Following a round of stock market losses in Asia overnight, European stocks turned higher signalling an easing of risk aversion trades that have dominated trading so far this week. The EUR, the AUD and the NZD have all turned higher vs the USD.
USD/JPY failed to push below the 95.00 level but despite a bounce from this low, the JPY is still holding on to much of its overnight gains. Sterling has performed poorly vs the EUR and the USD following comments from the BoE's Chief Economist Dale that UK economic data are ''clearly awful''.
EUR/USD bounced from the 1.3830 area in early London trading pushing higher as demand for dollars eased as stock market pushed higher. The EUR's gains were despite the predominantly weaker than expected Eurozone PMI data releases. German June services PMI at 44.3 dropped below both the market consensus and the May number, manufacturing PMI disappointed expectations rising to just 40.5 from 39.6 in May. These data are consistent with the tone of yesterday's IFO survey which showed an easing in the current conditions component and is in tune with the expectations that the German economy will not see growth before 2010. In spite of the data, the EUR may have found support from comments from ECB's Bini that the ECB won't let inflation sort out public deficits.
The reversal higher in EUR/GBP following the comments from the BoE's Dale suggests that the market is now long sterling making the pound vulnerable to bad news. UK data releases this morning were confined to the May BBA lending numbers. More loans were approved in June than in May. However, net mortgage lending in May was the weakest in eight years suggesting continued difficulties associated with the availability mortgage finance in the UK and signalling a long and rocky recovery for the UK housing market. EUR/GBP moved up to the 0.8580 area this morning before GBP buyers stepped in.
The market continues to see the FOMC as the dominant focus for the week. Ahead of that the results of today's US 2 year auction will be closely examined for reassurances that demand for US treasury paper remains in good shape. Today's US housing data are expected to show signs of stabilising and the ABC consumer confidence number is forecast to be less bad.
