The euro appreciated vis-Ã -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2415 level and was supported around the $1.2325 level. Technically, todayâs high was above the 76.4% retracement of the move from $1.2485 to $1.2125 and chartists are now eyeing the $1.2485/ 95 levels as the next upside target, representing the 38.2% retracement of the move from $1.3480 to $1.1870. All eyes remain focused on the aftermath of hurricane Katrina in the southern U.S. and its economic and financial impact on the domestic economy there. Gasoline prices have skyrocketed in the U.S. and for a country with a savings rate near zero per cent, escalating energy prices could eat into final private demand. Some market participants are thinking the Federal Reserve will not move interest rates higher by 25bps at the September Federal Open Market Committee meeting and instead opt to assess and survey the financial implications of Katrina. Philadelphia Fed President Santomero yesterday said he believes the economy will slow as a result of Katrina but added the U.S.âs economic expansion âis strong enough to withstand (the impact).â Many economic data were released in the U.S. today. First, it was reported that July personal income was up +0.3% while personal savings printed at +1.0% with Juneâs total upwardly revised. The PCE deflator moved higher to 2.5% from 2.2% while core personal consumption expenditures â a favourite Fed measure of price pressures â was up +0.1%. Weekly initial jobless claims climbed 3,000 to 320,000. Other data released today saw the August ISM manufacturing index came in at 53.6, down from 56.6 in July. The new orders sub-index fell to 56.4 from 60.6 while the employment index fell to 52.6 from 53.2. The marketâs preoccupation with hurricane Katrina has resulted in the U.S. dollar being largely unable to gain ground from positive U.S. economic data, an asymmetric effect. Most, if not all, of the economic data being released now were calculated and compiled before Katrina struck the U.S. and the data generally paint a picture of an economy that evidenced some deceleration in economic activity over the past one or two months. In eurozone news, European Central Bank voted to keep interest rates unchanged at 2.0%, as expected. The ECB has not changed rates since June 2003 and traders are curious to see what ECB President Trichet will say in his post-meeting comments today. The recent increase in the eurozoneâs M3 money supply has some dealers believing the ECB has become more hawkish while others believe the ECB will tread cautiously given the current spike in energy prices. Most traders believe the ECB will not change policy until Q1 2006 and that is likely to be a monetary tightening. Data released in the eurozone today saw August EMU-12 manufacturing PMI recede to 50.5 from 50.8 in July while the EMU-
12 July unemployment index fell to 8.6% from 8.7% in June. Germanyâs manufacturing PMI rate contracted to 48.7 from 49.8 in July. All eyes are on tomorrowâs U.S. August non-farm payrolls report. Weakness in todayâs U.S. ISM manufacturing index and the employment sub-index could evidence a pullback in employment. Euro offers are cited around the $1.2495/ $1.2645 levels.
