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Germany recorded a trade deficit of EUR1.1bn for May after a EUR3.0bn surplus for April. This was the first deficit since 1991 as exports declined slightly on the month and imports posted a net increase as energy costs remained elevated. The trade data will maintain concerns over the German outlook and also undermine wider confidence in the Euro-Zone outlook, especially with on-going concerns over the impact of very high gas prices.

The Ukraine retreat from Lysychansk and Russian control of the whole of Luhansk increased fears that there would be a prolonged conflict with further damage to the Euro-Zone economy which could also put ECB rate hikes in jeopardy amid fears over stagflation.

The Euro-Zone Sentix economic expectations index dipped further to -26.4 for July from -15.8 previously and well below consensus forecasts of -19.9. There was notable deterioration in Germany and Sentix also noted important distortions from the energy crisis. It also stated that the Euro-Zone is in the eye of a storm and very difficult conditions would continue in the short term. Overall trends in energy prices will continue to be watched closely in the short term.

The Euro was able to post gains to highs above 1.0450 as the dollar lost ground, but gradually surrendered gains as the US currency regained territory and US equity futures remained in negative territory. Trading volumes were inevitably subdued given the US Independence Day holiday with the Euro unable to secure fresh support. US yields moved higher on Tuesday and there were further concerns over European gas prices, although the Euro was able to make limited headway to 1.0435.




US Treasury futures edged higher on Monday with further reservations over the economic outlook following the ISM data last week. Trading activity was, however, inevitably subdued given the closure of US markets for a holiday. There was also an element of caution ahead of the latest US jobs data at the end of this week.

US equity futures remained in negative territory, but the yen was unable to gain any traction and the dollar posted highs around 135.75 at the European close.

There was further speculation that US President Biden would announce this week a reduction in tariffs on Chinese imports in order to help ease inflation pressures.

Japan’s PMI services index strengthened to 54.0 for June from 52.6 previously and the strongest reading for 8 years.

China’s Caixin PMI index strengthened sharply to 54.5 for June from 41.4 previously and substantially above market expectations with support from an easing of coronavirus restrictions. China also announced that it would set up a CNY500bn infrastructure fund which helped underpin sentiment towards the outlook.

US yields moved sharply higher which underpinned the dollar with gains to 136.30 against the yen before a correction while the Euro moved just above the 142.0 level.




Sterling edged higher in early Europe on Monday with a further element of short covering following the sharp recovery during Friday. Sterling advanced to highs around 1.2165 against the weaker dollar, but momentum faded quickly with a gradual retreat during the European session.

Overall confidence in the UK economy remained weak which continued to sap support for the currency. Markets also continued to fret over the Euro-Zone and global economic outlook which also sapped potential support for the currency and Sterling retreated to the 1.2100 area after the European close.

The Euro was held in relatively tight ranges and drifted lower to 0.8610 at the European close. There was little change on Tuesday despite solid risk conditions with markets continuing to fret over the underlying UK outlook. The UK currency held just above 1.2100 against the dollar with markets monitoring comments from Bank of England officials during the day as well as UK political developments. Overall risk expectations will also remain a key element in the short term.




Swiss consumer prices increased 0.5% for June, above expectations of 0.3% and the year-on-year rate increased to 3.4% from 2.9%. This was above expectations of 3.2% which was the first reading above 3.0% since 2008 and the highest rate since September 1993. The higher than expected CPI reading will maintain National Bank concerns over inflation developments and reinforce expectations that monetary policy will be tightened further.

Total Swiss sight deposits were unchanged at CHF 748.5bn in the latest week with a further decline in domestic deposits offset by an increase in other holdings. The data overall suggested that the National Bank had not intervened to curb Swiss currency gains.

The Euro edged higher to 1.0020 at the European close with the dollar just above 0.9600 while the franc edged lower on Tuesday as global yields moved higher.

Technical Levels




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