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European Session – Dollar flat ahead of FOMC, euro weighed by Greece uncertainty and Eurogroup

Today market price action was quite choppy, mainly because of a risk off tone due to uncertainty over Greece and a lack of any concrete news. There were rumours of a delay in the IMF payment which were later denied. Meanwhile the Greek Finance Minister said that no new concessions will be made and no new reforms will be put forward to the Eurogroup meeting on Thursday.

Aside from headlines on Greece, the only important data out of the Eurozone today was the German ZEW survey which showed investor sentiment came in below forecast, as concerns grew over the Eurozone’s economic prospects amid uncertainty over Greece’s future.

The euro inexplicably rose early in the European session trading to reach a high of 1.1329 versus the dollar but it soon erased all gains to fall down to 1.1204. Sentiment towards the single currency will likely be driven by uncertainty ahead of Thursday’s meeting of Eurozone finance ministers.

Sterling had a whippy session, falling to 1.5541 against the dollar after UK inflation data and then recovering to a 3-week high of 1.5639. The pound briefly came under pressure after disappointing core CPI figures which slightly missed forecasts of 1.0% to come in at 0.9% y/y in May. Headline CPI was better though and a 0.1% y/y reading brought the UK out of the deflation it fell in in April. Focus now shifts to Wednesday’s UK employment data and the Bank of England minutes. Particular attention will be paid to the voting pattern and tone of the minutes.

The dollar moved very little against the yen and has remained within a 123.11 – 123.79 range since the start of the week. A mixed bag of US economic data today on housing and yesterday’s weak industrial production data is keeping the dollar down. Housing starts declined 11.1% to an annual rate of 1.04 million in May, after rising in April. But new building permits rose 11.8% to 1.28 million, the fastest pace since August 2007.

Meanwhile there is caution as investors look toward the FOMC meeting which begins today and concludes on Wednesday with a statement and a press conference by Fed Chair Janet Yellen. While no change is expected in the Fed’s current monetary policy, investors will focus on the statement and Yellen’s presser to look for any clues of the first rate hike. Until recently most expectations were for a September hike but with the uncertainty of Greece and how it may impact an already fragile Eurozone economy, this could lead to the Fed delaying a rate rise.

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