Dollar Shrugs off Soft Data by Korman Tam

The dollar was little changed against the euro and sterling despite a sharply weaker than expected August US durable goods orders. The typically more volatile figure reversed its previous month’s gains, with the headline number falling by 4.9% versus a 6.0% increase from July. Meanwhile, the excluding transportations reading posted a 1.8% drop compared with a 3.8% gain in the previous month. The disappointing data however, were overshadowed by a strong opening in the US equity bourses after an agreement was reached between GM and UAW to end the strike of auto workers. Moreover, the yen weakened across the board amid gains in global equities.

Traders will turn to several key reports due out in the Thursday session, consisting of Q2 GDP, Q2 PCE, August new home sales, weekly jobless claims and Q2 corporate profits. The final GDP growth figure is seen softer at 3.9%, down from 4.0% in the preliminary reading. The Fed’s preferred gauge of inflation, the PCE is unchanged from the previous quarter – with the headline figure holding steady at 4.2% and the core PCE reading at 1.3%. Weekly jobless claims are seen creeping up slightly to 316k, from 311k last week.
Sterling Mixed

The sterling traded sideways against the dollar, hovering above the 2.01-level while edging higher versus the yen toward the 233-mark. Data released overnight revealed slightly stronger than expected economic growth from the UK for the second quarter, with the annualized figure edging out estimates for an unchanged reading at 3.0%, instead growing at 3.1% and the quarterly reading steady at 0.8%. The current account deficit was also smaller than anticipated at 9.1 billion sterling, shrinking from 12.2 billion sterling in the first quarter.

In the session ahead, UK data will include September nationwide house prices and CBI distributive trades. The pound continues to be weighed by fears of a UK credit crunch and its subsequent impact on the overall economy, thereby raising expectations that the next rate move by the Bank of England will be a cut.

Cable has retreated since testing the descending trendline resistance at 2.03 earlier in the week and holds steady above the 2.01-mark. We expect the pair to continue to trade sideways and lag in performance relative to the euro or Aussie against the dollar, as a result of tempered rate hike expectations. Support begins at 2.0120, followed by 2.01 and 2.0070. Additional floors will emerge at 2.0040, backed by 2 and 1.9970 and 1.9940. Gains will target initial resistance at 2.0180, followed by 2.02 and 2.0230. Subsequent ceilings are seen at 2.0275 and 2.03.