There was again a noticeable lack of liquidity in the markets on Tuesday as Summer holidays in Europe curbed trading activity while there was a reluctance to maintain aggressive positioning. The economic calendar was also again light which tended to dampen activity.
The yen was unable to strengthen further during the day and an uptick in US bond yields, allied with negative underlying yen sentiment, allowed USD/JPY to rally sharply to the 100 area from lows below 99.20. The advance against the yen helped provide some initial dollar respite against European currencies as it looked to rally from losses over the previous 24 hours. Nevertheless, buying momentum for the US currency was again lacking and rallies stalled quickly. EUR/USD only dipped to the 1.3165 area before finding fresh buying support.
There were minor US economic release in the form of house prices which recorded a 0.7% monthly increase and there has not been a monthly decline since the end of 2011. In contrast, the Richmond Fed index recorded a sharp decline to -11 from +8 previously which did little to improve dollar sentiment as markets waited for more high-profile releases on Thursday.
There were no major Euro-zone events with markets tense ahead of flash PMI readings due on Wednesday. The Bank of Spain indicated that GDP only declined marginally for the second quarter, maintaining the recent improving trend, and the French government was also more optimistic surrounding growth prospects. Despite deep-seated concerns surrounding the Euro-zone outlook, the Euro was able to maintain a robust tone. It re-tested resistance above 1.32 later in US trading as US yield support faded again and the pair looked to take out reported Euro buy stops with one-month highs above 1.3220.
The latest UK BBA mortgage lending was slightly weaker than expected with an increase to 37,300 for June from 36,300 previously. This was, however, the highest figure since February 2012 and maintained the positive run of housing-sector releases. The latest BCC survey reported exports at a six-year high and there was optimism ahead of Thursday’s crucial UK GDP data. GBP/USD was able to hold comfortably above 1.53, but with a slightly weaker Sterling tone against the Euro.
With an absence of front-line US data, the Canadian retail sales data attracted more attention than usual with a much stronger than expected June gains of 1.9% following a 0.2% advance the previous month. The Canadian dollar spiked higher following the data with USD/CAD dipping to test support below 1.03 for the first time in five weeks.