Overview: July 21, 2014 Global currency markets were subdued on Monday with players taking their cues from ongoing geopolitical uncertainty in Ukraine and the Middle East. The new week brings a big batch of U.S. corporate earnings reports and key U.S. data on inflation, housing and durable goods. Further signs of a rebounding U.S. economy could see the greenback add to the gains that last week powered it to five-month peaks against the euro below $1.35 and to mid-June highs against a basket of major rivals. The greenback enjoyed broad appreciation last week after the Federal Reserve acknowledged that steady economic improvement could hasten a U.S. interest rate increase. But to materially add to the dollar’s better tone, U.S. government bond yields would need to move higher. The euro remained a compelling buy for American importers, keeping near last week’s fresh lows. The euro has suffered on the view that the European Central Bank (ECB) might have to resort to stronger stimulus to keep the bloc’s anemic recovery from backsliding. Currencies will look for drivers this week in U.S. inflation on Tuesday, Bank of England (BOE) minutes on Wednesday and a New Zealand monetary policy decision on Thursday. EUR The euro climbed back above $1.35 but sentiment remained heavy after the single currency fell below that key psychological level Friday for the first time in five months. The euro has been dragged lower by a market hunch that policy between the ECB and Fed stands to increasingly diverge. The ECB last month resorted to its boldest moves yet to shore up an economy under the weight of high unemployment and low inflation. The central bank in June slashed its arsenal of lending rates and took one to negative territory. Across the Atlantic, meanwhile, the Fed plans to end its QE program in coming months and could embark on a rate hiking cycle ahead of current market pricing if the economy can remain on its improving path. The current market remains the most favorable for euro buyers in many months. Technical resistance below $1.35 and subdued U.S. Treasury yields should serve as short-term roadblocks to faster appreciation for the U.S. currency. Risks to a stronger dollar loom this week in numbers on U.S. housing with data Tuesday on existing home sales and Thursday on new home sales. Further signs of a struggling U.S. housing market could weigh on U.S. yields to the detriment of the dollar. GBP Sterling wasn’t far from Friday’s fresh lows for the month against the greenback when it had fallen to $1.7035. That level may still come as sticker shock to some but it beats the prices American importers were saddled with earlier last week when the pound made a run at $1.72, its strongest level in nearly six years. Buyers of the pound should continue to seize on pound pullbacks which many think could prove relatively shallow on the view that the Bank of England would be the first among the world’s biggest central banks in boosting interest rates. The U.K. rate debate will be stirred anew this week in Wednesday minutes from the previous BOE meeting and second quarter growth data on Friday. Hawkish sounding minutes and steady to faster growth could see sterling take another crack $1.72. NZD Lots of uncertainty surrounds the kiwi dollar which held near mid- June lows below $0.8700. Thursday should prove a decisive day for the kiwi dollar when the Reserve Bank of New Zealand mulls a policy decision. Forecasts call for the fourth consecutive rate hike in as many meetings which if realized would bump the official cash rate up to 3.50 percent from 3.25 percent. Watch the statement though. A dovish sounding one that signals it may move to the sidelines would risk a renewed bout of NZD weakness. Buyers that need certainty could buy now with the peace of mind of seizing on the best market in weeks. CAD USDCAD held in familiar territory around 1.0750, the midpoint of its recent range. The loonie has managed to hold above near four-week lows last week just below 1.08 after inflation rose to 28-month highs above 2 percent and oil prices remained elevated on geopolitical uncertainty. USD The U.S. dollar was firm near its best levels all year against the euro which should come as reassuring news to buyers of the single currency. The dollar has fared better in recent sessions but hasn’t yet managed breakaway strength as its advance has been absent a significant uptick in U.S. Treasury yields, a key driver of USD sentiment.
Posted on: Mon, 21 Jul 2014 19:39:48 +0000