Daily Market Report 12/07/2013

The US dollar managed to regain some of its losses against most of its counterpart’s yesterday afternoon following Wednesday night’s weakness after the FOMC minutes and Ben Bernanke’s comments.

Even the worse than expected initial jobless claims failed to hinder the US dollar. Data revealed that the number of people filing for jobless claims rose by 16,000 last week to 360,000 instead of falling to 340,000. Considering investors will be looking towards employment data from the US to gauge what the Fed will do next regarding tapering of stimulus, there was little reaction in the market as the figures may well have been distorted by the 4th of July celebrations last week.

The euro weakened across the board after the European Central Bank’s monthly bulletin stated that the period of time the interest rates are expected to remain at present or lower levels will be flexible as well as indicating that further rate cuts are possible. The point of further rate cuts was reiterated further by ECB senior economist Benoit Coeure who indicated that the ECB would be prepared to use negative interest rates in order to stimulate economic growth.

Today, data is set to reveal that industrial production in the euro zone fell by 1.3% in May from a fall of 0.6% in April. From the US, producer price index is expected to rise to 2.1% in June from 1.7% in May and the Reuters/Michigan consumer sentiment index for July is set to improve to 85. Fed Bank of St Louis President James Bullard is also set to make a speech evening.

With regards to the US dollar, we could well see it weaken a bit further as the market will continue to digest Bernanke’s comments from Wednesday and ahead of Bullard speech this evening.

However in the long term, expectations still persist for the Fed to taper stimulus before the year end, potentially beginning in September, and thus we could well see the US dollar resume the trend that has been in place since June 18th. Clients should use this potential short term weakness in the US dollar to purchase any US dollars should they have the requirement to do so.

Key Announcements:

10.00am – EUR – Industrial Production (May): Expected to fall 1.3%.

13.30pm – USD – Producer Price Index (Jun): Expected to rise 2.1%.

14.55pm – USD - Reuters/Michigan Consumer Sentiment Index (Jul): Expected to rise to 85.

18.00pm – USD – Fed’s Bullard Speech.