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USD: Treading Water Ahead of Jackson Hole

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Currencies and equities are trading heavier this morning with Dow futures and most high yielding pairs in negative territory. Moody's decision to downgrade Japanese debt, weak German economic data and speculation that the ECB is desperate enough to buy Italian bonds has challenged the sustainability of Tuesday's rally in equities. A better than expected U.S durable goods report failed to lift USD/JPY let alone risk but at least managed to limit the downside in the pair.

The 4.0 percent rally in durable goods orders in the month of July was very strong, especially when compared to the upwardly revised 1.3 percent decline in orders the previous month. Economists were only looking for a 2 percent rise, which means durable goods doubled expectations. Unfortunately the reason why the data did not provide much of a boost to the dollar was because the details of the report were far less encouraging than the headline number. Orders for capital goods excluding aircraft and defense dropped 1.5 percent which was the largest decline in 6 months. Durable goods orders are extremely volatile and not the best reflection of U.S. economic activity.

The bottomline is that we had a few pieces of weak data this morning and a mixed U.S. economic report - nothing disastrous but for yesterday's rally to continue, the market needed some strong numbers. Even though new home sales tanked yesterday, better than expected PMI numbers from China and Europe provided cause for optimisim. Today, we have no good news aside from the continued hope that Friday's annual summit will be as satisfying as Jackson Hole 2010. The dollar has been treading water for the past few days and we expect this tight range to remain in place until Bernanke speaks on Friday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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