EUR / USD
US housing starts increased to an annual rate of 1.19mn for June from 1.01mn the previous month and slightly above consensus forecasts while building permits increased to 1.24mn from 1.22mn, slightly below expectations. The University of Michigan consumer sentiment index declined to 73.2 for the provisional July reading from 78.1 and below market expectations of 79.0. There was a small decline in the current conditions index and larger decline for the expectations component.
Markets remained focussed on the EU Summit which convened in Brussels. There were no significant expectations that there would be progress on Friday which limited the potential for currency moves. Overall dollar demand was limited and the Euro found net support below the 1.1400 level and advanced to the 1.1430 area later in the New York session with a lack of conviction over pushing the Euro stronger. CFTC data recorded a further increase in Euro long positions to near 2-year highs, increasing the potential for selling pressure if there is disappointment over the fundamental outlook and a reversal in speculative buying.
The dollar gained an element of support on defensive grounds amid unease over US coronavirus developments. The EU Summit was unable to make a breakthrough on Saturday and was extended into Sunday in an attempt to secure a compromise with EU. There was still opposition from the Netherlands and Austria, but differences have narrowed and talks will resume later on Monday. ECB Lagarde stated that an ambitious deal was better than a rushed one. The Euro held firm despite no agreement and traded at 4-month highs above 1.1450 in early Europe on expectations that a deal would be agreed with choppy trading likely later on Monday.
JPY
Coronavirus developments continued to have a significant impact on markets and unease over market trends continued, although overall currency moves were limited. Dallas Fed President Kaplan stated that the bank started to see a change in the high-frequency data with the data stalling from the middle of June and businesses were concerned over the ability to survive. The IMF issued a very cautious report on the US outlook with concerns over the risks posed by coronavirus, especially in view of extremely high debt levels. There was also criticism of the trade and currency policies. US equities posted slight net gains on Friday.
The mayor of San Francisco announced that the re-opening plans would be suspended and there were further concerns over US developments. There were also further concerns over friction between state administrations and the Federal government. The total US death toll increased to over 140,000 and new cases have been over 60,000 for the past three days, increasing fears over a further increase and significant potential damage to the US economy which would also hurt global demand.
Asian equity markets were mixed with notable gains in China, but US futures lost ground. Japanese exports declined 26.2% in the year to June, maintaining unease over the outlook. The dollar overall made limited net headway to the 107.30 area with the yen unable to gain defensive support.
GBP
Underlying confidence in the UK economic outlook remained fragile on Friday which continued to sap UK currency support. In during the day, Bank of England Governor Bailey stated that there was evidence of activity returning quite strongly in housing and car sales, but not in hospitality and entertainment. There was also further speculation that the Bank of England could move to engage in negative interest rates. Comments from officials will continue to be watched closely.
There were no major developments surrounding UK/EU trade talks with negotiations set to resume this week. Overall, the Euro strengthened to 2-week highs near 0.9130 before a limited correction to 0.9090 while Sterling was held below 1.2600 against the dollar, maintaining the trend of lower highs.
There were no significant changes in the CFTC data for the latest week with a slight decline in short non-commercial positions and scope for renewed selling if confidence dips. Confidence in the UK economy remained weak with no advance against the dollar while the Euro again strengthened to 0.9130. If the EU can secure agreement on a recovery package there will be fears that the UK will lose out in relative terms. Friction with China will also hurt potential investment inflows.
CHF
The Swiss franc gained renewed support on Friday with the Euro retreating to the 1.0720 area despite a generally solid tone while the dollar declined to the 0.9380 area. Markets continued to monitor EU negotiations over the recovery fund, although the overall impact was limited.
The Euro moved higher to the 1.0770 area on Monday on EU recovery fund hopes with the dollar held below 0.9400. The latest data on sight deposits will be monitored on Monday, although trends in risk appetite and EU negotiations are likely to be the dominant factors during the day.
