THE TAKEAWAY: The U.S. Leading Indicator rose > M2 Money Supply and Interest Rate Spread climbed > U.S. Dollar shortly declined before continuing its upward momentum

The U.S. leading indicator, a gauge of the economic outlook for the next three to six months, advanced 0.3 percent in August, following a revised upward 0.6 percent gain in the preceding month, the Conference Board reported today. Although the reading came in better than 0.1 percent median projections from 56 economists in Bloomberg survey, the figure still pointed to a lower pace of growth than in previous period.

U.S. Leading Indicator: January 2010 to Present

U.S._leading_indicator_body_Chart_7.png, The U.S. Leading Indicator Beats Estimates in August

Prepared by Trang Nguyen

Four of ten indicators made up an increase in the August leading index, with the two largest positive contributors M2 money supply and interest rate spread climbing 0.7 percent and 0.23 percent, respectively. Positive spread between short-and long- term interest rate would continue as the Federal Reserve yesterday announced a plan to extend maturities of its Treasury holdings. On the other hand, stock prices and consumer expectations, the two largest negative contributors, retreated 0.41 percent and 0.25 percent, respectively. Stock market might be dragged down in coming months as increasing fears of another recession in the world’s largest economy force investors to seek refuges in safe investments. The Federal Reserve also stated that they saw the economy faced “significant downside risks” in the second half of the year.

USD/CAD 1-minute Chart: September 22, 2011

U.S._leading_indicator_body_Picture_1.png, The U.S. Leading Indicator Beats Estimates in August

Charts created using Strategy Trader– Prepared by Trang Nguyen

The one-minute USDCAD chart above demonstrated immediate traders’ bearish reaction regarding to the greenback after the U.S. leading indicator released. The currency pair dropped 40 pips from 1.0310 to 1.0270. The Relative Strength Indicator below 30 indicated the currency pair was oversold. Despite of better-than-forecasted 0.3 percent increase in the leading indicators, the data obviously suggests humble economic growth in the U.S. through the remainder of the year. However, the currency pair’s downside momentum was just short-lived as the U.S. dollar regained its footing thirty minutes later. Investors have raised their bets on relatively strengthened greenback versus the loonie after the Federal Open Market Committee revealed its plan to ease policy further that promotes stronger economic recovery.

Written by Trang Nguyen, DailyFX Research Team