The latest CFTC data recorded a further increase in speculative long dollar positions to the highest level for four months which will limit the potential for further US currency buying with funds already over-extended. The Euro should also be protected to some extent by the net increase in short contracts to over 50,000.
Early European action on Monday was dominated by Sterling as GBP/USD pushed higher to test the critical 1.7000 level. Sentiment was buoyed by Standard & Poor’s removing the negative outlook on the UK AAA rating late on Friday and further weekend media speculation over an early increase in interest rates with a slightly weaker reading for the Rightmove house-price index shrugged off. GBP/USD did spiabove 1.7000 and triggered stops above, but couldn’t hold the gains and dipped back to the 1.6960 area.
EUR/USD initially remained under pressure due the weight of selling on the crosses as EUR/JPY dipped back below 138.00 and EUR/GBP weakened to fresh 19-month lows. There was solid support below the 1.3520 area with range trading then tending to prevail ahead of the US open.
The yen maintained a solid tone with USD/JPY unable to regain the 102.00 level and hitting lows near 101.70. There were further concerns surrounding events in Iraq and the implications for oil prices which maintained underlying defensive yen demand. USD/CAD was undermined by rising oil prices on Iraq tensions and, after hitting a peak around 1.0880, there was a sharp slide to 1.0835 lows.
The early US economic data was stronger than expected with an increase in the New York Empire index to 19.3 for June from 19.0 previously. Industrial output data was in line with expectations, registering a 0.6% monthly advance, while capacity use was higher than expected and the NAHB housing index strengthened to 49 from 45.
The dollar was resilient against the yen even with a weak TIC flows report, but unable to make further headway against European currencies. Frustration over the inability to push EUR/USD lower was compounded by media reports which suggested that the ECB was unlikely to take additional monetary action over the next few months unless the inflation outlook deteriorated. Although broadly a recycling of Draghi’s June press conference remarks, the reports pushed EUR/USD back to above 1.3550 with GBP/USD again approaching 1.7000.