Forex Investment and Currency Trading

 The dollar traded lower overnight despite expectations for solid 2.3% GDP gain in today’s Q2 advance report as month/end flows weighed on the USD.  After yesterday’s test near 1.5525 support, a 5 week low, Euro/dollar gained toward 1.5700 this morning after GDP was disappointing and unemployment claims even more so, initial claims +44k and continuing claims +185k to highest level since late 2003.  Note the newly enacted Emergency Unemployment Compensation program has been expected to increase continuing claims and the market expects higher than expected levels for several weeks.  The projection for tomorrow’s non-farm payroll report is a 60K drop in July payrolls and unchanged unemployment rate at 5.5%, though noting labor market risks skewed lower.  The advance GDP gain of only 1.9% also spurred USD selling; higher consumer spending and robust exports were offset by plunging inventories, which subtracted 1.9% from growth.  Inventories should stabilize and provide positive offset in 2H, a silver lining.  Steep downward revisions to Q4 (from +.6 to -.2 and first drop since Q3 2001) and Q1 (from .6 to .1) were a signal to sell USD.  But Chicago PMI was better than expected, above 50 for the first time since January, at 50.8 from 49.6 and the USD has steadied.  Just released ECB comments about inflation were at first Euro positive, but since all the incoming data point to a sharper than expected downturn in EC economy, focus turned to the source comment that “a negative reading for GDP growth in the EZ in 2Q cannot be ruled out” and Euro fell toward mid 1.5600 range.  Technical resistance is 1.5685, and while it’s traded above there, Euro needs to break over 1.5763/97 to turn bullish.  
 
Dollar/yen held under technical resistance around 108.35.  Margin data from the Tokyo Financial Exchange show all time highs in net long AUD/JPY and NZD/JPY positions on July 30, reflecting receding risk of risk aversion and higher comfort level of Japanese retail speculators for risk to earn carry.