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US Growth Revised Higher

Economy Reports Stronger Than Expected GDP Expansion

In a turn of events compared to the weak first quarter results, US GDP expanded 3.70% in the second quarter in a substantial revision higher from earlier estimates of 2.30% growth during the period.  The acceleration higher in the key economic metric was bolstered by a number of factors including stronger exports in spite of a stronger dollar, subdued imports, gains in consumer spending and rising wholesale inventory levels amongst private businesses.  Stronger government spending also helped buoy the number despite the concerns that channel-stuffing was the culprit behind much of the gains in GDP.  Other data including pending home sales was not quite as optimistic, failing to rebound as much as forecast while the Case Shiller Home Price Index reported earlier in the week showed that prices gains were stagnating.  Dollar momentum higher that dominated most of the week following Monday’s tumultuous session has largely reversed, leading gold prices higher.



The upturn in the US economy was not mirrored across the Pacific in Japan where the economy continues to face a difficult outlook as evidenced by the latest inflation reading.  Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kurdoda already cautioned that inflation would fail to meet the ambitious targets set forth to reverse the deflationary slide that has impacted the economy for years.  Both core and regular national consumer prices failed to rise, missing expectations and trending increasingly towards deflationary territory.  The silver lining in the overnight data was spending gains however, the figure still remains in negative territory on an annualized basis as purchasing power continues to be eroded by the Bank of Japan’s quantitative easing policies while wages continue to stagnate.  USDJPY is trending slightly lower after rebounding over 500 pips from lows seen earlier in the week.



The epic monetary policy experiments practiced by the Swiss National Bank have so far paid off according to the latest GDP figures from the alpine nation.  Data released this morning showed that Swiss GDP expanded by 0.20% in the second quarter on expectations of a modest contraction while annualized GDP grew at a 1.20% pace as the Central Bank manages to defend the domestic economy from external crises.  Many policymakers were concerned that the desertion of the currency peg back in January would cause the economy to plunge into freefall as speculative inflows pushed the Franc beyond reasonable levels.  However, the combination of negative interest rates and soft-peg targeting by the Swiss National Bank have managed to avert a domestic recession and broader crisis in the nation.  EURCHF continues to trend within the range targeted by the Central Bank, trading between 1.0500 and 1.1000.



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EURUSD Downward Channel Trading Opportunity

After recording substantial gains over the last two weeks, the Euro is encountering a technical correction following the rally higher.  Bolstered by stronger GDP results from constituent nations and improving lending conditions, the Euro has benefited from a stronger outlook following the resolution of the latest Greek financing needs and talk of expanded asset purchases to keep the currency competitive in the wake of the global currency war.  Nevertheless, improving US data has seen recent gains erased as expectations mount of a rate hike before the end of 2015.  EURUSD is currently moving lower in an downward trending channel pattern which has a strongly bearish bias.  Short positions taken from the upper channel line should target the lower channel line for a potential exit.  Fighting the near-term downtrend is not suggested due to worsening reward and increased risks.
Resistance: 1.1314/1.1353
Support: 1.1241/1.1201

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