The US dollar gained little support from yesterday’s economic data as it broke below its 200 day moving average against a basket of currencies. The Dollar was also hit six month lows against the yen after Japanese Finance Minister Noda appeared to appear remarkably relaxed about the yen’s recent rise.

Continued speculation about further Fed easing measures continues to dominate the market as economic data remains stubbornly weak and US treasury yields continue to fall.

Yesterday’s data was uninspiring to say the least with unexpected flat consumer spending and incomes in June; weak factory orders, down 1.2 per cent compared with forecasts for a fall of 0.5 per cent, and a further 2.6% drop in pending home sales all contributed to unease over the US economic outlook.

The dollar is unlikely to get much respite today either with economic data coming thick and fast, with a host of German PMI and euro zone economic data out today likely to be good, and further boost the euro.

In the UK more PMI data for July, this time from the services sector, is expected to come in relatively unchanged from June’s figure of 54.4, increasing to 54.5. The hope is that this data will live up to forecasts unlike yesterday’s data which disappointed slightly.

In the US the usual pre-cursor to Friday’s employment data is the ADP employment report for July which could well give early indications with respect to Friday’s number. Expectations are for a figure of 33k, up from June’s 13k number. This data is followed soon after by the ISM non-manufacturing composite data for July which is expected to show a small decline to 53.

All this data serves to make tomorrow’s European Central Bank and Bank of England rate meetings little more than a sideshow with both expected to leave monetary policy unchanged.

Euro/Dollar spreads – having overcome the 1.3125 38.2% Fibonacci level the single currency has pushed higher touching 1.3265 in the last 24 hours. This old resistance level should now act as a launch pad for a rise towards the 1.3510 area which is the 50% retracement level of the 1.5145/1.1880 down move.

There is also interim trend line support around 1.3055 from the 1st July lows at 1.2190/00. Below this we also have support around the 1.2950 level a break of which would open a test towards the 1.2840/50 level.

Pound/Dollar spreads – having broken successfully above 1.5865/70, the 61.8% retracement level of the down move from 1.6880 to the May lows at 1.4230, the pound should now be able to use this as support for a move towards the 3rd February highs at 1.6070 and even higher towards 1.6280.

The highs around 1.5970 should only be a temporary stop on the way to much higher levels as long as the 1.5520/50 support area and 50% level hold firm in the near term. Long term trend line support levels, remain around the 1.5360/70 area, from the June lows at 1.4350.

Euro/Pound spreads – having broken below the 0.8315 neckline the euro stopped short of the 0.8245 61.8% retracement level of the up move from 0.8065 to the 0.8520 double top, bouncing from 0.8255. It is currently attempting to get back above the old neckline support around the 0.8315/20 level which has so far rebuffed the rebound.

While this level caps the euro should head towards the 0.8245 level, and back towards the lows at 0.8070.

A break and close above 0.8315/20 re-targets 0.8410

Dollar/Yen spreads – another day and another new low at 85.33 for the US dollar as it slowly edges towards last years lows at 84.80. The support level around 86.25 is now behind us and should act as some resistance, while behind that there also selling interest around the 87.00 area for now.

While the dollar is unable to overcome the bigger 88.00/10 level the focus remains solidly on further yen gains in the short term.

Current indifference by Japanese officials to current yen strength could be a precursor of some form of intervention, if words don’t succeed in weakening the yen. These intervention fears will only intensify if we break below the 84.80 area, which would then look to target the 1995 lows below 80.00.

By James Hughes, Market Analyst, CMC Markets.

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