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EUR/USD
The pair started the session on the backfoot following a less than impressive French PMI report which saw the headline manufacturing figure (47.6 vs. Exp. 48.0) fall short of expectation and thus kept the pair below the 1.3450 level. However, this was outweighed by a particularly strong German PMI release with the manufacturing, services and composite components all coming in above expectations, consequently leading the pair back above the 1.3450 handle and into positive territory; the services number came in at its highest in 37 months. Further upward momentum for the pair was provided by the latest overnight ECB liquidity report which showed the lowest level of excess liquidity since June 16th. This comes ahead of Friday's 3-yr LTRO repayment, which might see excess liquidity fall below the key EUR 100bln level next week. The pair was also driven by the move higher in EUR/GBP after the weak UK retail sales report, which saw EUR/USD move above yesterday’s highs seen at 1.3476. Thereafter the pair remained relatively rangebound, shrugging off the strong US weekly jobs report. Looking ahead, attention turns to tomorrow’s German IFO survey with the headline business climate reading expected to fall modestly from 109.7 to 109.4.
GBP/USD
With a lack of further notable economic commentary from the UK following yesterday’s BoE minutes release, all eyes were on today’s UK retail sales report. The release was very much against the grain or recent UK data points with the headline M/M ex-auto figure coming in at -0.1% vs. Exp. 0.3%. This saw an immediate fast-money move lower in GBP/USD, as the pair headed towards the 1.7000 handle, with further downward momentum stemming from the move higher in EUR/GBP following the EUR resurgence. The move to the downside was observed throughout the session with the pair eventually moving below the 1.7000 handle, with touted GBP long liquidation acting as a further source of downside. GBP/USD subsequently finished the session in negative territory and fell for the 7th straight day; its longest losing streak since January 2013. Moving forward, tomorrow sees the release of Q2 A UK GDP which is expected to come in line with its previous at 0.8%.
USD/JPY
Overnight the pair traded in a relatively tight range as has been the case in recent sessions with JPY managing to shrug off the wider than expected Japanese trade balance deficit. However, heading into the North American crossover USD/JPY moved to fresh highs on a break above the earlier high of 101.59 as the pair traded in close proximity to USD 1bln of option expiries between 101.65-75 which rolled off at the 10am NY cut (1500BST).
Desks attributed the upside to stops being tripped above the earlier high, and touted offers above at 101.65. This move to the upside was then further exacerbated by a strong US weekly jobs report which saw initial jobless claims fall to their lowest level since February 2006, therefore pushing T-notes lower and consequently seeing the USD strengthen following favourable interest rate differential flows. Thereafter, the pair traded steady as USD/JPY met resistance at 101.79; the July 16th high. Looking ahead, tomorrow sees an absence of tier 1 releases or notable speakers from Japan.
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