EUR / USD
The Euro edged higher ahead of Monday’s New York open, although ranges were narrow amid a lack of data releases and low trading volumes. Underlying Euro sentiment was still hampered by the weaker than expected business confidence data on Friday.
The Chicago Fed National Activity index declined to 1.18 for July from 5.33 in June with the 3-month moving average strengthening to 3.59 from -2.78 as very weak April data came out of the calculation. There was a positive contribution from production and employment, although there was a negative contribution from sales and inventories. Markets continued to debate the US outlook with further uncertainty over the coronavirus outlook on both sides of the Atlantic.
The market focus was on Federal Reserve Chair Powell’s speech on Thursday with traders anxious for hints on next moves by the central bank and potential guidance for the September policy meeting. Overall, markets were slightly less confident of further near-term monetary easing.
The Euro was unable to move back above the 1.1850 level and gradually lost ground in New York trading as the dollar was able to make limited headway.
The single currency dipped to lows just below 1.1800 after the European close with a lack of impetus in currency markets.
There were further concerns over Euro-zone coronavirus developments with Germany recording a further increase in new infections.
The German IFO index will be released on Tuesday and a stronger than expected reading would help restore confidence to some extent. The US dollar was unable to make further headway on Tuesday and the Euro traded just above the 1.1800 level with German second-quarter GDP revised to -9.7% from -10.1%.
Coronavirus developments remain an important focus during the day, especially with a lack of major economic data releases. There was further positive rhetoric on the potential for a vaccine with the potential for a key trial to be speeded up which helped underpin risk conditions.
Markets were expecting that President Trump would talk up the economy and prospects for coronavirus treatment at the Republican convention which would tend to underpin risk appetite and potentially support the dollar against the yen.
US equities posted gains, although there was an element of profit taking from intra-day highs. With a firmer net tone, the dollar edged towards the 106.00 level against the Japanese currency. Domestic developments were limited with the Bank of Japan core inflation rate at zero.
Risk appetite held firm on Tuesday with an element of relief of US-China trade relations. Treasury Secretary Mnuchin, Trade Representative Lighthizer and Chinese vice-premier Lui He held a conference call and there was some effort to project a positive tone with China calling the talks constructive.
US equity futures secured further gains on Tuesday, although Asian markets were unable to make significant headway and the dollar held close to 106.00.
Underlying Sterling sentiment remained fragile following last Friday’s downbeat press conference from EU Chief Negotiator Barnier. There was fresh speculation that there would be no trade deal in place before the end of 2021 which would cause major dislocation to UK trade patterns and undermine the economy.
The UK currency also struggled to gain any significant support from the firm tone in global risk appetite.
Markets were waiting for comments from Bank of England officials this week with speculation that there would be a move towards further monetary easing during the Autumn. Chief Economist Haldane is due to speak on Wednesday, although the main focus will be on Governor Bailey’s comments on Friday.
The Euro strengthened to the 0.9040 level before fading slightly while Sterling drifted from intra-day highs near 1.3150 to retreat to near 1.3050. The firm tone in equity markets did provide an element of Sterling support on Tuesday with the currency close to 1.3100 against the dollar while the Euro edged lower to 0.9015.
Total Swiss sight deposits increased to CHF700bn in the latest week from CHF698.9bn previously which suggested that National Bank intervention to curb franc appreciation had slowed during the latest reporting period. The bank will still be very sensitive to currency-market moves with US rhetoric also in focus.
The Euro was unable to make headway amid a wider drift lower and settled around 1.0750 while the dollar closed above the 0.9110 level. The firm tone in global equities limited franc support and gold also lost ground with the dollar holding above 0.9100 on Tuesday.