The better tone of stock markets evident in Asian bourses failed to follow through in Europe where major stock indices are mixed to lower. Consistent with the move in stock markets, the JPY lost ground during Asian hours with EUR/JPY reaching a high of 134.49 at the London open. More consolidative trading has subsequently emerged. The GBP found some support on better than expected June retail sales data this morning though cable is lacking the momentum to push it above the 1.6540 area. USD/CHF neared important support levels this morning hitting a low of 1.0635 close to its intervention day low at 1.0630.
The USD bounced, however, getting a lift as overnight risk appetite dwindled. EUR/USD is little changed from the close but continues to hold above 1.4200 reflective of a general improvement in confidence over the past week or so.
UK June retail sales rose a far greater than expected +1.2% m/m, 2.9% y/y. The rise was dampened slightly by the downward revision to the May data which was adjusted from -0.6% m/m to -0.9% m/m, nevertheless coming on the back of yesterday's gloomy CBI report on the manufacturing sector, these data support the theory that parts of the UK economy are improving. One caveat, however, is that much of the strength of the June retail sales stemmed from clothing and footwear. This was likely supported by the hot weather and discounting in June and thus may not be sustained through July. Cable was squeezed higher on the report, though there has not been much follow-through. Similarly EUR/GBP has been reluctant to push beyond the 0.8604 lows made after the data release. The initial release of Q2 UK GDP tomorrow will be a key focus for sterling.
USD/CHF has backed away from a test of its intervention day lows at 1.6310. From a technical perspective a break below this level could lead to a generally weaker USD, so this level will continue to be watched near-term. The NZD has edged higher from last night's close lifted by the better tone of stocks overnight. The impact of comments made by Finance Minister English overnight that a rise in the NZD was a main risk to New Zealand's economic recovery were lessened by remarks made by Trade Minister Groser earlier this week which downplayed the risk of intervention. AUD/NZD has risen modestly supported by comments from RBA Assistant Governor that the Australian economy may emerge (from the recession) stronger than most.
This afternoon US initial claims are. Jun existing homes sales will also be watched closely in view of yesterday's better US housing data. The BoC releases its Monetary Policy Report, any references to the CAD could be key.
