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Dollar lower after euro stages spectacular rally

USD

The dollar index declined on Monday after early strength was given back during the day as the euro staged one of the most impressive recoveries in history, rising from 1.0954 to 1.1260 – a remarkable one-day rally, which defied all expectations or explanations.

For its part the dollar had to play second-fiddle to the euro and moved more as a passive partner to other more active currencies. Despite some weakening after the release of Pending Home Sales, the greenback was relatively robust across the board notwithstanding the extreme swings in certain key pairs – such as EUR/USD which accounts for the lions share of the dollar index.

On the data front Pending Home Sales rose to their highest level since 2006 yet the dollar failed to gain much traction partly because analyst’s had expected the data to be even better. Sales increased 8.3% in May yoy, which though positive was not as high as the 11.8% expected or the 12.6% a year ago. Month-on-month it was the same story in miniature, with the metric posting a 0.9% rise, but this still not up to the 1.8% forecast or the 2.6% previously.

Now traders await Euro-zone CPI on Tuesday and NFPs’s on Thursday.

EUR

After starting the day almost 1.5% lower, the euro staged a dramatic recovery which must go down as one of the all time great currency rallies of recent times, as it clawed back almost all the loses made in the initial gap down.

Initial weakness was caused by a surprise announcement from Greek Prime Minister Alexis Tsipras over the weekend that he was going to let the decision as to whether Greece accept the last set of proposals from the Troika to the public, via a referendum. This, combined with the news that Greek banks would be taking an extended bank holiday till after the referendum and that the ECB was not increasing its liquidity guarantee limit to Greek banks also contributed to pushing the currency lower.

Analysts had different ideas about what might have caused the strong recovery on Monday, however. Some suggested it was that a referendum was likely to produce a yes majority and Greece would therefore probably stay in the euro. Other’s suggested the euro-area might actually prove stronger even if Greece left, and since its GDP only accounted for 2% of the entire euro-zone it mattered little.

Still other’s surmised it might have been supported by speculators covering their carry trades – a complex form of investing currencies which involves using a low interest currency like the euro to buy a higher interest rate currency like the New Zealand dollar, and benefiting form the interest rate differential, by parking it in a higher-interest account.

The euro was further helped after the head of the Swiss National Bank Thomas Jordan announced it would be buying euros to try to devalue the Franc against the euro, as it is a favoured safe-haven currency.

On the data front, Euro-zone Economic Confidence came out at 103.5 from 103.8 previously, and below the 103.8 expected.

The market was unaffected by lower-than-expected German CPI, which came out at 0.3% yoy (preliminary estimates) in June, from 0.7% a year ago and below expectations of 0.5%. Month-on-month CPI came out at -0.1% from 0.1% in May when it had been forecast to rise to 0.2%. Tomorrow sees the release of euro-zone CPI and today’s lower-than-expected German figure dampens expectations for the whole of the euro-zone.

GBP

The pound rose on Monday, despite a shaky start which saw it fall against the yen and the dollar after events in Greece had a spill-over effect on sterling due to close geographical proximity.

On the data front, Net Consumer Credit came out lower-than-expected at 1.0bn from the 1.2bn previously and below the 1.1bn analysts had forecast.

The amount of loans generated by home-owners re-mortgaging their properties rose, however, to 2.1bn from 1.7bn previously – and beat expectations of a 2.0bn rise, perhaps as a result of increased confidence in the blossoming U.K housing market.

Mortgage Approvals remained a little subdued in May, nevertheless, after rising 64.4k from 67.6k when they had been expected to rise 68.8k.

Other data also showed an across the board rise in Money Supply.

JPY

The yen strengthened 75 points in early trading on Monday as the safe haven status of the currency came into play and the release of better than expected retail sales.

However Japan’s economy provided mixed data as industrial output figures disappointed cancelling out the retail rise.

Industrial output dropped 2.2% on month in May compared with the median forecast of only an 0.8% decrease. Meanwhile consumers did not hold back from spending in June resulting in retail sales growth for the second consecutive month. Sales soared 5.3% on year. This was consistent with data published last week, which showed household expenditure rose 4.8% on year in May.

Recent data reinforces the view that consumers are returning to normal spending patterns, after the temporary decline as a result of the sales tax hike in April last year. Stronger spending will give the policy makers that their strategy is paying off.

The Japanese government hopes to underpin demand by increasing inflationary pressures,thus reversing the deflation that plagued the nation’s economy for over 15 years.

The yen was trading at 122.51 per dollar in the second half of the New York session.

USD

The dollar index declined on Monday after early strength was given back during the day as the euro staged one of the most impressive recoveries in history, rising from 1.0954 to 1.1260 – a remarkable one-day rally, which defied all expectations or explanations.

For its part the dollar had to play second-fiddle to the euro and moved more as a passive partner to other more active currencies. Despite some weakening after the release of Pending Home Sales, the greenback was relatively robust across the board notwithstanding the extreme swings in certain key pairs – such as EUR/USD which accounts for the lions share of the dollar index.

On the data front Pending Home Sales rose to their highest level since 2006 yet the dollar failed to gain much traction partly because analyst’s had expected the data to be even better. Sales increased 8.3% in May yoy, which though positive was not as high as the 11.8% expected or the 12.6% a year ago. Month-on-month it was the same story in miniature, with the metric posting a 0.9% rise, but this still not up to the 1.8% forecast or the 2.6% previously.

Now traders await Euro-zone CPI on Tuesday and NFPs’s on Thursday.

EUR

After starting the day almost 1.5% lower, the euro staged a dramatic recovery which must go down as one of the all time great currency rallies of recent times, as it clawed back almost all the loses made in the initial gap down.

Initial weakness was caused by a surprise announcement from Greek Prime Minister Alexis Tsipras over the weekend that he was going to let the decision as to whether Greece accept the last set of proposals from the Troika to the public, via a referendum. This, combined with the news that Greek banks would be taking an extended bank holiday till after the referendum and that the ECB was not increasing its liquidity guarantee limit to Greek banks also contributed to pushing the currency lower.

Analysts had different ideas about what might have caused the strong recovery on Monday, however. Some suggested it was that a referendum was likely to produce a yes majority and Greece would therefore probably stay in the euro. Other’s suggested the euro-area might actually prove stronger even if Greece left, and since its GDP only accounted for 2% of the entire euro-zone it mattered little.

Still other’s surmised it might have been supported by speculators covering their carry trades – a complex form of investing currencies which involves using a low interest currency like the euro to buy a higher interest rate currency like the New Zealand dollar, and benefiting form the interest rate differential, by parking it in a higher-interest account.

The euro was further helped after the head of the Swiss National Bank Thomas Jordan announced it would be buying euros to try to devalue the Franc against the euro, as it is a favoured safe-haven currency.

On the data front, Euro-zone Economic Confidence came out at 103.5 from 103.8 previously, and below the 103.8 expected.

The market was unaffected by lower-than-expected German CPI, which came out at 0.3% yoy (preliminary estimates) in June, from 0.7% a year ago and below expectations of 0.5%. Month-on-month CPI came out at -0.1% from 0.1% in May when it had been forecast to rise to 0.2%. Tomorrow sees the release of euro-zone CPI and today’s lower-than-expected German figure dampens expectations for the whole of the euro-zone.

GBP

The pound rose on Monday, despite a shaky start which saw it fall against the yen and the dollar after events in Greece had a spill-over effect on sterling due to close geographical proximity.

On the data front, Net Consumer Credit came out lower-than-expected at 1.0bn from the 1.2bn previously and below the 1.1bn analysts had forecast.

The amount of loans generated by home-owners re-mortgaging their properties rose, however, to 2.1bn from 1.7bn previously – and beat expectations of a 2.0bn rise, perhaps as a result of increased confidence in the blossoming U.K housing market.

Mortgage Approvals remained a little subdued in May, nevertheless, after rising 64.4k from 67.6k when they had been expected to rise 68.8k.

Other data also showed an across the board rise in Money Supply.

JPY

The yen strengthened 75 points in early trading on Monday as the safe haven status of the currency came into play and the release of better than expected retail sales.

However Japan’s economy provided mixed data as industrial output figures disappointed cancelling out the retail rise.

Industrial output dropped 2.2% on month in May compared with the median forecast of only an 0.8% decrease. Meanwhile consumers did not hold back from spending in June resulting in retail sales growth for the second consecutive month. Sales soared 5.3% on year. This was consistent with data published last week, which showed household expenditure rose 4.8% on year in May.

Recent data reinforces the view that consumers are returning to normal spending patterns, after the temporary decline as a result of the sales tax hike in April last year. Stronger spending will give the policy makers that their strategy is paying off.

The Japanese government hopes to underpin demand by increasing inflationary pressures,thus reversing the deflation that plagued the nation’s economy for over 15 years.

The yen was trading at 122.51 per dollar in the second half of the New York session.



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