20.08.2014 - Housing data supported the dollar

The price of euro declined yesterday amid falling euro area balance of payments surplus to 13.1 billion in June, compared with an expected 19.3 billion. Falling of the European currency accelerated after the publication of positive data on the housing market in the United States. Thus the number of new home construction permits in July rose to 1.05 million, against an expected growth to 1.00 million. The number of housing starts increased to 1.09 million with an expected growth to 0.97 million. Today traders will wait the publication of minutes of the previous meeting of the Fed (18:00 GMT). Also, today is worth paying attention to the producer price index in Germany (06:00 GMT). We maintain a medium-term negative outlook for the euro with the objectives of 1.32 and 1.28.

The price of the British pound fell yesterday after the release of statistics on inflation in the country. Thus, the level of the consumer price index fell in July to 1.6% compared with an expected decline to 1.8% and the previous figure of 1.9%. Falling inflation will lead to a rise in interest rates later than previously anticipated. Moreover, the bears were supported by the strengthening of the dollar after the publication of positive statistics on the housing market in the country. Today the course of trading will be affected by the data on the balance of production orders in the UK (10:00 GMT), as well the minutes of the previous meeting of the Fed (18:00 GMT). At the moment, the number of incentives for the growth of the British pound is less and we expect continuation of falling prices, but in the near future we can see the price correction. Growth of the pound may resume after the referendum on Scottish independence in September.

The Japanese yen continued its decline against the strengthening dollar, after the release of positive statistics on the housing market in the United States, because of the lower geopolitical tensions due to the anticipated negotiations between Vladimir Putin and representatives of Ukrainian authorities next week, which gives reason to expect a quick end of the conflict in Ukraine. Today also was published the data on the trade deficit in Japan, which rose to 1.02 trillion in July, compared with an expected decline to 0.77 trillion. We expect further devaluation of the yen in the medium term.

The price of the Australian dollar was unable to continue the growth and renewed downward movement due to growth of the dollar, and also thanks to the statement of the head the Reserve Bank of Australia Glenn Stevens, in which he recalled the possibility of foreign exchange intervention to fight a high exchange rate, which negatively affects economic growth in the country. In addition, the index of leading economic indicators in Australia fell to -0.1% in June, against 0.1% in May. We recommend to open short positions on the Australian dollar and maintain a medium-term negative outlook.

The fall of the New Zealand dollar continued following the Australian currency. In addition, traders took negatively the news about lower prices for dairy products, which is the main export commodity of the country by 0.6%. At the same time, investors are more pessimistic about the possibility of increasing the interest rates of the Reserve Bank of New Zealand this year. In the near future, a drop in prices of the New Zealand currency is likely to continue.

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