The USD continued to see-saw in recent ranges in NY trading today, but came out generally stronger on the back of higher US Treasury rates. The greenback started off weaker as better than expected US economic data convinced markets that economic prospects were improving, leading investors to shun the dollar and buy riskier assets, such as stocks, carry trades and other higher yielding currencies. In morning trade, EUR/USD moved up from around 1.3950 to test the seemingly impenetrable 1.4000 level yet again only to stall there. USD/JPY rallied on the back of carry trade buying (JPY-crosses) after having based out above 95.50 in European trading, and triggered short-covering buying as price moved up over key technical levels just above 96.00, before finishing out near 96.50. But that same view that the economic outlook was improving also led to heavy selling of US Treasuries, sending yields higher and improving the USD's appeal. With many currencies unable to extend their gains against the USD, like EUR/USD stalling below 1.4000, short-USD positions were squeezed and EUR/USD came tumbling back down to 1.3880/90 in afternoon trading.
In other action, the Swiss National Bank (SNB) appears to have intervened and bought EUR/CHF, continuing its campaign to prevent the Swiss franc from strengthening against the EUR. EUR/CHF rocketed from near 1.5000 to a high near 1.5150, before settling back toward 1.5100. The move came a few hours after SNB officials indicated that they were likely to step back from intervention efforts and that they were not targeting a specific price level in EUR/CHF. Traders reacted by selling EUR/CHF and sending it from 1.5090 down to 1.5000, only to later be blind-sided by the SNB intervention. Despite the SNB's actions in the market today, we take seriously the SNB comments that CHF strength will not be fought as aggressively as earlier, and would look for EUR/CHF to eventually trade below 1.5000 in coming weeks.
US data today was generally upbeat, providing additional evidence the pace of the US downturn is slowing. Weekly jobless claims were 608K, roughly steady around recent levels, while continuing claims dipped from 6.835 mio to 6.687 mio, though much of that improvement is likely due to benefits expiring. May US leading indicators surprised with a 1.2% MoM increase, when only a 1.0% gain was forecast. The June Philadelphia Fed index posted its best reading since the height of the economic storm last September, rising from -22.6 to -2.2; expectations were for an improvement to only -17.0. The data calendar is quiet ahead in Asia, with the BOJ set to release the minutes from its May meeting and department store sales for May due out.
