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The Euro-zone current account surplus widened to EUR22.8bn for April from EUR17.8bn the previous month. The surplus amounted to EUR288bn in the 12 months to April and 2.5% of GDP from EUR239bn the previous year. The data provided only limited currency support given evidence of capital outflows.

The Euro attempted to recover ground ahead of Friday’s New York open with a limited correction after heavy losses. Overall gains, however, were limited given that underlying dollar sentiment remained stronger with expectations that the ECB would welcome the weaker currency.

In comments on Friday, St Louis Fed President Bullard stated that the Federal Reserve has been surprised on the upside during the last six months. Although he welcomed upside inflation risks because that was want the central bank wanted, he also stated it was only reasonable to lean hawkish.

He also warned over the risk of adding to froth in the housing sector and indicated that it would be prudent to stop buying Mortgage-backed securities. He also noted that his dot represented a rate lift-off in late 2022. The dollar posted fresh gains following the comments with the Euro dipping back below the 1.1900 level.

Minneapolis head Kashkari stated that the central bank should maintain a very patient approach and that high inflation readings should be short-lived. In this context, he stated that interest rates should remain at current levels at least through 2023. The impact was limited as Kashkari has consistently been on the very dovish end of the spectrum. The Euro dipped to fresh 2-month lows at 1.1850 with only a very limited correction as the dollar was boosted by expectations of a further short covering.

The latest CFTC data will be watched closely as it will illustrate the position ahead of the Federal Reserve statement and give some indication of the scale of potential position adjustment. Comments from Fed officials will also continue to be monitored closely with the Euro just above 1.1870 on Monday amid a fragile correction.





There were sharp gains in US Treasuries during Friday with the 10-year yield sliding to lows below 1.45% and compared with highs around 1.58% immediately after Wednesday’s Federal Reserve statement. US equities came under significant pressure with the S&P 500 index declining 1.3% on the day. The dollar was unable to challenge 110.50 against the yen and retreated as US yields moved lower while the yen gained some support from weaker equity markets.

In this environment, the dollar retreated to around 110.20 and the yen also posted significant gains on the crosses with the Euro below 131.0.

The Chinese central bank held interest rates steady after the latest policy meeting and in line with consensus forecasts, although there were concerns over power shortages and the potential for further supply-chain difficulties which would maintain upward pressure on prices.

US bond yields continued to decline on Monday with some safe-haven demand for Treasuries as equity markets retreated sharply. Risk appetite remained fragile as equity markets weakened which helped protect the yen and the dollar dipped below the 110.00 level with lows near 109.70 before a slight recovery.





Sterling continued to lose some ground after the weaker than expected retail sales data. Global risk conditions were important with a notably more defensive tone developing during the day as equities moved lower. The UK currency is notably more vulnerable to selling pressure when risk appetite is weaker.

There were some concerns over Brexit tensions and Sterling was unable to secure support from expectations that the Bank of England would adopt a slightly more hawkish policy stance. Sterling declined to lows just below 1.3800 against the dollar while the Euro recovered to near 0.8600 despite weakness against the dollar.

Rightmove reported an increase in housing asking prices of 0.8% for June from 1.8% previously with demand still very strong and supply shortages. Prices increased 7.5% over the year, although with signs of a slight slowdown in transactions. Sterling was unable to sustain headway on Monday as global risk appetite remained notably fragile with selling interest on rallies. The UK currency traded just above 1.3800 against the dollar in early Europe with the Euro just below 0.8600.





The Swiss franc lost ground on Friday with net losses despite the deterioration in global risk conditions. The franc was hampered by expectations that Swiss interest rates would remain in negative territory while markets priced in expectations of an earlier increase in US interest rates.

The Euro strengthened to near 1.0950 with the dollar advancing to highs around 0.9240. The franc was steady on Monday with no major support despite lower US yields and weaker equity markets. The dollar settled around 0.9220 in early Europe with global equity markets watched closely.


Technical Levels 



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