• The dollar was higher against the pound on Tuesday but lower versus the yen and Swiss franc. The Federal Open Market Committee August 10 meeting minutes, released today, showed that while some Fed officials were concerned the economy was weakening, there was no plan to resume large asset buys and the Fed’s decision to reinvest the proceeds of mortgage-backed securities into Treasuries earlier this month was a signal of steady monetary policy. “A few members worried that reinvesting principal from agency debt and MBS in Treasury securities could send an inappropriate signal to investors about the Committee’s readiness to resume large-scale asset purchases,” the Fed said. US June house prices and August consumer confidence were generally better than expected, while the August Chicago PMI dropped to the lowest level since November 2009. The S&P 500 edged up 0.41 to 1,049.33. The yen advanced. Japan’s retail sales and industrial production grew in July. The EUR/USD rose. The USD/CHF fell to the lowest level since December 2009. The Australian dollar declined despite the lowest Australian current-account deficit since 2002 and gains in retail sales and building approvals. The Canadian dollar dropped as crude oil fell over $3.
• The GBP/USD declined to the lowest level since July 23. Since failing to penetrate the 1.60-area resistance, the pair had broken its uptrend and the former 1.55 support. Resistance is now in the 1.55 area and support in the 1.52 area. The pair will likely decline further. We sell the GBP/USD with stop at 1.5530.

Financial and Economic News and Comments

US & Canada

• The S&P/Case-Shiller 20-city composite home price index was up a seasonally adjusted 0.3% m/m in June, a third consecutive month-on-month gain, after a 0.5% m/m increase in May, according to S&P/Case-Shiller housing data. The 20-city composite HPI grew a non-seasonally adjusted 1.0% m/m, following May’s 1.3% m/m advance. 20-city home prices rose 4.2% y/y in June, a fifth straight year-on-year rise, after a 4.6% y/y May gain. Nationally, home prices climbed 4.4% q/q nsa in Q2 2010 after a revised 2.8% q/q decline in Q1; they increased 3.6% y/y in Q2.

• The Conference Board US consumer confidence index increased to a higher-than-expected 53.5 in August from an upwardly revised 51.0 in July, suggesting that US consumer sentiment rebounded from last month’s 5- month low but declined from August 2009’s 54.5 level, a Conference Board report showed. The expectations index rose to 72.5 in August from an upwardly revised 67.5 in July, while the present situation index fell to 24.9, the lowest since February, from July’s upwardly revised 26.4.

• The Chicago business barometer fell to a lower-than-expected 56.7 in August from 62.3 in July, indicating US business activity expanded beyond the 50 growth level for an 11th straight month but at the slowest pace since November 2009, according to the Chicago Report by Kingsbury International, Ltd. and the Institute for Supply Management – Chicago, Inc.
• Canada’s GDP grew at a 2.0% annualized rate in Q2 2010, less than expected, after a downwardly revised 5.8% annualized pace in Q1, data from Statistics Canada showed. GDP was up as forecast 0.2% m/m in June, the ninth gain in 10 months, after a 0.1% m/m increase in May. June GDP rose 3.9% y/y.

Europe

• The eurozone consumer-price inflation rate slowed as expected to 1.6% y/y in August from 1.7% y/y in July, according to a flash estimate released by Eurostat.
• Eurozone unemployment was down a seasonally adjusted 8,000 m/m to 15.883 million in July, the first decline since March 2008, a report from Eurostat showed. The seasonally adjusted unemployment rate held as forecast at 10.0% for a fifth consecutive month in July, the highest since August 1998, compared with July 2009’s 9.6%.

• Germany’s unemployment fell a seasonally adjusted 17,000 in August, a 14th straight monthly fall, to 3.19 million, after a revised 21,000 decrease in July, according to data from the Federal Labor Agency. The seasonally adjusted unemployment rate was unchanged at 7.6%, as expected.

Asia-Pacific

• Japan’s industrial production unexpectedly grew 0.3% m/m sa in July, the fourth gain in five months, after a 1.1% m/m decline in June, preliminary July IP data from the Ministry of Economy, Trade and Industry showed, with the IP index increasing to 95.3 from June’s 95.0. IP rose 14.8% y/y nsa, an eighth straight year-on-year rise, following June’s 17.3% y/y advance.

• Australia’s retail sales advanced a more-than-expected 0.7% m/m sa in July, a fifth consecutive monthly gain, after upwardly revised gains of 0.4% m/m in June and 0.4% m/m in May, according to figures from the Australian Bureau of Statistics.

FX Strategy Update

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