Dollar rebound short-lived

Currencies Direct July 30th 2013 - 2 minute read

The US dollar managed to bounce
back against most of its major counterparts through the opening
session of this trading week however any commitment behind this
move proved short lived.  This is to be expected given 
there is heavy event risk less than 48 hours out and the general
ebb and flow of risk trends is just as sensitive to the upcoming
headline items as the currency is. The combination of the advanced
reading of 2Q US GDP and the Federal Reserve rate decision on
Wednesday has set investors’ focus. The likelihood that investors
would take major positions ahead of such a substantial gust of
fundamental wind is extremely low. That said, the probability of
volatility following the updates is extraordinarily high. We can
see the traditional signs of anxiety in the markets. Expect Taper
speculation to be stirred by the upcoming consumer sentiment and
housing data, but commitment likely comes later.

Back to Europe the major event risk
for the euro through the opening 24 hours of this trading week was
the news that the International Monetary Fund (IMF) approved its
fourth review of Greece’s austerity implementation. Satisfied with
the progress made – and the contentious 22 requirements the country
struggled to pass through this past week – the fund approved the
disbursement of another €1.7 billion in aid. There wasn’t much of a
relief rally to be found in Greek 10-year sovereign bonds, much
less the euro itself. We are likely to find greater motivation out
of the event risk ahead.

Sterling rose against its
high-yield counterparts Monday but slid against the US dollar,
Japanese Yen and Euro. This is a sign that currency is caught in
the broader market current and no generating momentum of its own.
That could very well end later in the week when the Bank of England
(BoE) meets with a meaningful shift in policy guidance – an actual
change in policy may be expecting too much. Yet, in the meantime,
the FX market will bide its time as the pound struggles to offset
crosswinds. Meanwhile, net consumer credit and mortgage approvals
cooled while the CBI’s retail sales survey jumped.

The Australian Dollar
underperformed in overnight trade, sliding as much as 1.4 percent
on average against its top counterparts, after a disappointing set
of Building Approvals data boosted RBA interest rate cut
expectations. Permits fell 6.9 percent in June, marking the largest
monthly drop since July 2012. Traders are now pricing in a 90
percent probability of a 25bps reduction at the next policy
meeting, the highest in two months. The Japanese Yen weakened as
Asian stocks advanced, boosting demand for carry trades funded in
terms of the perennially low-yielding currency.

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Currencies Direct

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