearly basis, revenue increased by 4.70% in April-May as income from personal and corporate taxes rose.

However, program expenses surged 6.00%, largely due to a revamped program for families alongside rising benefits for unemployed individuals and the elderly. In its annual budget released earlier in 2017, the Canadian government had projected a deficit of CAD$ 28.5 billion for the full fiscal year. USDCAD has pulled back from highs of the session to currently trade around 1.2465.

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