USD treads water

US 2Q GDP was revised to 2.9% from 2.5%, which was below market consensus of 3%. 2Q PCE price index was unchanged at 4.1%, although more than double 1Q’s 2% increase. These data failed to have an effect on USD movement against Euro. While USD advanced up against the JPY due to broad JPY weakness, USD is still treading water against Euro and CHF, and closed virtually unchanged in EUR/USD and USD/CHF.

Yesterday, Dallas Fed President Fisher said that inflation indicators are not well behaved, but that the FOMC is watching for the lagged impact of prior hikes. He also says that inflation measures are likely biased upward. Richmond Fed Lacker commented that slower growth is not enough to moderate inflation, and that the US is "not out of the woods yet for inflation rise". Sep futures contract remains priced in for about 12% odds for a 5.5% rate at the Sep 20 meeting

Today is data galore for Eurozone and US, with Eurozone CPI estimate coming out at 0800 GMT (we will have a glimpse of inflation), Eurozone consumer confidence and business climate at 0900 GMT. At 1145 GMT, the ECB, which has raised its benchmark interest rate by 100 basis points since December 2005 to 3%, is not expected to raise rates again until October.

US PCE deflator and core PCE should be the focus at 1230 GMT as these two figures are the Fed’s favourites. The Forex market continues to be thin and moving sideways as most speculators mark time ahead of Friday’s payrolls report.

EUR/USD continues to be underpinned by resistance around 1.2870, then the 1.2911-1.2940 area. Next support for USD/CHF to lie around 1.2255, then 1.2215/00, then 1.2182. It is very interesting to note the fourth inside day candle formation in USD/JPY. Upside seems to still be capped around 117.86 if it breaks above 117.38. Strong support lies around 116.50.

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