Market wrap: Friday's close, euro gains sparked by the EU deal on migration - Westpac

Analysts at Westpac Banking Corporation, (Westpac), explained that the euro extended gains sparked by the EU deal on migration, dragging other currencies with it. US data was mixed while equity sentiment improved notably. 

Key Quotes:

"EUR/USD kicked off its rally on Friday from 1.1570 when the EU deal was announced, extending to above 1.1680 in NY. The pair gapped lower this morning to under 1.1640 as German interior minister Seehofer reportedly insisted on migration policies opposed by Chancellor Merkel. But it then bounced to 1.1690 on a report that Seehofer would resign. None of this was confirmed, so the euro could remain skittish short term.

The yen underperformed in the more positive risk environment, USD/JPY rising from 110.50 to highs above 110.90. AUD/USD extended Friday’s EUR-driven gain from 0.7345 pre-announcement to 0.7410. NZD similarly rose from 0.6740 to above 0.6790 early Monday. AUD/NZD eked a higher range of 1.0910-1.0935.

The Canadian dollar outperformed. USD/CAD dropped from 1.3260 to lows under 1.3140 in Friday NY trade, CAD helped by a bounce in oil prices and a slightly firmer than expected print on Canada Apr GDP, up 0.1% m/m, 2.5% y/y.

A mixed round of US data to end the week. May personal spending grew just 0.2%, weaker than expectations; real spending was subdued too, showing no growth in the month and the previous month was revised down from 0.4% to 0.3%. Lofty Q2 US GDP expectations took a hit in the wake of the more muted trend in consumer spending: the closely followed Atlanta Fed Q2 GDP “nowcast” was revised down 3.8% from 4.5%, while the NY Fed’s GDP tracker was trimmed from 2.9% to 2.8%.

The Michigan survey showed cooler household sentiment too, their index slipping to 98.2 from 99.3, the forward looking expectations sub-index hit a five month low. On the plus side, the Chicago manufacturing PMI was solid; climbing to 64.1, the second highest reading this year, from 62.7 last month, defying expectations for a small fall.

The US 10yr treasury yield eked a slightly higher range of 2.83%-2.87%, rising only late in the session, 2yr yields up from 2.51% to 2.53%. Fed fund futures yields continued to price 1 ½ more hikes in 2018.

Event risk

Australia’s data calendar is limited to unofficial data – June inflation gauge from Melbourne Institute and June ANZ Job Ads.

The Bank of Japan’s long-running Tankan business survey is due. Consensus on the large manufacturers index is +22, a slight cooling from Q1’s +24 but well above the 20 year average of 0 (the GFC low was -58). The response on USD/JPY will be limited again by the apparent lack of debate at the BoJ about any change in policy stance for some time.

In Asia we will see a flurry of Jun manufacturing surveys, including the Caixin-sponsored China PMI, which has been very stable lately around 51. Jun CPI data is due in both Indonesia and Thailand. Hong Kong markets are closed for a holiday.

The US data calendar is worth noting. May construction spending data will include revisions, so forecasts of Q2 GDP could be tweaked. The June national survey of manufacturing sentiment from the Institute for Supply Management is expected to ease only a touch, to a strong 58."