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The German ZEW economic sentiment index dipped sharply to -53.8 for July from -28.0 previously and well below expectations of -38.3. The current conditions component also declined sharply to -45.8 from -27.6 and also well below expectations for the month. The Euro-Zone ZEW expectations index also declined sharply to -51.1 from -28.0 previously. The ZEW President stated that major concerns about energy supply in Germany, ECB plans to raise interest rates and further pandemic-related restrictions in China have led to a considerable deterioration in the outlook. The Euro remained under pressure after the European open and it hit parity against the dollar for the first time in 19 years. The market was unable to push the Euro below this level and this failure triggered a limited round of short covering.

The US NFIB small-business confidence index retreated to 89.5 for June from 93.1 previously and the lowest reading since January 2013. Overall labour demand remained firm on the month while 34% of business owners reported that inflation was the biggest problem, the highest level since the fourth quarter of 1980.

The IBD consumer confidence index edged higher to 38.5 for July from the 10-year low of 38.1 for June, but below consensus forecasts.

The dollar was hampered by a fresh decline in yields and the Euro managed to secure a further very tentative rally.

Wednesday’s US consumer prices data will be very important for market expectations surrounding Fed policy and the dollar. Consensus expectations are for the headline rate to increase to 8.8% from 8.6% with the core rate retreating to 5.7% from 6.0%. Strong data would increase fears over more aggressive Fed tightening, although there has been a decline in energy prices since the June data was compiled. Caution prevailed in early Europe on Wednesday with the Euro around 1.0040.




US Treasury Secretary Yellen stated that currency intervention had not been discussed and that intervention is warranted only rare and exceptional circumstances. The comments maintained market expectations that co-ordinated action to curb yen losses was unlikely in the short term which limited yen support.

US Treasuries were able to make headway on Tuesday with the 10-year yield settling around 2.93% at the European close. Lower yields had some impact in curbing dollar support and the US currency retreated to lows near 136.50 before a limited recovery to 136.70.

Richmond Fed President Barkin stated that there were early signs of an easing in freight costs as well as reports easier hiring. He also stated that the rate at which the Fed is raising rates may be making markets skittish. He added that the decision whether to raise rates 50 or 75 basis points in July would be reserved until the meeting.

Japan’s Tankan manufacturing index was unchanged at 9 for July while the non-manufacturing index edged higher to 14 from 13. There were still reservations over the outlook, especially with on-going reservations over Chinese coronavirus developments.  Caution prevailed in Asia with the dollar trading around 137.00.




Sterling remained under pressure on Tuesday with a further lack of confidence in the UK outlook and important reservations over the global outlook while international equity markets remained fragile.  With the dollar posting further gains, Sterling slipped sharply to fresh 2-year lows just above the 1.1800 level while the Euro was little changed. Sterling did manage to recover to 1.1900 later in the day as the dollar retreated and risk conditions managed to stabilise.

Bank of England Governor Bailey stated that the central bank would be especially vigilant for signs of more sustained inflation pressures and will act strongly if necessary. He added that options other than 25 basis points are on the table. The rhetoric had only limited impact with markets monitoring global trends.

The first round of the Conservative Party leadership contest will be held on Wednesday with some market reservations that political uncertainty over the summer will sap the ability to tackle economic difficulties, although the US data likely to have a more substantial market impact. A stronger than expected May UK GDP increase of 0.5% helped underpin the Pound on Wednesday as the Euro retreated to 7-week lows around 0.8430 with Sterling trading just above 1.1900 against the dollar.




The Swiss franc was held in relatively tight ranges on Tuesday with the Euro settling around 0.9875 while the dollar hit highs at 0.9860 before a retreat to 0.9810 as US yields moved lower. Stabilisation in risk appetite limited potential franc buying, but there was an on-going reluctance to sell the currency, especially with further evidence that the National Bank would prefer a stronger currency to help curb inflation pressures.

The franc maintained a firm tone on Wednesday with the Euro held just above 0.9850 and the dollar around 0.9820 with choppy trading inevitable later in the day.


Technical Levels 




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