Forex Market Review (European Session) – US dollar recovers ahead of July 4th holiday; Global PMIs paint upbeat picture

Forex Market Review (European Session) – US dollar recovers ahead of July 4th holiday; Global PMIs paint upbeat picture

The dollar managed to regain a part of its recent losses today, as Purchasing Managers’ Indices from around the world painted an upbeat picture of the global economy.

As the dollar strengthened, particularly noteworthy was its break above 113 versus the yen; a 1 ½ – month high for the greenback.  The yen was also near its 1 ½ -year low against the euro as it traded around 128.40.  In Japan, signs of optimism from large manufacturers and services’ companies in the quarterly Tankan survey were countered by news that the Prime Minister’s party lost the elections for the Tokyo regional assembly.

Euro/dollar backed down below the 1.14 mark to trade at 1.1360, despite a slightly better-than-expected June Manufacturing Final PMI reading for the Eurozone.  The index came in at 57.4 compared to 57.3 which was the preliminary estimate.  The reading marked a 6-year high for Eurozone manufacturing activity and this bodes well for the region’s economic expansion going forward.  However, the region’s unemployment rate did not fall to 9.2% in May as expected but remained constant at 9.3%.

There were disappointing news out of UK factories as the Markit/CIPS manufacturing index dropped to 54.3 in June from May’s 56.7.  Analysts were expecting a more modest drop to 56.3.  The pound fell once again below the 1.30 level against the US dollar to as low as 1.2941, but its losses were relatively in line with those of the euro against the greenback.  The pound has been boosted lately by speculation that the Bank of England will raise interest rates in the coming months, as the Bank’s governor, Mark Carney, has hinted he might join the hawks if conditions warrant it.  A speech by Carney today did not address the topic of monetary policy.

In US data, the ISM Manufacturing PMI for July climbed to 57.8 from 54.9 the previous month.  Analysts were expecting a rise to 55.2.  The upside surprise occurred despite a sharp drop in the prices paid component to 55 from 60.5 the previous month.  Both the 10-year Treasury yield and dollar/yen rose sharply following the ISM announcement.

In the commodities space, crude oil continued to rally and the US-traded WTI oil futures contract reached $46.50 a barrel.  On the other hand, gold remained under pressure and made fresh 1 ½ month low at $1224 an ounce.

Looking ahead, an early close of US financial markets ahead of the July 4th holiday should also lead to diminished trading for forex markets.  June US vehicle sales will come out later today.  During Tuesday’s Asian session, the policy statement from the Reserve Bank of Australia will likely dominate the news, while traders will also be looking at Australian retail sales for May.

Source: Trade Forex with XM.

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