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Despite an ominous combination of anemic GDP growth, decelerating manufacturing activity, and the bombing at an Israeli University, the greenback demonstrated some resilience by staging a moderate rebound in the afternoon session. Likewise, the Dow managed to shrug off the pessimistic data and advance to positive territory in the closing hour as investors rushed to cover short positions.
Economic indicators for the U.S. released today pointed to a slowdown in the economic recovery, echoing similar relapses in Europe and Japan. U.S. quarter 2 GDP rose by a measly 1.1% vs the revised 5.0% in quarter 1. Last year's data was also revised downward to show three consecutive quarters of contraction, confirming the U.S. economy did indeed suffer a recession in 2001. The Chicago purchasing managers survey also painted a gloomy picture, falling to 51.5 from 58.2 in June. While the dollar plunged following both announcements, the currency shed some of its losses during the afternoon session. With the flurry of statistics released this week, the currency market may take a bit of time to digest all the noise.
Over in the Eurozone, the economic climate is looking just as comatose, if not worse, than U.S. conditions. French unemployment rose in June by 17K to hit 9% from a revised 8.9% from last month. Adding to the gloom was a pessimistic survey from INSEE reporting that French industry expects demand to decelerate in the current quarter. During a news conference on Wednesday, French PM Jean-Pierre Raffarin attempted to assuage domestic sentiments with talk of future tax cuts and economic growth, yet appease the European Commission by reiterating commitment to the Growth and Stability Pact. Also weighing on the euro is an OECD report warning that the region's outlook has become gloomier since April, pointing out the strengthening euro as the major culprit. The Paris based organization added that it expected the ECB to raise rates by 25 bps later this year, followed by an additional 100 bps in 2003.
After a brief foray above the 98-cent figure following the dismal U.S. data, the euro slid by over half a cent, nearing its 31/2 week lows of 97.60. The lower than expected Chicago purchasing mangers index had bolstered the euro vs the dollar initially, but the uncertainty around the Eurozone's own economic recovery is giving little help to the single currency. Interim support found at 97.50/60, followed by the July 5 low of 97.13. Selling pressure congregates at 98.05-10 and 98.50, with key resistance at 99.15, the 50% retracement of the decline from 1.0065 (July 25) to 97.67 (July 29).
After hitting a session high of 120.40 during Japanese trading, USDJPY experienced a double dip below the 120 handle. While yen is off its session high, the currency continues to struggle vs the greenback. Support is seen at 119.40/50, which is the 50% retracement of the decline from 125.89 (June 13) to 115.50 (July 16) and also the session low. Immediate resistance starts up at 120. A Fibonacci retracement of the downward trend from 120.70 (June 13) to 115.50 (July 16) locates the next resistance point at 120.70, the 50% retracement level.
GBPUSD has rebounded about halfway from its steep plunge from 1.5732 to 1.5566 after receiving a boost from the U.S. data. Resistance is eyed at 1.57, 1.5730/40, and 1.5775/80. Downside movement should be supported at 1.5555-60.
After accumulating triple digit losses, the Dow staged a comeback to close higher by 42 pts at 8722. NASDAQ closed down by 16 pts at 1328.
Coming up for Thursday, the ECB and the Bank of England will be making their interest rates announcements. Both central banks are expected to refrain from rate changes, considering that inflationary pressure has remained benign and growth anemic. In an interview last week, ECB's Otmar Issing emphasized that the central bank is adopting a wait and see stance on monetary policy. Purchasing managers index from Germany, France, Italy, U.K. and the composite Eurozone will also be released tomorrow, which are predicted to reflect stagnant manufacturing activity. The U.S. continues its news week with the ISM manufacturing survey, construction spending, jobless claims, and motor vehicle sales. Given the cheerless Philadelphia Fed general conditions index and Tuesday's PMI, the ISM is likely to confirm a dip in manufacturing as well.