The dollar held a solid tone against European currencies on Monday without being able to break any key technical levels. China’s HSBC PMI manufacturing index strengthened to a seven-month high of 50.8 for June from 49.4 which boosted risk appetite. The yen was broadly resilient despite a potential pick-up in risk appetite as the USD/JPY edged back below the 102 level. The Chinese data was important in boosting the Australian dollar with AUD/USD strengthening to a high near 0.9450 and close to 2014 highs recorded in early April.
According to the latest CFTC positioning data, there was a modest decline in net speculative dollar longs which should help protect the currency from sharp losses, but there was also a further increase in net Euro shorts which will limit the scope for further Euro selling.
EUR/USD was unable to make any significant impression on resistance early in the European session. There were generally disappointing Euro-zone PMI data readings with a small reduction in the headline manufacturing index to 51.9 for June from 52.2 previously and a similar drop for services. France was again the main area of weakness with a significant loss in both sectors as indices remained well below the 50.0 expansion threshold.
ECB President Draghi stated that quantitative easing could be used if there was a further deterioration in the inflation outlook, although existing policies would be used for now.
Concerns over the Euro-zone outlook pushed EUR/USD weaker with a test of support in the 1.3580 area as trading ranges stayed relatively narrow.
Over the weekend, Bank of England MPC member Miles, generally on the dovish end of the spectrum, again voiced his expectations of higher interest rates before May 2015. There were further expectations that the bank would be the first G7 bank to tighten monetary policy.
The latest speculative positioning data recorded the largest net Sterling position since late 2007 and this was instrumental in triggering caution over further buying. With some significant pressure for profit taking and position adjustment, GBP/USD was unable to regain the 1.7050 area and dipped back to test 1.7000 support.
There was a stronger than expected reading for the flash US PMI manufacturing index at 57.5 for June from 56.4 previously and the existing home sales data was also stronger than expected at an annualised rate of 4.89mn from 4.66mn previously. The data helped underpin dollar confidence as EUR/USD continued to test the 1.3580 support area, although USD/JPY was unable to regain the 102.0 level.