EUR / USD
The Euro lost ground into Friday’s New York open with an underlying lack of confidence in the Euro-Zone outlook sapping support. The German economic ministry warned that the second half outlook was considerably worse due to the gas situation while low water levels on the Rhine also posted further difficulties for the supply side of the economy. The dollar resisted any selling pressure and the Euro retreated below 1.0300 with lows around 1.0280 into the New York open.
The US University of Michigan consumer confidence index strengthened to 55.1 for August from 51.5 the previous month and above consensus forecasts of 52.5. The current conditions index was notably weaker than expected with a retreat to 55.5 from 58.1, but this was offset by an increase in the expectations component to 54.9 from 47.3. There was some relief over an increase in confidence, although inflation data was considered as more important and mixed on the month.
The 1-year inflation expectations index declined to 5.0% from 5.2%, but the 5-year index edged higher to 3.00% from 2.9%. Market reaction was relatively muted given the mixed data with the Euro continuing to edge lower and dipping below 1.0250 against the dollar before a marginal recovery.
CFTC data recorded a notable decline in aggregated long dollar positions to $13.0bn from $17.3bn previously amid expectations that the dollar trend may have turned.
Narrow ranges prevailed on Monday with the Euro around 1.0250 amid further important reservations over the Euro-Zone outlook.
Growth in Chinese new loans slowed to CNY679bn for July from CNY2810bn the previous month and well below consensus forecasts of CNY1100bn while the increase in total social financing also slowed sharply to CNY756bn from CNY5170bn the previous month.
US Treasuries gained some ground into the New York open, but there was a net retreat after the consumer confidence data with the 10-year yield around 2.87%. Overall, the dollar was able to make net gains to highs around 133.85 before a slight retreat.
Richmond Fed President Barkin stated that there is more tightening to come to get rates into restrictive territory. He wanted to get inflation down on a sustained basis and can then talk about interest rates. The dollar held firm and close to 133.50 into the New York close.
CFTC data recorded a decline in short yen positions to 25,000 contracts from near 43,000 previously, limiting the scope for further short covering.
There were fresh reservations over the Chinese outlook with lockdowns imposed, although they did not affect the most important commercial areas. The latest Chinese data was also weaker than expected with retail sales growth of 2.7% in the year to July from 3.1% previously and below expectations of 5.0%. Overall risk conditions were more fragile despite a limited Chinese rate cut and the dollar dipped to test support below 133.00 as yields declined before settling around 133.20.
There was only a limited immediate reaction to the UK GDP data, but selling pressure gradually increased ahead of the New York open as an underlying lack of confidence in the UK outlook continued to sap support. The GDP contraction for the second quarter tended to increase the focus on expectations of further contraction from late this year. Sterling was also unable to gain any support from the firm tone surrounding risk appetite and net gains in equities which was an important warning.
Sterling was unable to hold above the 1.2200 level against the dollar and retreated steadily to test 1.2100 as the dollar posted a net gain. The Euro strengthened to highs above 0.8490 before the UK currency secured limited relief as it traded around 1.2135 against the dollar while the Euro retreated to near 0.8450.
CFTC data recorded a sharp decline in short Sterling positions to around 34,500 contracts from over 56,000 the previous week and the lowest short position for 5 months, limiting the scope for any further short covering, especially with an underlying lack of confidence in the UK outlook.
Sterling was unable to make any headway on Monday and retreated to around 1.2110 while the Euro managed to hold just above 0.8450.
The Swiss franc maintained a firm underlying tone on Friday even though overall risk appetite held firm. The Euro dipped to fresh 7-year lows just below 0.9670 during the day while the dollar was able to post a limited net advance, but faded from 0.9450 to trade near 0.9410.
The franc maintained a firm underlying tone on Monday with further fears over the Euro-Zone outlook maintaining support for the currency and the Euro was stuck at 7-year lows. The latest data on sight deposits will be watched closely to assess whether the National Bank is concerned over franc strength.