The dollar traded mixed against the G10 currencies as market sentiment drifted sideways to slightly lower ahead of key events this week. The Federal Open Market Committee (FOMC) which announces policy on Wednesday, the European Central Bank (ECB) meeting on Thursday, and the U.S. July employment report on Friday are significant events which are likely to drive price action this week. As is usually the case before major events, price action has consolidated as investors await the outcome of the central bank meetings and top tier economic data. In our view, we believe that the Fed is likely to refrain from announcing new measures at the conclusion of its 2-day meeting (however we would not rule out a change in the interest rate guidance to mid-2015). Furthermore, the Fed is likely to wait-and-see with regards to US employment data and possible new measures out of Europe. We think that ECB President Draghi must deliver after his comments last week that he will do “whatever it takes”, however this leaves plenty of room for disappointment as what it takes is something that likely requires agreement within the EMU.
In the U.S., the Dallas Fed manufacturing activity index disappointed with a decline to -13.2 from the prior 5.8 (cons. 2.0). This weighed on sentiment as US stock markets were unable to follow the rally seen by European equities earlier today. The DJIA1 and the S&P 5001 were slightly lower on the day with declines of -0.03% and -0.05% respectively. UST yields1 were lower across the curve and commodities traded mixed with gold and oil1 lower while silver advanced by +1.69%.
EUR/USD was rejected above the 1.23 figure and currently trades around the 1.2250 level. The key upside pivot is around the highs seen on Friday which are just ahead of the 1.24 figure. This is also where the 23.6% retracement of the entire 2012 range converges with the 50% retracement of the most recent decline from the June 29 highs to July lows.
There is a slew of data due out of Japan with the June jobless rate, earnings, and job-to-applicant ratio as well as June construction orders and housing starts. June household spending figures and the July manufacturing PMI are also scheduled for release tonight in Japan. New Zealand will see the release of its July business confidence report and Australia will report private sector credit and building approvals for June.
