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FX today was pretty tame to start the week in European and NY markets. There was little in the way of political catalysts although PM May was seen bowing to Brexiteers in Parliament and Trump/Putin’s summit headlines kept popping up but had no material effect on the FX space.  

As analysts at Westpac noted, “The Trump Putin press conference drew criticism both from Democrats and Republicans, with John McCain stating that Trump’s performance in Helsinki showed that the summit had been a “tragic mistake””. However, it was as if traders literally turned the TV’s off in dealing rooms, ignoring the Russian allegations of meddling with the US elections noise.  As far as Brexit headlines, the amendments to the Taxation (Cross-Border Trade) Bill a four-part amendment passed with government support, a win for the Brexiteers.  

Meanwhile, US data came through and was met with bulls buying up the dollar on the back of impressive revisions to the retails sales headline that came in line with expectations at 0.5%; ( however, the control group sales miss held up the advance). The DXY was trading between a range of 94.4080-94.7740 where the dollar pulled back as the session went by, ending NY at 94.6920. As for US yields, the US 10yr treasury yields climbed from 2.83% to 2.88% while the 2yr yields rose from 2.58% to 2.61%. The Fed fund futures yields continue to price in 1 ½ more hikes for 2018.

Currency action

EUR/USD climbed from 1.1700 to 1.1725, maintaining most of the day’s gain in NY hours. There are options traders at play here keeping the pair in check while risk reversals favour a lower price. Meanwhile, the market is now focused on Fed Chief Powell’s congressional testimony on Tuesday and traders are on the lookout for any concerns over trade issues that could send out a more dovish signal than what has been on tap of late.  Sterling was offered to 1.3223 on the back of PM May accepting the changes to the customs bill, seen as a less soft Brexit proposal by the market, which is negative for the pound. At the same time, the divergent views on Brexit sets up possible leadership test, which is also a weight on the pound. Brexit once again trumps the rate hike trade but this week will be critical for the cross with EZ inflation and indeed a daily slew of UK data to keep traders on their toes. EUR/GBP was higher on the Brexit risk, trading between a day’s range of 0.8816/53, ending the day at 0.8850 and closing up by +0.24%. USD/JPY dropped from 112.50 to 112.10 while markets pause on the bid with the yen oversold ahead of key events this week, including Powell’s two-day testimony, US IP and the Beige Book. At the same time, the enactment of the US/China tariffs puts the anchor down on the bulls advance and bears can look back to the 111.33-54 key downside familiar levels. As for the higher betas, US stocks, for the best pat and bar the Dow, finished in the red, and the Aussie/Kiwi were unable to hold onto their gains while commodities struggle, weighing on the antipodeans, especially copper. Copper has been a huge weight on the Aussie, with a steep decline that commenced in June, capping the Aussie’s attempt of a break out of the rising channel’s resistance on the daily chart at 0.7680. AUD/USD dropped from the day’s 0.7443 high, made a low of 0.7410 and closed at 0.7419. The Kiwi fell from 0.6793 to 0.6765.

Key events in the US:

  • Wall Street ends mixed as drop in energy counters gains in financials
  • US retail sales impress, but June unimpressive, net, point to less growth in PCE – Nomura
  • New Zealand CPI misses expectations, q/q clocks in at just 0.4%
  • Key events ahead:

Analysts at Westpac offered their outlook for the day’s key events ahead:

“In Australia we have the RBA July meeting minutes. The focus will be on any clarity around the ‘other factors’ the Bank believes are driving short-term domestic funding rates. At the July 3 policy meeting, the RBA noted that “it remains to be seen the extent to which these factors persist”. Clearly, financial conditions have continued tightening so any colour on “other factors” will be welcome as will comments on likely impacts on the housing market and consumer. In the US Fed Chair Powell delivers his semi-annual testimony to the Senate Banking Committee. May TIC flows are released and will be of greater interest going forward due to the escalation in the US and China trade dispute and how this may affect treasury holdings in the future.”