EUR / USD
US retail sales increased 1.2% for July, below consensus forecasts of 1.9% as car sales fell short of expectations. There was, however, an upward revision to the June figure to 8.4% from 7.5% and sales increased 2.7% over the year. Underlying sales increased by 1.9% for the month and the control group sales increased by 1.4%. The sales data overall offered some reassurance over the outlook, although retail sales only account for a limited proportion of overall consumer spending.
There was further uncertainty over the outlook given the complications of failure to deliver a further fiscal support package which could undermine confidence.
Industrial production increased by 3.0% for July, in line with consensus forecasts. The University of Michigan consumer confidence index increased marginally to 72.8 from 72.5 previously and slightly above market expectations. There was a slight decline in the current conditions index with a marginal gain in expectations.
The dollar overall was unable to gain any support following the retail sales data and the Euro advanced to daily high near 1.1850 before stalling.
Dallas Fed President Kaplan commented that the unemployment rate could still be 8-9% in 2021 while Minneapolis head Kashkari criticised the US lockdown for not being strict enough. The latest CFTC data recorded a further increase in long, non-commercial long positions to 200,000 contracts in the latest week. This positioning will leave the vulnerable at risk of a sharp interim correction even if medium-term underlying buying continues. The Euro, however, held a firm tone on Monday to trade above 1.0850 as the dollar remained vulnerable and there will be the potential for choppy trading as low liquidity continues.
US bond yields registered only a muted reaction to the US economic data which limited potential dollar support and the US currency retreated to near 106.50 at the New York close as equities failed to make headway with underlying dollar sentiment remaining fragile.
The US and China delayed their planned review of the phase-one trade deal, citing scheduling conflicts and the need to allow time for increased Chinese purchases of US exports, although wider political considerations were inevitably in play with President Trump having to put the best possible gloss on the deal. There has been evidence of increased Chinese buying of US crude oil, but trade frictions will continue as Trump stated that there could be further action against China once TikTok has been dealt with. There were reports that Congress could return from recess late this week to re-engage in fiscal stimulus negotiations.
Japan’s GDP declined 7.8% for the second quarter compared with expectations of 7.5% and the third successive quarterly contraction following a 0.6% decline for the first quarter. Exports declined at the fastest pace for over ten years, reinforcing concerns over the outlook. The dollar failed to make headway and traded around 106.50 in early Europe, although the Japanese currency failed to make significant headway on the crosses.
Sterling performed relatively well on Friday, especially as risk appetite was generally cautious with a decline in global equity markets. After finding support close to 1.3050 against the dollar the UK currency advanced steadily to highs around 1.3140 as the US dollar retreated. The UK currency dipped sharply lower following Friday’s London fix with a retreat back below 1.3100 against the dollar while the Euro strengthened to 0.9050 after finding support near 0.9000.
CFTC data recorded a decline in short Sterling positions to 3,000 in the latest week from 15,000 previously and the lowest short position since late April. Sterling will, therefore, find it difficult to gain further support from short covering in the short term.
Rightmove reported an increase in house prices of 4.6% in the year to August from 3.7% previously with evidence of pent-up demand as prices declined less than usual in the month on seasonal grounds. The EU warned that UK finance firms will have to wait longer to find out whether they will be granted access to the EU market because the EU internal markets are in a state of regulatory flux. Sterling edged back below 1.3100 against the dollar with the Euro above 0.9050.
The Euro was able to secure marginal net gains on Friday with an advance to the 1.0765 area while the dollar settled just below 0.9090 as buyers and sellers failed to make sustained inroads. A retreat in precious metals limited potential support for the Swiss currency.
CFTC data recorded a fresh increase in long, non-commercial franc positions to 17,000 in the latest week from 12,000 previously and the data will leave the franc vulnerable to a limited correction. The Euro was close to 1.0780 on Monday while the dollar was unable to make headway.