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The dollar is looking increasingly lethargic as it attempts to deflect the week-long bout sluggish economic data. Weak employment and factory orders data placed additional burdens on the greenback on Friday, though the currency still managed to maintain a tenuous foothold.
Consistent with the slew of anemic data emanating from the U.S. this week, the labor market report and factory orders confirmed that economic activity decelerated in the first half of this summer. Mirroring the setback in the ISM manufacturing index, June factory orders declined 2.4%, annulling the 0.7% gain in May. The main culprit behind the poor aggregate factory order was the steep 4.1% plunge in durable goods, downwardly revised from the 3.8% initial estimate. The two figures posted the sharpest drop since November 2001, signaling a pause in manufacturing activity.
The labor market appears pallid as well. Though unemployment remained steady at 5.9%, payrolls grew by a paltry 6K versus an upward revised 66K in June. On a positive note, the Commerce Department reported a 0.5% rise in personal consumption for the month of June and a 0.6% increase in personal income, which indicates that consumers continue to spend despite stock woes. Nevertheless, given the weak University of Michigan and Conference Board consumer sentiments numbers, it is likely that personal consumption figures for the month of July will show a deterioration.
Euro edged up vs the dollar after the release of negative US factory orders data but has been unable to overcome resistance at 98.75. Subsequent resistance for EURUSD starts at 98 cents, followed by 99.15, the 50% retracement of the decline from 1.0065 (July 25) to 0.9767 (July 29).
USDJPY struggled to break the 119 support as the dollar tracks stock market losses. A breach of this level will hit a minor roadblock at 118.70-80, followed by 118.45-50, the 50% retracement of the 117.17 to 120.39 rally. 117.90 should serve as a foundation for declines in the near term.
Recovering from its post-PMI slump, sterling has drifted steadily higher versus the dollar, advancing more than two full cents from Thursday's 1.5471 low.
USDCHF has been confined to the 1.4690-1.4720 range after tumbling this morning. A Fibonacci retracement places support near 1.4625-30, 38% of the decline from the 1.5071 high (July 7) to the 1.4361 low (July 22). The 40-month low of 1.4357 should cap further losses. Interim resistance is eyed at 1.4770-75, followed by the week's high of 1.4919.
In its latest economic report, Goldman Sachs revised its forecast for Fed monetary policy, predicting a 75-bp cut to 1.0% by the end of 2002. With simultaneous gloom on Wall Street and in economic fundamentals, the Fed looks increasingly likely to ease monetary policy to stimulate growth.
The malaise has returned to Wall Street as negative data weighs on equities. The Dow has accumulated a 264-pt loss at 8244. NASDAQ is seeing the third consecutive day of losses, down 39 pts at 1240.
Coming up for next week in the U.S., the ISM will be followed up with Monday's release of NAPM non-manufacturing, which will tell the story of the services sector of the economy. The markets will also be eyeing the PPI for any signs of increased inflationary pressure in addition to the productivity gauge. From the Eurozone, national and composite services PMI will be scrutinized and compared to the U.S. figure. Other data from the bloc consists of overall unemployment, German manufacturing orders and unemployment, and the ECB monthly bulletin.