• The dollar fell and risk appetite rose on Monday, pushing interest rates and equity prices higher. June US new home sales beat estimates and FedEx raised its earnings forecast on rising demand for international express shipments. Federal Reserve Bank of Philadelphia President Charles Plosser said he sees no need for more monetary stimulus. The S&P 500 rose 12.35 to 1,115.01, approaching the important 1120-area resistance. The dollar index fell to the 82 support, the lowest level since early-May. The yen advanced. The GBP/USD rose and approached the 1.55-area resistance. The AUD/USD gained for a third consecutive day and approached the 0.90-area resistance. The USD/CAD fell for a third successive day but failed to break the 1.03-area support.
• The EUR/USD rose for a third straight day, supported by recent better-than-expected European economic data and Friday’s release of European bank stress test results that seem to have relieved the worst fear without ruling out further problems in the banking sector. The pair broke its downtrend and established a short-term uptrend as traders covered short positions. Investors reduced their short positions for the EUR/USD. The Commodity Futures Trading commission showed that net short positions were reduced to 10% in the week to July 20. If the 1.30-area resistance is broken, the EUR/USD may rise as high as 1.35. Support is in the 1.25 area. We expect the pair to trade sideways.

Financial and Economic News and Comments

US & Canada

• US new home sales rose a more-than-anticipated 23.6% m/m to a seasonally adjusted 330,000 annual rate in June, the second-lowest level since 1963, after a downwardly revised 36.7% m/m May drop that was the biggest on record to a 267,000 annual pace, figures released jointly by the US Census Bureau and the Department of Housing and Urban Development showed. June new home sales fell 16.7% y/y. Sales increased in the Northeast, Midwest, and South, but decreased in the West. The median price of new homes sold was $213,400 in June, down 0.6% y/y. The average price of new homes sold was $242,900, down 11.6% y/y. Inventories declined 3,000 to 210,000 in June, the fewest since 1968. That represented a 7.6 months’ supply at the current sales rate, down from May’s upwardly revised 9.6.

• The Chicago Fed national activity index fell to -0.63 in June from an upwardly revised 0.31 in May, led by declines in production- and employment-related indicators, suggesting the national economy posted belowaverage growth for the first time in four months, according to a report released by the Federal Reserve Bank of Chicago, compared with June 2009’s -1.72. The index’ 3-month moving average slid to -0.05 in June, the first decline in three months, from an upwardly revised 0.31 a month earlier, compared with June 2009’s -2.11.

Europe

• UK house prices slipped 0.1% m/m in July, the first decline in 15 months, to an average of £158,700 ($245,749) per home, after a 0.1% m/m increase in June, Hometrack data showed, led by a 0.2% m/m price decrease in London. July house prices rose 2.0% y/y, a sixth straight year-one-year rise, following a 2.1% y/y June advance.

Asia-Pacific

• Japan’s trade surplus widened 41.1% y/y nsa to ¥686.96 billion ($7.91 billion) in June, slightly smaller than expected, from 486.99 billion in June 2009, according to figures from the Ministry of Finance. Exports rose 27.7% y/y nsa to ¥5.9 trillion in June, a seventh straight year-on-year gain but the weakest this year, following a 32.1% y/y May rise. Imports climbed 26.1% y/y nsa to ¥5.2 trillion, a sixth successive year-on-year increase but smaller than a 33.4% y/y May advance. Seasonally adjusted, the trade surplus widened to ¥456.0 billion in June from a downwardly revised ¥320.2 billion a month earlier.
• Australia’s producer prices advanced for a second consecutive quarter in Q2 2010, increasing a less-thanexpected 0.3% q/q, after 1.0% q/q growth in Q1 that was the largest since Q4 2008, PPI data from the Australian Bureau of Statistics showed. Producer prices grew 1.0% y/y, following Q1’s 0.1% y/y decline.

FX Strategy Update

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