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GBP: Industrial production data for May is expected to show a small (0.2%) monthly rebound from the 0.1% gain of April. In general, survey data for the second quarter has been shaping up well, but data is likely to have limited impact on sterling, the currency more focused on BoE’s likely guidance on rates anticipated next month which is seen enhancing the view that rates are going nowhere for some time.

EUR: Eurozone finance ministers meet today. The topics for discussion (banking union, financial transaction tax) are not of immediate interest for the currency, so should not impact.

Idea of the Day

In recent years, the summer months have often been tricky in FX markets. Last year it was the growing tensions in the Eurozone which lead to the head of the ECB pledging to do “whatever it takes” to keep the euro together. We’ve also had the debt ceiling battle in the US (2011) and the initial throws of the Eurozone sovereign crisis back in 2010.

Yesterday’s agreement to release EUR 3 bln of funds to Greece, with the next tranche coming in October, at least brings a modest sense of relief at the margins. In recent years, we have seen a tendency to see both FX and equity volatility (measures by CVIX and VIX) to rise in the summer (last year was the main exception thanks to Draghi) and this still remains the risk for this year, given market sensitivities to the timing of the Fed ‘tapering’ the pace of asset purchases together with on-going concerns regarding China.   Both factors are likely to keep the dollar supported, with help from last week’s pledges and hints from both major European central banks to keep their rates low for long.

Latest FX News

USD: The dollar unwound around half of the post-employment report bounce (look at the dollar index) through Monday, but remains just shy of 3 years highs.   The minutes to the June FOMC meeting are the next key focus, especially as the market remains sensitive to what is likely to trigger the start of tapering.

CNY: Latest inflation data was stronger than expected, up 2.7%, and a notable jump from the 2.1% reading seen in the May data. Note though that producer prices fell 2.7% on the year, so the messages are mixed. The slower growth being seen in China is still a concern, especially for more exposed currencies such as the Aussie.

JPY: The yen is fitting with our view that we are likely to see more two-way price action on USDJPY after the recovery from the 93.79 low seen last month.   Upper House election this month have slowed the pace of reform for now, especially some of the more difficult structural reforms required.

GBP: Interesting overnight data, with the RICS house price survey showing a strong increase in the headline balance from 5 to 21, the highest level for nearly 3 and a half years. Recent government measures announced in March are seen as offering some support. GBPUSD has remained below the 1.50 level, with just a creeping recovery seen during Monday.

Further reading:  Video: Aussie’s bounce, EUR/USD correction, GBP and CAD sell-offs

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