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The US dollar is on firm footing to begin the new trading week, reinforcing its recovery from the middle of May even if today’s price action is contained to the ranges seen during the latter half of last week. The offer tone emitting from the commodity complex has helped underpin trading in the greenback this morning, with both WTI and Brent facing a bout of selling pressure in the lead-up to this Friday’s OPEC meeting where it is expected there will be no change in output. The continued rig count drop in the United States will give Saudi Arabia confidence their strategy to secure market share is succeeding, likely leading to an unchanged decision at this week’s meeting. Even with output expected to remain flat in the face of supply and demand fundamentals in the oil market, data from May showed that OPEC’s production was the highest since August of 2012, coming in at 31.2mln barrels per day, an almost three year high. Of the commodity-linked currencies, the loonie has so far suffered the most impact, with USDCAD moving higher fromFriday’s close. The RBC Manufacturing PMI is the only domestic data due today that will influence price action in the loonie, though Personal Income and Consumption data out of the US due to be released this morning will be a driving force for USDCAD to begin the week.

Turning our attention to the Eurozone, manufacturing activity numbers hit the wires earlier this morning, with the final numbers for May disappointing slightly from where the original flash survey anticipated them to be. The reading for the zone came in at 52.2 versus the flash reading of 52.3, dragged lower by downward revisions in the German manufacturing sector, despite upside surprises for Italy and Spain. While the optimistic purchasing reports in the periphery’s manufacturing sector is promising for the zone, the concern lies in the fact the export juggernaut that is Germany is having a hard time solidifying its recovery even with the euro at depressed levels. The Greek situation is likely not helping confidence throughout the zone, with spillover effects stifling activity and demand as creditors continue to try and hash out a deal that keeps Greece within the common-currency bloc. Rumors had been circulating at the end of last week a draft agreement had been prepared and was expected to be announced on Sunday, though unfortunately for Greece the skeleton of an agreement failed to materialize on the weekend, leaving Athens precariously close to the brink of insolvency. While there is hope from a deal will be struck this week Greece must pay the first tranche of their loans from the IMF this Friday, and at the moment it is still unclear where these funds will come from. The common-currency is lower against the greenback this morning, though it is likely to be a bumpy road for EURUSD this week with both US Non-Farm Payrolls and Greece’s IMF payment falling on June 5th. Make sure to speak to your dealing teams heading into the later part of the week to discuss strategy around managing the macro risks facing the euro, especially those long EURs as another strong US employment report and further indecision around Greece could knock the EUR down a peg.

As we get set for the North American open, Personal Consumption and Income numbers for the US over the month of April were just released, and on balance were essentially slightly disappointing to relatively neutral when assessing the impact from a macroeconomic perspective. Consumption over the month of April was unchanged after an upwardly revised 0.4% increase in March; however, incomes rose by 0.4% and bested the median analyst estimate of only a 0.3% increase. In addition, the Fed’s preferred method of inflation, the Core PCE index, slipped from 1.3% to 1.2% on an annualized basis, calling into question some of the hype around higher prices after the headline reading from last week. On balance the Fed will likely be happy with the progression in income growth related to the labour market, but will be cautious when assessing the inflation outlook given the continued softness in the PCE index. The greenback has come off slightly from its earlier levels, while US equity futures remain in positive territory ahead of the opening bell.

Further reading:

ISM Manufacturing PMI jumps to 52.8 – USD rises

GBP/USD: Trading the UK Construction PMI

Scott Smith

Scott Smith

Scott Smith is a Senior Corporate Foreign Exchange Trader with Cambridge Mercantile Group and has a diverse background in the foreign exchange industry, with previous experience in both credit and trading related functions. Scott holds a Bachelor of Commerce degree from the University of Victoria, has completed all three levels of the Chartered Financial Analyst designation, and is currently working towards the Derivative Market Specialist certification offered through the Canadian Securities Institute. Cambridge Mercantile Group.