The greenback posted modest gains in North American trade as investors await a vote from lawmakers on a deficit reduction plan that would avert a possible US default. The Dow Jones FXCM Dollar Index (Ticker: USDollar) advanced a meager 0.10% on the back of a mixed performance in equities that saw the Dow and the S&P 500 fall 0.51% and 0.32% respectively, while the NASDAQ closed out a marginal gain of 0.05%.
Traders remain uneasy ahead of the vote as the August 2nd debt ceiling deadline rapidly approaches. With the situation on Capitol Hill reaching critical mass, markets remain poised on speculation that even if lawmakers do reach a consensus, the US may still lose its coveted AAA debt rating for the first time in the nation’s history. The concerns overshadowed a stronger-than-expected weekly jobless claims report and an upbeat pending homes sales print as investors remained reluctant to take on risk with the looming deadline just around the corner.
As noted in yesterday’s USD Trading Today report the dollar’s rally quickly tapered off early in the US session as uncertainty continued to plague cautious investors. Although the dollar managed to close fractionally higher, the index remains vulnerable to news out of Washington as headlines continued to be dominated by the raging debt debate.
An hourly chart sees the dollar manage to hold above the 123.6% Fibonacci extension taken from the May 23rd and July 12th crests at 9340, where interim support now rests. A downside break here eyes subsequent floors at the 138.2% extension at 9335 and the 150% extension just below 9300. Topside resistance is seen at 9450 backed by 9500 and the 76.4% extension at 9525.
The greenback saw a mixed performance among the component currencies, with the pound and the yen besting the buck by 0.26% and 0.39% respectively. The Japanese yen has continued to attract investors seeking haven amid growing political and economic uncertainty as debt woes take root in the US and Europe. But as the yen advances, traders may be reluctant to push the currency to high to fast on fears of a surprise BoJ intervention as a higher valued yen weighs on the export led economy. The worst performer of the lot was the euro which fell 0.24% in North American trade. The single currency continues to suffer on speculation that the region’s debt woes are far from over with contagion fears at the forefront.
Tomorrow’s economic docket sees a flurry of data from the US, highlighted the 2Q GDP report at 12:30GMT. Consensus estimates call for growth to ease to an annualized rate of 1.7%, down from a previous read of 1.9%. Investors will be closely eying the data in light of recent concerns that global growth may be slowing. At the same time, 2Q personal consumption figures hit the wires with consumption expected to slow to just 1.0%, down from a previous read of 2.2%. The Chicago purchasing managers index and the University of Michigan confidence numbers print later in the day, with estimates calling for a PMI to soften to 60.0 form 61.1, while confidence is expected to rise marginally to 64.0 from 63.8. However the largest risk to the dollar remains tonight’s vote where lawmakers will attempt to end the deficit debate which gripped the nation for the last two weeks.
Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.
Twitter: @MBForex
WEB: www.fxcm.com
