€ The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2965 level and was capped around the $1.3040 level. The big news in the market today was a weaker-than-expected result for U.S. June durable goods orders. Defying expectations of a positive print, the headline number came in at -1.0%, down from the revised May tally of -0.8%, while the ex-transportation component fell to -0.6% from the May result of 1.2%. Sub-components such as capital goods orders non-defense ex-air were also considerably weaker and these data suggest the U.S. economy sputtered lower at the end of the first half of the year. Other data saw MBA mortgage applications off 4.4% from the prior +7.6% result. Weekly initial jobless claims and continuing jobless claims data will be released tomrorow followed by GDP, PCE, and final July University of Michigan consumer sentiment data on Friday. The Federal Reserve released its July Beige Book today and its noted that economic growth decelerated in some areas over the past two months. The expiration of a homebuyers’ tax credit and a decline in commercial real estate both had a negative impact on the U.S. economy. The Fed continues to anticipate “continued moderate growth.” New Fed nominees Yellen, Diamons, and Raskin won their Senate votes today and will soon join the Board of Governors. In eurozone news, provisional German states’ July consumer price inflation data released today came in on the elevated side. The preliminary national July CPI came in at 0.2% m/m and 1.1% y/y with the harmonized measure at +0.3% m/m and +1.2% y/y. French June CPI data will be released tomorrow. The European Central Bank introduced more stringent rules today on bank collateral including new haircuts on certain bonds. Euro offers are cited around the US$ 1.3265 level.
¥/ CNY The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥87.25 level and was capped around the ¥88.10 level. Bank of Japan Policy Board member Kamezaki reported the central bank “wants to make utmost efforts proactively to escape from deflation and return to a sustainable growth path under price stability,” noting a stronger yen will hurt exporters. In contrast, other BoJ officials including Governor Shirakawa have been hesitant about commenting on the strong yen. There is speculation that industrial production growth in Japan is decelerating and this may increase pressure on the BoJ to ease further. Yen gains were also prompted by weaker-than-expected Australian consumer price inflation data, suggesting global growth continues to decelerate. Reserve Bank of Australia will likely not hike rates next week and the yen could stay bid as a result of this evolving monetary and economic landscape. While Kamezaki’s remarks may not increase the changes of yen-selling intervention by the government, traders remain fixated on the ¥85 level. Economic growth in Japan may also slow in the fourth quarter. The spread between three-month U.S. Dollar Libor and three-month yen Libor narrowed to 23.937 basis points today, the smallest difference since 20 May. Data released in Japan overnight saw July small business confidence improve to 48.1 from the prior reading of 47.4. June retail trade data will be released tonight. The Nikkei 225 stock index climbed 2.70% to close at ¥9,573.27. U.S. dollar bids are cited around the ¥86.29 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥113.20 level and was capped around the ¥114.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥135.85 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.50 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7778 in the over-the-counter market, down from CNY 6.7784. The Federal Reserve Bank of Cleveland warned that the anticipated appreciation of the Chinese yuan will not lead to a “substantial” reduction in the U.S. trade deficit. People’s Bank of China is expected to keep monetary policy relatively stable and continue to promote domestic final private demand.
£ The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5635 level and was supported around the US$ 1.5545 level. Data to be released in the U.K. tomorrow include July Nationwide house prices, June net consumer credit, June net lending secured on dwellings, June mortgage approvals, and the July GfK consumer confidence survey. Bank of England Governor King today expressed concerns that proposed reforms to the Basel capital accord will not be strong enough. Monetary Policy Committee member Miles said now is not the proper time to change policy while MPC member Bean said sterling’s decline will likely have a larger-than-expected impact on consumer prices. Cable bids are cited around the US$ 1.5270 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8310 level and was capped around the £0.8365 level.
The Australian and Kiwi dollars were the big losers on Wednesday on the back of a weaker Australian CPI report and dovish interest rate decision from the Reserve Bank of New Zealand.
AUD/USD shed 92 pip on the back of yesterday’s weaker than expected CPI report. The Australian Bureau of Statistics reported a 0.6% quarter-over-quarter growth rate in second quarter CPI, despite calls for an increase to 1.0% from 0.9% in Q1. Annual CPI growth moved up to 3.1% from 2.9% in Q1, despite calls for 3.4%. The pair last traded down 88 pips at 0.8936.
Meanwhile, NZD remains under pressure after a dovish interest rate decision earlier on Thursday. Although the RBNZ hiked its benchmark interest rate by 25 bps to 3.00%, as expected, central bank Governor Alan Bollard said the pace of monetary policy expansion may slow. He added that the economic outlook for the region has softened, with domestic demand subdued, and the New Zealand dollar stronger than what is consistent with the fundamentals. NZD/USD last traded lower by 119 pips at 0.7213.
Meanwhile the USD remained on top, outperformed only by the yen after core durable goods unexpectedly fell by 0.6% despite calls for a 0.4% gain. Also, the Federal Reserve’s Beige Book Economic Report said that economic activity in the U.S. slowed in some areas.
Looking ahead, focus will be on a barrage of euro zone climate indicators as well as U.S. weekly jobless claims.
The dollar declined against the yen in Asia Thursday on speculation that U.S. Treasury yields will fall further due to concerns over a slowdown in the world's biggest economy.
Strong demand at a U.S. five-year sovereign note auction overnight suggested that recent weak economic reports from the U.S. have made investors pessimistic about the country's growth outlook.
The U.S. currency was weaker also because of speculation that foreign investors will buy new shares offered by Japanese companies, a process which involves yen-buying.
On Wednesday, market sentiment was dampened after data showing demand for U.S. durable goods slid for a second straight month in June. At the same time, the Federal Reserve's latest beige-book report pointed to signs that the economic recovery may be running out of steam, adding to the market's disappointment.
The dollar was at JPY87.19 as of 0450 GMT, lower than JPY87.44 in New York Wednesday.
The euro was higher at USD1.3013 at 0450 GMT from USD1.2988 overnight while it was lower against the yen at JPY113.47 from JPY113.54.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 81.970 from 82.132.
The British pound remained at a 5-month peak against the dollar despite dovish comments from the Bank of England, which did little to diminish optimism about the UK economic outlook after a run of encouraging data.
Flat Asian stock markets left the Australian dollar floundering Thursday, rising only slightly through the trading day, with crucial Chinese manufacturing data Sunday the next major test of market confidence. General U.S. dollar weakness and cross-related demand helped to put some support under the Aussie dollar.
Market expectation
Currency dealers believe Treasury yields will keep falling for the time being, meaning investors will see less returns from their dollar-denominated assets. That view helped prompt dollar selling, said analysts.
Investors will pay attention to Thursday's seven-year Treasury bond tender to see whether yields keep falling.
The euro won't be able to rise far above USD1.3, dealers said, because big U.S. hedge funds have resumed selling the euro based on their medium-term European economic forecasts.
The greenback may fall to as low as JPY86.00 in this global day, some dealers said. But the pace of any decline below JPY86.50 would be slow due to dollar-buying orders placed by Japanese importers, said analysts.
European stock markets are expected to have an uneven open Thursday, as investors weigh up the competing influences of disappointing U.S. economic data but upbeat second quarter corporate earnings.
(Reuters) - The euro dipped against the yen on Thursday, pulling away from a recent two-month high on selling by Japanese exporters, while the kiwi struggled after New Zealand's central bank raised interest rates but warned further hikes could be more gradual.
The New Zealand dollar fell sharply after the Reserve Bank of New Zealand (RBNZ) signaled the pace of further interest rate hikes would be less than earlier thought. The kiwi fell to a low near $0.7205, from about $0.7280 before the announcement.
After staging a mild recovery, the New Zealand dollar was up 0.5 percent from late U.S. trading on Wednesday at $0.7244.
"The kiwi was dented by dovish comments from New Zealand's central bank, that came a day after data showed inflation has cooled in Australia," said Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking.
Australian inflation data released on Wednesday proved far more tame than expected, ruling out the need for an interest rate rise possibly for the rest of the year.
The euro edged up 0.2 percent against the dollar to $1.3014, hovering near its 11-week high of $1.3047 hit on trading platform EBS earlier this week.
But the euro dipped 0.2 percent against the yen to 113.40 yen, pulling away from its highest in more than two months of 114.74 yen struck on trading platform EBS on Wednesday.
A trader for a Japanese bank cited euro-selling by Japanese exporters before the month-end, adding that more offers were likely to emerge if the euro rebounds and rises toward 115 yen.
"A lot of exporters are waiting at levels above 115 yen," the trader said.
The dollar slipped 0.3 percent against the yen to 87.19, extending losses after data on Wednesday showed new U.S. durable goods orders unexpectedly fell for a second straight month in June.
Still, the core measure of orders excluding aircraft and defense rose 0.6 percent in June, on top of an upwardly revised 4.6 percent jump in May, suggesting activity was not nearly as soft as the headline number suggested.
The dollar is likely to find support against the yen at levels around 86.80 yen, near the dollar's intraday low hit on Monday and Tuesday, said Teppei Ino, a technical analyst at Bank of Tokyo-Mitsubishi UFJ.
"There aren't strong reasons to bid up the yen beyond those levels at the moment, especially ahead of key U.S. data on Friday," Ino said. U.S. second-quarter gross domestic product data is due out on Friday.
A recent string of lackluster U.S. economic data has weighed on the greenback and led investors to cut short positions in the euro.
The single currency touched an 11-week high against the dollar earlier this week, helped by strong bank earnings and gains in European equities, following last week's favorable results of regulatory stress tests.
The dollar index .DXY was down 0.3 percent at 81.956, with near-term support around 81.44, a 50 percent retracement of the index's move from a low of 74.17 in November 2009 to a high near 88.71 in June.
The U.S. Federal Reserve's Beige Book on Wednesday pointed to a less-than-booming recovery with sluggish housing markets and sales of costly items like new cars weakening.
(Additional reporting by Anirban Nag in Sydney and Hideyuki Sano and Rika Otsuka in Tokyo; Editing by Joseph Radford)
The Australian dollar fell today for a second day against its U.S. counterpart as the in inflation rose slower than expected, fueling the speculation that the central bank would keep the interest rates unchanged.
The consumer price index rose 0.6 percent in the June quarter 2010, compared with the rise of 0.9 percent in the March quarter 2010. The forecasts promised the 1.0 percent growth. There are not many reasons for the Reserve Bank of Australia to raise the interest rates next week, though the bank still may raise the rates later this year. The Aussie will probably decline to $88.50 in the near term.
AUD/USD declined from 0.9022 to 0.8954 today as of 9:29 GMT after falling as low as 0.8922.
(Reuters) - The euro struck a two-month high against the yen and stayed within reach of an 11-week high against the dollar on Wednesday, as markets stayed in risk-on mode on robust European bank earnings and solid economic data.
The Australian dollar bucked the trend, after weaker-than-forecast Australian inflation dented rate hike expectations.
Risk sentiment had been boosted on Tuesday as European shares hit a five-week closing high. Two of Europe's top banks, UBS AG (UBSN.VX)(UBS.N) and Deutsche Bank AG (DBKGn.DE)(DB.N), posted results that reassured investors following last week's regulatory stress tests.
A rise in Germany's GfK consumer sentiment indicator on Wednesday to its highest level since November has also boosted hopes that the economic outlook in Europe is improving.
Asian equity markets tracked the positive tone, as Japan's Nikkei 225 Index .N225 and China's Shanghai Stock Exchange .SSEC both jumped more than 2 percent on Wednesday.
"Clearly there's a risk-on situation as the market is starting to believe there's a European recovery in place, but there is thin liquidity behind it," said Neil Mellor, currency strategist at Bank of New York Mellon.
At 3:24 a.m. ET, the euro was trading up around 0.3 percent versus the yen at 114.50, close to a two-month high hit in early European dealing at 114.74 on trading platform EBS.
Technical analysts said the picture was becoming bullish, as euro/yen continued to make gains within its Ichimoku cloud. The top of the cloud was seen as key resistance at 117.86.
The euro stayed within touching distance of an 11-week high against the dollar at $1.3045 hit the previous day. Traders said an option barrier at $1.3050 would need to be taken out for a move toward Fibonacci resistance at $1.3125, which is a 38.2 percent retracement of the December-June move.
Large option expiries were reported by traders at $1.3000 and $1.2850, potentially slowing the euro's gains on the day.
Focus for the morning was the ECB's three-month liquidity operation, with the result due around 5:20 a.m. ET.
"The tenders have shown there are a still a large number of European banks which are clearly hooked on ECB funding, which isn't a good situation," said BNYM's Mellor.
Results of a Portuguese bond auction were also keenly awaited, set for release around 0930 GMT.
AUSSIE SLIDES ON CPI DATA
The Australian dollar slid 0.7 percent to $0.8949, having dropped from a 11-week high of $0.9069 reached the previous day.
Australian consumer prices rose much less than expected last quarter and core inflation slowed to its lowest in more than three years, ruling out the need for a rate rise next week and possibly the rest of the year.
"The Aussie has given back some of its recent gains as CPI data prompted investors to push back expectations for higher rates," said Ayako Sera, a market strategist at Sumitomo Trust & Banking.
"But the Aussie is likely to keep drawing support from Australian interest rates, which are still the highest among industrialized countries."
The dollar index .DXY was down 0.2 percent at 82.011, staying close to a 12-week low hit on Tuesday at 81.824.
(Additional reporting by Rika Otsuka; Editing by Susan Fenton)
The euro edged lower against the yen as the single currency's overnight gains to a more than two-month high encouraged Japanese exporters to sell the unit to lock in profits. Further declines in the risk-sensitive euro are likely to be short-lived, as rising Asian shares are supporting sentiment toward the currency.
As of 0450 GMT, the European single unit stood at JPY114.05 compared with its New York overnight levels of JPY114.37 and JPY114.42, its highest since May 18.
Cross-yen sales, which involve selling the dollar for the yen in the process, contributed to the dollar's fall. The U.S. unit was at JPY87.73 as of 0450 GMT, from JPY87.97 overnight.
The euro changed hands at USD1.3000 compared with USD1.3006 in New York late Tuesday. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.142 from 82.138.
The U.K. pound, now little changed, earlier bucked the trend of losses in higher-yielding currencies, hanging onto its strong gain on the dollar and trading near its highest level since February after U.K. retail sales smashed through economists' expectations with their best reading in three years.
The Australian dollar was lower late Wednesday after weaker-than-expected second quarter inflation data buried the idea that interest rates might be raised next week. Late Wednesday, financial markets were pricing virtually no chance of a rate hike in August, down from 30% ahead of the inflation report.
Market expectation
The European single currency may reverse course later in the global day if European and U.S. equities track firm Asian stock performances, prompting investors to sell the safe-haven yen, traders said.
EURJPY, EURUSD up as various investors including non-Japan hedge funds, Japan life insurance firms buy at lower levels, says traders. Players holding ample cash are gradually becoming focused on risk-tolerance with Nikkei +2.7% after market participants reduced risk exposure in past weeks to await release of Europe bank stress test results. Says EURJPY may rise to JPY115.00 vs last JPY114.26 (near JPY114.43, highest since May 18); EURUSD may gain to USD1.3040 vs USD1.3010. Adds if Friday's 2Q U.S. GDP data improve (+2.5% expected vs +2.7% in previous quarter), increasing Treasury yields, players may buy USD, risk-sensitive EUR further vs JPY, pushing EURJPY to JPY115.00 into weekend, JPY117.00 next week.
Market participants will pay attention to the Federal Reserve's Beige Book and the U.S.'s advance report on durable goods for June, both slated for release later in the day.
European stock markets are expected to open in an uncertain manner Wednesday, with U.S. economic weakness adding some downside pressure to Wall Street overnight, but relatively strong earnings news offering a degree of confidence.
The U.S. Dollar advanced on Wednesday, gaining 1% against the Japanese Yen and pushing the EUR back under $1.30, after a report showed U.S. consumer confidence fell more than expected, pressuring equities lower and reducing investors' appetite for risky assets. Economic News
USD - Dollar Rises on Demand for Greenback's Safety The U.S Dollar advanced against most of its major counterparts as a decline in U.S. consumer sentiment to a 5 month low revived demand for the relative safety of the world's main reserve currency. The U.S. consumer confidence for July fell to its lowest level since February with all eyes on consumer durable goods numbers for June later in the session for more evidence about the world's largest economy. The greenback advanced as much as 1.3% to 87.97 Yen in the biggest intraday gain since June 2. Treasury two-year note yields increased as much as 0.06 percentage point to 0.64% in the biggest intraday climb since June 10. The USD/JPY recent weakness has been related to the very low level of U.S. yields, analysts said. And the fact that the yields are rebounding at this stage is likely to lend some support to the pair.
EUR - EUR Erases Gains; Slips Below $1.30 level The European currency hovered below a key level on Wednesday, running into profit taking after it hit a 11-week high against the U.S. Dollar, with attention turning toward the Australian Dollar ahead of crucial inflation data. The EUR slipped below the psychological, and technically crucial, level of $1.30, having hit a high of $1.3045 on Tuesday.
The 16-nation currency held some impressive gains against the Japanese yen, trading above 114 yen after having jumped over 1% on Tuesday to a 2-month high. Traders said the EUR/JPY looked increasingly bullish on charts, especially after it rose above 113.50 yen where it had met lots of offers from Japanese exporters.
Moreover, despite the EUR/USD easing from highs, sentiment toward the single currency remains bullish in the short term with a number of commentators surprised by the resilience of the Euro-Zone economy. On the other hand, doubts remain over the ability of the U.S. economy to avoid a slowdown. Market players say that a sustained break above the $1.30 level could place the single currency against the greenback in a new $1.30-$1.35 trading range in the coming weeks.
JPY - Yen Rises on Safety Demand Japan's currency gained versus all 16 major counterparts ahead of U.S. reports in two days which are forecasted to show economic and business activity grew at a slower pace. The Yen rose from near a two-month low against the EUR on speculation signs of a slowing U.S. recovery will spur demand for safer assets.
The Yen typically strengthens in times of financial turmoil as Japan's trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The Yen traded at 87.77 per Dollar from 87.90. The currency gained to 113.95 per EUR from 114.24 yesterday, when it reached 114.42, the weakest level since May 18.
Crude Oil - Oil Falls a 2nd Day after Consumer Confidence Drops Crude Oil declined for another day after an industry report showed U.S. crude inventories rose and the Conference Board said confidence among the nation's consumers fell, signaling growth and energy demand may falter. Rising oil production capacity in the Gulf of Mexico after Tropical Storm Bonnie fizzled over the weekend without damaging infrastructure also weighed on Oil prices, analysts said. Oil prices dropped the most in more than 3 weeks Tuesday as the U.S confidence index declined to the lowest level in 5 months. Traders mentioned that there was a sell-off in the crude market because of a fall in U.S. consumer confidence and the sentiment is still weak.
Technical News
EUR/USD Yesterday the pair pushed to its highest level in the past 3 months before falling backwards to finish almost unchanged, forming a spinning top candlestick formation. This may signal indecision on the part of traders and a lack of buyers in the current uptrend.
GBP/USD The pound was a big gainer in yesterday's trading as the cable breached and closed above the resistance level of 1.5520. The pair has been a strong performer as of recent, recording gains over the past 5 trading sessions. However, technical resistance is forming on the daily chart. The RSI (14) is dropping below the overbought zone while the Slow Stochastic oscillator is forming a bearish cross, indicating the next move may be to the downside. Traders may want to tighten their stops on any long positions.
USD/JPY The yen suffered during yesterday's trading, rising as high as 87.96 while closing above the 20-day simple moving average and the downward sloping trend line that began on June 14th. However, traders may be able to fade the trend as a bearish cross has formed on the 4-hour Slow Stochastic oscillator, indicating that the pair's next move may be lower. Traders can target the resistance level of 87.40 with an extended target at the year to date low of 86.25.
USD/CHF The pair may see a continuation of its recent downtrend in today's trading as the RSI for the pair floats in the overbought territory on the 2 hour and 8 hour charts with most other indicators floating in neutral territory. Traders may be advised to go short for the day.
The Wild Card GBP/NZD The pair may see some downward correction today as the RSI for the pair is floating in the overbought territory on the hourly and 2 hour charts while a bearish cross is evident on the 2 hour and 4 hour charts Slow Stochastic, indicating an imminent downward movement. Furthermore, a breach of the upper Bollinger Band is evident on the 2 hour chart. Forex traders may be advised to go short for the day.
MORNING BRIEFING: Australian CPI rises less than expected, ease likeliness of RBA intervention
What’s new: Australia: CPI rises much less than expected United States: Consumer Confidence falls in July Japan: Nikkei strongest close in 2 weeks on strong corporate earnings and weaker Yen China: IMF staff estimate the Yuan is undervalued between 5 to 27 percent, say sources
Today:
Rates in Asia and Indices: EURUSD: 1.3033 - 1.2966. USDCHF: 1.0624 - 1.0590. GBPUSD: 1.5627- 1.5562. EURJPY: 113.48 – 112.57. USDJPY: 88.07 – 87.66. DowJones: 10'537.69 +0.12% NASDAQ: 2'288.25 -0.36% S & P 500: 1'113.84 -0.10% Nikkei: 9'753.27 +2.70% Shanghai: 2'634.77 +2.31% Gold: $ 1'162.10 Crude Oil: $ 77.54
Comments: The Nikkei climbed 2.7% on Wednesday for its highest close and biggest one-day gain in two weeks, breaking through several resistance levels on strong corporate as well as a weaker Yen.
Australian consumer prices rose much less than expected last quarter while core inflation slowed to its lowest in over three years, greatly lessening the possibility of the Reserve Bank of Australia raising interest rates, now at 4.5%, at its monthly meeting on August 3rd.
US consumer confidence for July fell to its lowest level since February, and eyes are on consumer durable goods numbers for June due today to further gauge the health of the world's largest economy.
The International Monetary Fund has chosen not to call the Yuan "substantially" undervalued, a move that recognizes China's efforts to free up its exchange rate and avoids friction with an increasingly influential shareholder. Since its de-pegging from the US Dollar, the Yuan has appreciated by 0.7% against the buck. Sources said IMF economists reckoned the Yuan was still between 5%and 27% undervalued depending on the methodologies used. A diplomat in Beijing confirmed the range.
The Euro is hovering above 1.3000 versus the Dollar today, however has failed to close above this technically crucial level, the 61.8% Fibonacci retracement from its fall since mid-April. Against the Yen, the single currency reached a 2-month high yesterday, while continued to record new highs today. EUR/JPY is now seen as bullish by an increasing number of traders, confirmed also by our RTFX Trend which turned bullish for the pair yesterday, with a start rate of 114.23.
The Aussie slipped to 0.8922 earlier following the release of inflation figures from an 11-week high reached yesterday at 0.9069.
The euro surrendered an 11-week high against the dollar after better-than-expected U.S. home-prices data helped the greenback recoup some its earlier losses.
The S&P/Case-Shiller home price index for 20 major U.S. cities rose 4.6% in May versus year ago, beating analysts' expectations for a 4.1% rise. The data sent the dollar to an intraday high against the yen. The euro dipped below USD1.30 to trade at a slight loss on a day after the data.
Currencies closely tied to the pace of global growth, such as the Australian and Canadian dollars, rode the coattails of improved investor sentiment, gaining on the greenback as worries over the euro-zone's sovereign-debt crisis fade to the background - at least for now - as a steady stream of solid global economic data come into focus.
The U.K. pound also gained to its highest level since February after U.K. retail sales posted their strongest growth in three years, smashing through economists' expectations.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.120 from 82.022.
Earlier euro-zone data sent the safe-harbor dollar to its lowest level since May against a basket of its competitors. The euro gained to its highest level in 11 weeks, ticking to near USD1.3050 before surrendering its gains on the heels of the U.S. home prices data.
Market expectation
Important resistance is seen for the pound near USD1.5560, which is near the 200-day moving average and also marks the 50% retracement of the down move from the November highs at USD1.6880 and the low this year near USD1.4230, said traders.
A run toward USD1.5900 is possible if the pound can press through USD1.5610, which marks a 61.8% retracement of the down move from USD1.6460 to USD1.4230, they said.
(Reuters) - The euro hovered close to a two-month peak against the dollar on Tuesday, retaining support after last week's European bank stress tests revealed no horrors while increased demand for riskier assets weighed on the dollar.
Although concerns lingered that the stress tests were not tough enough, analysts said these could be calmed when Deutsche Bank discloses its exposure to euro zone sovereign debt.
The dollar fell to a 12-week low against a basket of currencies as recent weak U.S. data accompanied an otherwise brighter outlook for the broader global economy, encouraging investors to move into higher-yielding and riskier assets.
Underscoring this, India hiked interest rates on Tuesday [ID:nSGE66Q06N], citing inflationary pressures and a firm economic recovery, while the Reserve Bank of New Zealand is expected to raise rates later this week.
"We are seeing a more risk friendly environment," said Peter Frank, currency strategist at Societe Generale.
"The market has drifted away from fears of a double dip, and the rate tightening environment -- with a rate hike in India and one expected in New Zealand -- is attracting flows into higher yielding and emerging market assets and out of the dollar."
At 4:07 a.m. ET, the euro was steady at $1.2992, having earlier risen as high as $1.3023. Traders cited Asian central bank bids around $1.2970-80, but said reported offers above $1.3020 on behalf of a European sovereign were capping gains.
The euro headed toward last week's more than two-month peak of $1.3029. If it scales this, its next target will be $1.3125, the 38.2 percent retracement of its December-June fall, technical analysts said.
Falls were also seen limited while it remained above support at $1.2870 -- close to its 100-day moving average -- and last week's low around $1.2730.
Traders were cautious as they awaited clarity on Deutsche Bank's (DBKGn.DE) debt exposure after the German bank posted second-quarter earnings.
However, they said if the bank discloses no shocks, this could help build confidence in euro zone banks and dispel concerns about a lack of transparency in the stress tests, triggering buying in the euro.
"Despite all the negative talk about the stress test results, German interest rates are rising and the euro firmed, which seems to suggest lingering euro short-covering needs," said Osamu Takashima, chief FX strategist at Citibank in Tokyo.
DOLLAR INDEX
The dollar index .DXY was steady at 82.102, having earlier fallen to 81.913, its weakest since early May.
Sterling hit a five-month high of $1.5530 as the UK currency made further gains in the wake of surprisingly strong gross domestic product data on Friday.
Among higher-yielding currencies, the Australian dollar was steady at $0.9023, holding above the key $0.90 level and close to 11-week high of $0.9031 hit on Monday, while the New Zealand dollar touched a six-month high of $0.7355.
Investors' greater appetite for risk also weighed on the low-yielding yen, with the U.S. dollar gaining 0.4 percent to 87.19 yen. The euro rose to a seven-week high against the yen of 113.64 yen, with traders saying gains accelerated after stops were triggered above 113.50 yen.
The euro rose slightly against the yen and the dollar in Asia Tuesday as firm Asian equities raised non-Japanese investor confidence toward the risk-sensitive unit, and traders said the euro may climb a tad more later if global shares follow Asia's lead.
Also helping the euro were last week's results from stress tests on European banks that didn't elicit any big negative surprises.
Concerns that the tests might have lacked enough rigor appeared to subside, while positive economic data from the U.S. and Europe supported riskier assets. The safe-haven dollar dipped to its lowest level since early May against a basket of its competitors as U.S. stocks rallied and demand increased for higher-yielding currencies.
The euro climbed to intraday highs of JPY113.20 and USD1.3018, compared with JPY112.91 and USD1.2297 in New York late Monday. As of 0450 GMT, the unit was at JPY113.02 and USD1.2998.
The U.S. unit was at JPY86.99 as of 0450 GMT from its New York overnight level of JPY86.89. The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 81.965 from 82.022.
The British pound's strength was showcased yet again as it climbed over 1% vs. the USD on the day, boosted by data showing Britain's economy grew almost twice as fast as expected in Q2. Data showed gross domestic product jumped 1.1% on the quarter, the strongest growth in four years and almost twice as fast as forecasts for 0.6%.
The Australian dollar was higher late in Asia Tuesday ahead of all-important local inflation data Wednesday which analysts expect to make or break the case for a rate hike by the central bank next week.
Market expectation
Investors are waiting for U.S. economic reports to assess the health of the world's biggest economy. Better-than-expected figures may lift stock markets, pushing up the euro toward JPY113.50 and USD1.3050 in the global day, dealers said.
Of interest to the market are the Standard & Poor's Case-Shiller Home Price Index for May and the consumer confidence index for July, due later in the day. The Federal Reserve's Beige Book on Wednesday and second-quarter gross domestic product data Friday will also draw attention.
Economists surveyed tip the consumer confidence index, due at 1400 GMT, to log 50.8 in July from 52.9 in June.
Still, traders said the euro's long-term outlook remains grim due to expectations for the currency zone's stagnant financial sector and economy.
European stock markets are expected to open a little lower Tuesday, as market participants cautiously look to key corporate earnings before adding further risk.
(Reuters) - The euro erased early gains against the dollar on Monday as caution set in after initial investor calm in the wake of the release of European banks' stress test results late on Friday.
Early risk-taking sentiment faded, with European shares down 0.4 percent .FTEU3 by mid-morning.
Just seven of 91 banks failed the tests, including six in Spain and Greece, for an overall capital shortfall of 3.5 billion euros.
"Any downside lurch has been prevented by the generally reassuring conclusions of the tests ... no surprises as to the vulnerabilities, and no real headache in terms of the required capitalization to bolster their position," said Daragh Maher, deputy head of FX strategy at Credit Agricole CIB.
"At the same time, any relief rally for the euro has been curtailed by inevitable criticism about some of the deficiencies of the stress test assumptions."
By 4:44 a.m. ET, the euro was flat compared with late U.S. trade on Friday at $1.2900, falling from a session high of $1.2958.
He added the euro may make a push toward $1.3125, the 38.2 percent retracement of the December to June move, but a rise to that level would attract reversal plays in the pair.
Near-term support was seen around $1.2870, its 100-day moving average.
Some said the euro's gains could be restricted by this week's redemption of maturing euro zone bonds and coupon payments worth some 45 billion euros, according to Citi estimates.
The euro hit a 10-week high above $1.30 last week, recovering after fears of a euro zone debt crisis and its impact on European banks drove it below $1.19 in early June.
Brighter economic data in the euro zone also bolstered the single currency.
Data from the Commodity Futures Trading Commission showed currency speculators cutting net short positions in the euro. Net shorts fell to 24,251 contracts in the week to July 20 compared with 27,050 in the prior week..
YEN GAINS
The yen gained broadly as investors stepped back from risk-taking.
The euro hit a seven-week high of 113.49 yen as dealers unwound long yen positions, but then ran into offers from Japanese exporters around 113.30/50 yen which took it lower. It was last down 0.3 percent at 112.50 yen.
That helped pull the dollar down 0.3 percent against the yen to 87.16 yen.
The dollar was expected to remain under pressure after recent U.S. housing and manufacturing data suggested recovery may be fizzling out. Economists have steadily marked down forecasts for Friday's U.S. second quarter gross domestic product.
"The dollar will remain weak on the back of weaker U.S. economic data and on the lack of a credit event," said Hans Redeker, global head of FX strategy at BNP Paribas, he said.
The dollar index was flat at 82.50 .DXY.
The Australian dollar came off fresh 10-week high of $0.8990, while sterling also failed to hold a three-month high of $1.5502.
The euro rose to a seven-week high against the yen in Asia Monday as hedge funds in the region bought the common currency, feeling relieved that results of stress tests of European banks did not bring any big surprises.
This buying pushed the euro to a high of JPY113.49 in morning trade in Tokyo. The common currency had not been that high since marking JPY114.16 on June 3.
Also helping the euro were gains in many of Asia's bourses, which prompted U.S. and other short-term investors to buy the risk-sensitive currency, dealers said. Leading the rises, Japan's benchmark Nikkei Stock Average was up 0.8% in early afternoon trade.
Also likely to limit any further gains in the common currency against the yen were selling orders from Japanese exporters around JPY113.50, dealers said.
Elsewhere, the dollar traded hands at JPY87.63, up from JPY87.45 late Friday in New York. Economists expect the report to show sales rose 3.7% on month after falling 32.7% in May.
The euro stood at USD1.2925 compared with USD1.2918. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies including the euro, was at 82.471 from 82.475.
The British pound's strength was showcased yet again as it climbed over 1% vs. the USD on the day, boosted by data showing Britain's economy grew almost twice as fast as expected in Q2. Data showed gross domestic product jumped 1.1% on the quarter, the strongest growth in four years and almost twice as fast as forecasts for 0.6%.
The Australian dollar was higher late Monday, albeit below its day's peak as news that producer price inflation was lower than expected in the second quarter damped speculation of a near-term interest rate hike.
Market expectation
The U.S. unit could rise further if U.S. new residential sales for June, due at 1400 GMT, come in stronger-than-expected, dealers said.
The stress test results, which were largely as expected, dispelled short-term concerns. Still, many investors believe the test standards may have been too lenient, a view that could weigh on the euro in the months ahead, dealers said.
EURJPY down as short-term players sell to book profits; view that bids from Japanese exporters to limit gains above JPY113.50, near cross's earlier high at JPY113.49, highest in seven weeks, likely prompting speculators to lock in gains now, says traders. Traders expect EURJPY to hover in relatively narrow band for rest of global day, while tips a slight upward bias in JPY110.00-JPY115.00 band for week.
European stock markets are expected to open a touch higher Monday, as market participants react with relief to Friday's release of European bank stress tests. However, these gains could be limited amid a degree of skepticism over the rigor of the tests.
The pound sterling is much higher after UK second quarter advanced GDP easily beat expectations, growing at 1.1% annualized pace compared to +0.6% expected; year-over-year GDP rises 1.6% compared to 1.1% expected. Cable has rallied as high as 1.5450 but has since pulled back and appears to be retracing.
The other data point in European trading was the German IFO business climate survey. It crushed expectations as it rose to 106.2 in July compared to 101.5 expected and 101.8 prior. Europe continues to put out better-than-expected economic data. ECB executive board member Jose Manuel Gonzalez-Paramo said recent data reduces the risk of a double-dip recession, which effectively reflects the market sentiment (or even understates it).
The major event in North American trading will be the noon ET (5 p.m. in London) results of the European stress tests. 91 banks were tested by 20 different regulators so there is a considerable amount of uncertainty. Today, Goldman Sachs released a survey that indicated that the consensus of banks that will fail stress tests is 10.
Leaks are possible in the hours leading to the results and it’s likely that some market participants already have inside knowledge of what has transpired. Spanish newspaper El Pais reports that several Spanish banks have failed the stress tests. Gonzalez-Paramo said he has “no doubt” the impact of the tests will be “very positive” for markets. Similarly, ECB executive board member Gertrude Tumpel-Gugerell said the stress test results will send a “clear message” about the resilience of Europe’s financial system. Given all the leaks and the prevailing sentiment, it’s highly unlikely that there will be some sort of negative shock in the results.
Outside of Europe, there is a focus on yen levels. In Asia-Pacific trading, Japanese Cabinet Office official Keisuke Tsumura says yen has been “a bit too high.” We suspect further verbal intervention if USD/JPY falls to 85.00 with actual intervention only coming if the pair falls close to 80.00.
Thursday’s main economic news included more testimony from Fed Chairman Ben Bernanke, some better-than-expected U.S. housing data, and a surprise rise in euro zone consumer confidence.
In his annual testimony to the House panel on Capitol Hill, Bernanke said, “Unemployment is the most important problem we have right now.”
He added that the Fed is prepared to take action if the economy “doesn’t continue to improve, if we don’t see the kind of improvements in the labor market that we are hoping for and expecting”.
Bernanke listed possible actions the central bank may undertake: signaling the path of interest rates, cutting payments on excess reserves and engaging in further quantitative easing.
Also in the U.S., some above-consensus housing data was released. Existing home sales fell to a 5.37 million pace in June, better than expectations for a drop to 5.10 million from 5.66 million in May.
Meanwhile, sales slipped by 5.5% on the month, above calls for a 9.9% decline to follow the 2.2% fall in May
The surprise in the data was followed by a rally in the U.S. S&P 500 stock index, which helped risk currencies.
Ultimately, the S&P 500 closed 2.3% higher and at its strongest level since last Thursday.
Investor sentiment was also supported by better-than-expected Q2 earnings from Caterpillar and 3M.
Caterpillar announced Q2 earnings per share (EPS) of $1.09, exceeding calls for $0.84, while 3M revealed EPS of $1.54 versus the Street’s estimate of $1.47.
Against strong risk appetite in U.S. stocks, all G10 currencies advanced against the U.S. dollar. The Australian and New Zealand dollars outperformed.
Aside from the yen, the pound sterling made the smallest gains against the U.S. dollar, though its advance (by around 100 pips) was nonetheless impressive.
Aside from risk appetite, the euro, which rose above $1.2900USD once again on Thursday, was supported by an upside surprise in euro zone consumer confidence. It surprised expectations for it to remain at -17 in July by rising to a -14 print.
With no major Asia-Pacific releases scheduled for Friday, market participants’ attention now turns to the German IFO survey, UK Q2 GDP and Canadian consumer prices data.
A week spent speculating which banks might fail their 'stress tests', and whether these were worth doing at all, indices alternating between fairly large up and down days to end the week in positive territory. Jakarta, Mumbai and Thailand set new highs for 2010. The Japanese stock market closed near the lowest levels in two years, pressured by a strong yen (86.27) and dragged down by the banks index. The US dollar has lost ground against all major currencies this week, the Australian dollar leading at $0.8972 (a ten-week high) and the Swiss franc at 1.0400, best this year. The Hungarian forint weakened to 292.00 per Euro because of new PM Viktor Orban's refusal to implement IMF-suggested austerity measures. Top-quality Treasuries remain well bid, those of weaker Eurozone countries still all too close to their records over Bunds. US asset-backed securities the first casualty of new financial regulation, so the SEC has had to allow a 6-month grace period for implementation. [Rating agencies can now be sued for fraud and reckless behaviour so they are not allowing their ratings to be published in prospectuses]. ICE Sugar rallied to 18.66 cents per pound, its most expensive since March though a fraction of February's unsustainable 30.40 peak. Most Baltic Freight rates are at their lowest in a year or more. Political and Economic Developments
The Bank of Canada raised it key rate by 25 basis points to 0.75%; Brazil raised its Selic rate 50 basis points to 10.75%, slightly less than expected on negative inflation in June.
UK Q2 GDP came in a better than expected +1.1% Q/Q taking Y/Y growth to +1.6%, helped in part by June Retail Sales which rose by 1.0% M/M and +3.1% Y/Y excluding auto-fuel. No doubt the football World Cup had an effect, but this keeps it at the average of the last decade. With June Core CPI also running at +3.1% Y/Y (RPI +5.0% Y/Y and among the highest in two decades) yet Gilts maturing within 9 years yielding under 3.00%, real interest rates are decidedly negative. Pity then that National Savings and Investments was forced to withdraw its index-linked securities (RPI +1.00% per annum) to all new investors, the first time in their 35-year history, because of huge inflows. Hometrack has annual house prices rising by under 3.00% or shrinking since December 2007, Rightmove suggests +3.7% Y/Y, though the Halifax and Nationwide calculate 6.3% and 8.7% respectively. Gains on main homes tax free.
German and Eurozone Purchasing Managers' Indices, IFO and Consumer Confidence Surveys all upbeat versus June's.
Underlying Themes
For several weeks now politicians and central bankers have been suggesting we shouldn't be so gloomy, that in fact the economy was growing and banks were sound, many giving lengthy TV interviews on these subjects. Mercifully chairman Bernanke in his semi-annual testimony to the Senate Banking Committee spared us the usual drivel. Saying the number one concern for small businesses was a lack of demand not access to credit and that funding was not a constraint on large firms, that state and local governments were under fiscal stress, plus the worrisome structural problems of high unemployment, were all drags on economic recovery; above all the 'economic outlook remains unusually uncertain'. Perhaps they have at last grasped the enormity of the problem; perhaps they now know there are no more tools in the box; perhaps they now understand that deleveraging and rebuilding overstretched balance sheets takes a very long time. Perhaps the Bank of England's MPC is also adopting a more realistic approach. After predicting UK CPI would be back at target by the end of this year (their usual mañana mentality) chief economist Spencer Dale suggested this might now not happen until the end of 2011, and that the country would not get back to normal 'for an awfully long time'.
What to watch for next week
Monday Japan June Trade Balance, German Import Prices due from this day, US New Home Sales and UK July Hometrack Survey. Tuesday Japan June Corporate Service Prices, EZ16 M3 Money Supply, UK CBI July Distributive Trades, US Consumer Confidence, German August GfK Consumer Confidence and US May CaseShiller House Prices. Wednesday Japan July Small Business Confidence, ECB Bank Lending Survey, July CPI for the various German states due and US June Durable Goods Orders. Thursday Japan June Retail Trade, Large Retailers' Sales, UK Net Consumer Credit, Mortgage Approvals, German July Business Confidence, Unemployment, EZ16 Business Climate and Confidence and the Fed's Beige Book. Friday Japan June Unemployment, Household Spending, CPI, Industrial and Vehicle Production, Housing Starts, Construction Orders and Tokyo July CPI. Then EZ16 June Unemployment, CPI, US Q2 GDP, July Chicago Purchasing Managers and final University of Michigan Confidence Survey. Monday 2nd August holidays in Canada and Iceland.
Positioning and Technical Analysis
The last week of another thin summer month and many markets are tottering at fairly pivotal levels. August will probably see trends develop and more chaotic conditions predominate. Watch FX weekly closes for important breaks; another round of generalised US dollar selling is due, something which should prop up commodity prices. Top-notch Treasuries and Corporate bonds should remain well bid maintaining the pressure on credit spreads. Stock markets will probably be subject to increasingly violent intra-day swings.
(Reuters) - The euro slipped against the dollar and the yen on Friday after a newspaper said several Spanish savings banks failed tests to see how they would cope with worsened economic conditions.
The euro hit the day's low of $1.2861 on trading platform EBS after Spanish newspaper El Pais reported on Friday that several of the country's 18 savings banks have failed the so-called stress tests.
But losses were limited in the single currency, which jumped more than 1 percent against the greenback on Thursday, as many investors awaited the official test results at about 1600 GMT (12 noon EDT).
The euro has support at about $1.2720, an interim high from July 9 set during its recent rally from a four-year low, and is consolidating at $1.2720-1.3030. A break above that band could see it testing $1.3090-1.3125, chartists say.
But traders said the euro was unlikely to re-test this week's 10-week high of $1.3029 just yet nor fall sharply ahead of the stress test results, which could move other currencies as well.
Traders have been betting most of the 91 European banks being examined will pass. Analysts say if there are no ugly surprises, that will be euro supportive, although some are skeptical about the severity of the checks.
"Unless test results show a surprisingly big number of banks needing surprisingly large amounts of money to mend their health, the results are expected to be euro supportive," said Jun Kato, senior manager of the investment department at Shinkin Asset Management, adding that there was no sense of panic following the Spanish newspaper report.
Euro bulls bet the euro could extend its rally partly on dollar weakness due to concerns the U.S. recovery is faltering. Below-forecast economic data has fanned fears about a slowing economy, prompting investors to dump long dollar positions.
For chartists, the $1.3090 target area is a spike higher on May 10, while $1.3125 is the 32.8 percent retracement of the euro's fall from its November high to the four-year low marked in June.
But bears bet the euro rally could lose steam, pressured by selling against currencies with higher interest rate prospects, such as the Australian and Canadian dollars.
Chartists say a breach of $1.2720 support could be the first warning of a deeper retracement from its 10-week high.
Euro/dollar 1-month risk reversals, a measure of currency sentiment, showed a bias for euro puts. Traders said that partly reflected speculation the euro may start falling sometime after the test results.
Data from broker ICAP shows euro/dollar 1-month risk reversals at 1.35/1.85 percent, around the highest in more than three weeks.
The yen has been under pressure after data on Thursday showed surprisingly robust growth in European manufacturing and services, and after strong earnings from U.S. blue chips such as 3M (MMM.N) and Caterpillar (CAT.N) rekindled hopes for the global economy and improved investor appetite for risk.
The euro was flat at 112.07 yen, having risen about 0.9 percent on Thursday. It fell to the day's low of 111.73 after the Spanish newspaper report.
The dollar edged up 0.2 percent to 87.09 yen, staying above a seven-month trough of 86.27 yen struck on trading platform EBS late last week. The greenback dipped 0.1 percent against the Japanese currency on Thursday.
(Additional contribution by Reuters FX analyst Rick Lloyd in Singapore and Krishna Kumar in Sydney; Editing by Charlotte Cooper)
Better than expected news from the Eurozone helped the Australian dollar to grow against all other major currencies today despite the pessimism expressed by the RBA yesterday.
The Aussie rose against the greenback to the highest level since mid-May (this year) and extended its gains against the euro. The currency also rose against the Japanese yen and its New Zealand counterpart. The Australian dollar has been falling yesterday on concerns about the European banks’ stress tests and the statements by the Reserve Bank of Australia.
The major moving factor for the AUD were reports on Purchasing Manager Index in manufacturing and services in Eurozone. Both reports demonstrated growth and the higher than expected values. Manufacturing PMI rose from 55.6 to 56.5 and Service PMI rose from 55.5 to 56.0.
AUD/USD rose from 0.8768 to 0.8939 as of 17:28 GMT today after going as high as 0.8951 earlier — the highest level since May 14. AUD/JPY increased from 76.25 to 77.78, while EUR/AUD fell from 1.4540 to 1.4430.
Previous session overview The euro and dollar fell against the yen in Asia Friday as Japanese exporters and Asian short-term players sold the currencies after they rose to attractive levels earlier in the day.
The two currencies entered Asian trading Friday amid expectations that Tokyo shares may gain following New York stocks' overnight rise, encouraging market participants to sell the safe-haven yen.
But the euro and dollar later retreated as Japanese exporters sold the currencies following their climb to favorable levels, prompting Asian short-term players to follow suit, traders said.
As of 0450 GMT, the European unit was at JPY112.02 from its intraday high of JPY112.67 and its New York Thursday level of JPY112.05. The greenback meanwhile exchanged hands at JPY86.85 compared with its early high of JPY87.23 and JPY86.93 late Thursday.
As of 0450 GMT, the single unit was at USD1.2896 compared with USD1.2892 overnight. The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 82.565, down from 82.611.
The Pound led the market higher in Europe after solid June Retail Sales at 0.7% vs. 0.5% forecast. Resistance at USD1.5200 was broken and the pair rallied to USD1.5300 before running out of steam.
The Australian dollar was higher late in Asia Friday ahead of the results of the European bank stress tests due later. Higher stocks and commodity prices and robust U.S. corporate earnings combined to push the unit to a 10-week high of USD0.8950 during New York trade before it retreated on profit taking.
Market expectation
The euro and sterling are holding little changed Friday as investors waited for results of "stress tests" on the health of European banks, dealers said. However, the market is poised to shift into yen should the test results disappoint.
Further declines in the euro and dollar may be short-lived before the 1600 GMT release of the much-awaited results of European stress tests, which gauge whether Europe's banking sector has sufficient capital. The outcome may determine directions of the euro as well as the dollar next week, traders said.
Sterling is expected to hold little changed in narrow ranges against the euro and dollar Friday, while traders play it safe ahead of the bank stress tests.
European stocks are expected to start relatively flat Friday, despite the strong gains on Wall Street, as market participants await the results of the European stress tests of 91 banks, representing 65% of banking sector assets in the European Union.
Thursday’s main economic news included more testimony from Fed Chairman Ben Bernanke, some better-than-expected U.S. housing data, and a surprise rise in euro zone consumer confidence.
In his annual testimony to the House panel on Capitol Hill, Bernanke said, “Unemployment is the most important problem we have right now.”
He added that the Fed is prepared to take action if the economy “doesn’t continue to improve, if we don’t see the kind of improvements in the labor market that we are hoping for and expecting”.
Bernanke listed possible actions the central bank may undertake: signaling the path of interest rates, cutting payments on excess reserves and engaging in further quantitative easing.
Also in the U.S., some above-consensus housing data was released. Existing home sales fell to a 5.37 million pace in June, better than expectations for a drop to 5.10 million from 5.66 million in May.
Meanwhile, sales slipped by 5.5% on the month, above calls for a 9.9% decline to follow the 2.2% fall in May.
The surprise in the data was followed by a rally in the U.S. S&P 500 stock index, which helped risk currencies.
Ultimately, the S&P 500 closed 2.3% higher and at its strongest level since last Thursday.
Investor sentiment was also supported by better-than-expected Q2 earnings from Caterpillar and 3M.
Caterpillar announced Q2 earnings per share (EPS) of $1.09, exceeding calls for $0.84, while 3M revealed EPS of $1.54 versus the Street’s estimate of $1.47.
Against strong risk appetite in U.S. stocks, all G10 currencies advanced against the U.S. dollar. The Australian and New Zealand dollars outperformed.
Aside from the yen, the pound sterling made the smallest gains against the U.S. dollar, though its advance (by around 100 pips) was nonetheless impressive.
Aside from risk appetite, the euro, which rose above $1.2900USD once again on Thursday, was supported by an upside surprise in euro zone consumer confidence. It surprised expectations for it to remain at -17 in July by rising to a -14 print.
With no major Asia-Pacific releases scheduled for Friday, market participants’ attention now turns to the German IFO survey, UK Q2 GDP and Canadian consumer prices data.
