U.S. Dollar Weakens After Disappointing Construction Spending Release
THE TAKEAWAY: U.S. Construction Spending unexpectedly fell > Public Spending Sharply Declined > USDollar Index Falls
A report issued today by the Commerce Department showed that construction spending fell dramatically in July, following the surprised increase in the previous month. Total construction spending unexpectedly came in at a seasonally adjusted rate of $789.51 billion, down 1.3 percent from June figure. Economists initially estimated this figure to maintain at the same rate of 0.2 percent with June’s, according to the median of 52 projections in Bloomberg survey.
The reading was well below expectations as spending on public construction spending fell 2.1 percent to the lowest level since March 2011, driven by 3.6 percent plunge in federal construction and 1.9 percent drop in state and local construction. Meanwhile, private construction spending also slumped 0.9 percent, following the 0.6 percent decrease in June. In general, the construction industry makes a significant contribution to the U.S. Gross Domestic Product and also is a major force to the economy. Hence, the drop in construction activities is indicative of plummeted business confidence at present.
EUR/USD 1-minute Chart: September 1, 2011
Charts created using Strategy Trader– Prepared by Trang Nguyen
The one-minute EURUSD chart above illustrated that the EUR/USD was trading in a narrow range before 10:00 AM as investors waited for the construction spending and Institute for Supply Management (ISM) manufacturing data release. Just a minute after construction spending printed lower than forecast, the currency pair jumped more than 20 pips from 1.4287 to 1.4312. Demands on the euro climbed as investors sought to be away from the green back. The Relative Strength Indicator (RSI) rose above 70 that indicated overbought reactions of traders. Nonetheless, just five minutes later, the trend was reversed. The currency pair started to turn bearish since the manufacturing index reading exceeded estimates that spurred optimism about economic growth and offset the negative effects triggered earlier by the drop in construction spending. In addition, the slow recovery rate and ongoing banking system troubles in the Euro zone resulted in further depreciation in the single-currency.
Written by Trang Nguyen, DailyFX Research Team
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