Evidence of profit-taking has been appearing on many of the crosses in a morning defined by next to no key economic data. The JPY is higher across the board. Stock markets are lower in Europe, with focus still on the banking sector. Metals and oil prices are also down .
While demand for risk appears to have paused this morning, Cable continues to threaten the 1.700 level. An early push higher in London brought a brief breach of USD1.70, however, the pound has been unable to sustain these highs. Recent improved UK economic data continue to underpin sterling. However, the approach of the MPC meeting on Thursday and the continued risk that the BoE could yet extend QE could make further near term gains difficult. Sterling has also backed away from its best levels against the EUR and the JPY which supports the view of dwindled momentum. A break above GBP/USD 1.70 could see cable being squeezed towards 1.72.
The CAD, NZD and AUD have also been unable to sustain upward momentum vs the USD this morning. Overnight the RBA left interest rates unchanged, as expected. It also removed from its statement the indication that there was scope for further rate cuts. This is in line with the prevalent view in the market that the next move in rates will be a hike. Better than expected Australian Q2 house price data +4.2% q/q supported this outlook. However, the -1.4% m/m decline in Jun retail sales was a disappointment. Employment data due on Thursday could provide a further clue as to the likelihood of an RBA rate hike before year end. The market is expecting the fall in employment to moderate. Last week RBA Governor Stevens he may not wait for unemployment to peak before raising rates suggesting good data on Thursday could give the AUD renewed support.
US personal income and spending data may provide a fresh focus this afternoon. The market is expecting personal spending to rise by 0.3% m/m in June along with the May figure. A good set of numbers could renew the risk trade. Stock markets will continue to lend direction.
