EUR: The market expects another decrease in eurozone’s PPI MoM figure (by 0.2%), but in general the data is not significant for the currency.
USD: We are watching out for the Factory Orders data today which is expected to show a 2% MoM increase from May’s 1%, but data has historically had low impact on the dollar when stronger or weaker vs. expectations.
Idea of the Day
It was only the first trading day of the month, but the main take-away was the underlying tendency for the market to further recover from the more bearish tone seen in the wake of the Fed meeting last month.
There was even talk about risk on trades, although this has become a very diluted and meaningless concept, especially in the FX world where the ultimate risk barometer the Aussie has taken such a beating. Still, the dollar was lower on firmer than expected data, undermining the strongly positive correlation that has been in evidence for most of the first half of the year between the dollar and stronger than expected data.
We would expect this to be only a temporary phenomenon, partly linked to investors re-allocating positions at the start of the new quarter. The focus continues to be the labour market, with a strong US labour market number on Friday further strengthening tapering expectations and with it, the dollar.
Latest FX News
Gold: Rising for the past two sessions, aided by the generally positive risk sentiment yesterday. This takes spot gold to more than 6% above the lows seen at the end of June, which marked a 34 month low. Some thought that we could continue this recovery from over-sold positions, but the bigger picture is still tough, especially in an environment where investors are shunning non-yielding assets.
USD: Softer during the first day of the second half of the year, one which many believe will see the dollar in the ascendency. We still appear to be in adjustment mode from the perceived over-reaction to the Fed statement of June, so even stronger ISM data could not add to the better dollar tone.
GBP: Carney-mania swept the UK media on Monday as the new Bank of England governor took up his position. Few expect any policy changes as early as this week, but markets are expectant of a new approach, which will likely start to come through during August. Sterling saw better manufacturing PMI data but was reluctant to run away with itself. A positive picture for the economy emerging from the BCC survey overnight.
AUD: No surprise with the steady rate decision from the RBA. As with last month, the statement was on the dovish side, stating that the currency remains at a high level and that “It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing “¦.the economy”. This is about as strong as central banks get in stating that they want to see a weaker currency.
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