Monday’s trading maintained the familiar pattern seen after a Friday payroll release with generally lacklustre conditions and narrow ranges, amplified by the normal dip in trading volumes during August. The dollar overall was still hampered by profit taking and corrective pressures following strong gains last week ahead of Friday’s under-whelming employment report.
The latest CFTC positioning data recorded an increase in net speculative dollar longs to the highest level for six months while there was an increase in net Euro shorts to the highest level for close to two years at 108,000 contracts. This will maintain the potential for a covering of Euro shorts and certainly create nervousness over adding to these positions.
Over the weekend, there was a EUR4.9bn rescue of Portuguese Banco Espirito Santo by the country’s bank rescue fund. Despite relief that immediate instability risks have eased, the rescue will maintain underlying concerns surrounding the Euro-zone banking sector. EUR/USD overall was unable to move above 1.3450 and initially consolidated around 1.3425.
The latest Sentix Euro-zone business confidence index recorded a sharp decline to 2.7 for July from 10.1 previously and this was the lowest reading for 12 month. In particular, German confidence dipped on fears over economic damage from Russian sanctions.
EUR/USD drifted marginally lower, but there was no conviction in attacking any significant support levels. USD/JPY was unable to regain 102.80 and dipped back towards 102.50.
After the weaker than expected manufacturing survey on Friday there was relief surrounding the UK construction survey released on Monday. Although there was a small dip in the headline figure to 62.4 for July from 62.6 the previous month, it remained at elevated levels and the housing sub-index was at the highest level for 10 years which will help underpin confidence in the economy as a whole. GBP/USD found support on approach to the 1.6810 level and moved back to 1.6840 as EUR/GBP lost momentum towards the 0.8000 area.
AUD/USD found support from a stronger than expected Australian retail sales report and held support above the 0.9300 level with the latest Reserve Bank policy statement due overnight.