The dollar maintained a strong tone against the Euro on Tuesday as it hit 2014 highs while the performance elsewhere was less convincing.
Unusually, Reserve Bank of Australia Governor Stevens did not trigger a major Australian dollar reaction in his latest speech as he avoided direct references to monetary policy and the Australian dollar’s value. There was stiff AUD/USD resistance on approach to the 0.9400 level despite some modest improvement in global risk appetite. USD/JPY held firm and looked to move above the 101.50 resistance area.
Sterling was subjected to choppy trading without being able to make any significant headway in either direction ahead of key macro events on Wednesday. The headline CBI industrial orders survey was weaker than expected with a decline to 2 for July from 11 previously, although underlying manufacturing optimism held intact. The latest government borrowing data was slightly worse than expected, maintaining longer-term fundamental doubts. GBP/USD dipped towards 1.7050 under the weight of a firmer dollar as EUR/GBP dipped lower to test the 0.7900 area.
EUR/USD was subjected to renewed selling during the European session as the dollar maintained a generally firm tone ahead of the US CPI data due early in the US session. After the pair dipped again to below the 1.3500 area and stops were elected under 1.3490, there was a move to test 2014 lows below 1.3480 with the dollar maintaining a firm tone.
Headline US CPI data was in line with expectations at 0.3% in June for a 2.1% annual increase while the core reading was slightly lower than expected at 0.1% for a 1.9% annual gain which dampened Fed tightening expectations to some extent. EUR/USD very briefly spiked higher following the softer than expected data before meeting heavy selling pressure once again and dipping to 2014 lows below 1.3460.
There was a solid reading for US house prices and a stronger than expected reading for existing home sales at 5.04mn from a revised 4.91mn previously which maintained underlying optimism surrounding the US outlook as EUR/USD held weaker than 1.3480.
Risk appetite generally improved as equity markets rallied and AUD/USD moved back above the 0.94 level while USD/CAD dipped to near 1.0730. In this context, the yen continued to show important underlying resilience as USD/JPY struggled to move above 101.50 while EUR/JPY was at fresh five-month lows near 136.50.