General Commentary
Last Week’s Currency Trading Review:
The EUR/USD gained this week to close at 1.3634 as the US dollar tumbled on lackluster economics data which pushed the greenback to a recent low. The U.S. dollar edged lower on Friday against a basket of major currencies and looked set for a second week of losses after positive data on consumer sentiment failed to boost expectations for a rise in interest rates any time soon.
The Thomson Reuters/University of Michigan’s final June reading on the overall index on consumer sentiment came in at 82.5, up from 81.9 the month before and above the median forecast of 82.0 among economists polled by Reuters.
Analysts said the upbeat consumer sentiment data left traders cold since it failed to dispel worries about the U.S. economy after data on Thursday showed slightly weaker-than-expected data on consumer spending in May and weekly jobless claims.
Annual inflation in Germany, the euro zone’s largest economy, rose to 1% in June. The inflation data are harmonized in order to compare with other countries in the European Union. The tick higher in German inflation could give the European Central Bank some breathing room as it fights to stave off deflation.
The AUD/USD ended the week on a high note at 0.9419 ahead of this week’s RBA meeting. The drop in the US dollar and stronger Chinese data helped the commodity currency to gain steadily all week. Economists’ expectations suggest Governor Glenn Stevens and company will leave the baseline lending rate unchanged yet again. The markets seem to agree, with a Credit Suisse gauge tracking the priced-in policy outlook putting the probability of an adjustment at a mere 1 percent. That puts the spotlight on the statement accompanying the announcement, with traders combing through the document’s verbiage to tease out the central bank’s thinking on where it intends to go in the months ahead.
For the past two months, the combination of the post-meeting RBA statement and the subsequent release of minutes from the sit-down have left investors with a dovish lean in their forward outlook.
The USD/JPY eased this week as the US dollar tumbled on lackluster data. The pair ended the week at 101.38 down from the weekly opening at 102.09. USDJPY has broken out of its range to the downside, falling easily through support at the 200-day MA after Japanese in?ation was in line with expectations, removing the weight of uncertainty. May CPI rose 3.7%y/y on headline, 3.4%y/y ex fresh food and 2.2%y/y ex food and energy; accordingly in?ation met expectations and rose from April’s release. The jobless rate fell to 3.5%, but this was o?set by a much larger drop than expected in household spending. The data from Japan is complicated by the implementation of the consumption tax; however the uptick in in?ation is encouraging for the BoJ and decreases the near-term need for policy to turn more aggressive. USDJPY has broken out of its near-term range; but remains within its multimonth 100.76 to 104.13 range (see chart). Traders do not foresee the currency breaking this range in the near-term
