Trading week started on a calmer footing as most currencies were barely changed. However, the situation changed afternoon as the EURUSD surged towards 1.18, the highest level since the ECB started its QE.
Two pieces of economic data from the US have given opposing signals as to the strength of the world’s largest economy this afternoon with a better than expected pending home sales number coming shortly after a disappointment in the Chicago PMI.
As for the European currency, the inflation reading from Eurozone turned out to be in line with an estimation at 1.3% while the core gauge came in at 1.2% beating the consensus placed at 1.1% in annual terms. Releases above anticipations could have been expected following the German inflation report revealed on Friday. For that reason a more noticeable rises on the euro could be contained to some extent.
Speaking at a conference in Brazil, Fed Vice Chair Stanley Fischer has blamed the uncertainty surrounding US political policy for low investment. “for one, uncertainty about the outlook for government policy in health care, regulation, taxes and trade can cause firms to delay projects until the policy environment clarifies.” Last week saw the Senate defeat yet another effort to repeal “Obamacare” whilst promised tax reforms have failed to materialise.
It’s been a relatively quiet start to the week for the crude price with Oil.WTI trading marginally lower at the time of writing. Friday’s closing level was the highest since late May and the market has now recovered the majority of the declines seen since the OPEC meeting. With the market now probing the psychological level of $50 a barrel news that analysts are growing more bearish on price may come as something of a surprise.
With last week seeing several major stock European stock markets fall back to trade at levels not seen since before the 1st round of the French election, there is little by the way of caution seen amongst US investors. The tech focused US100 came within a whisker of taking out the 6000 handle last Thursday before there was some strong selling which saw the market end lower for the week. This is the the third occasion in the past three months that a long run of steady daily gains has ended abruptly with a market sell-off in a single day.
The main release over the Asia session were PMIs from China for July which turned out to be a bit weaker than previously. Manufacturing PMI came in at 51.4 while 51.5 was expected. In turn, non-manufacturing PMI slipped from 54.9 to 54.5. In the aftermath of the data the Chinese stock markets are gaining momentum while the Australia dollar is losing some of its appeal. That said, the AUD could correct its gains following new home sales for June which plunged 6.9% mom which was the worst reading since June 2013.
Speaking on the AUD, the Australian central bank meets overnight and while no changes in monetary policy are expected, the event could have a significant impact on the Australia currency. The latest minutes from July’s meeting caused quite a rally on the AUDUSD that pushed the cross to multi-year highs. What could we expect this time? Check out our RBA preview.