After lifeless trading on Friday due to the US Independence Day holiday, markets struggled to regain any serious sense of momentum on Monday with narrow ranges. The yen was resilient during the day despite adverse yield trends as GBP/JPY dipped back below 175.0 while EUR/JPY tested support near 138.50. Yen gains on the crosses helped push USD/JPY to a test of key support near 101.80.
As far as data releases is concerned, there was another weaker than expected German report with industrial production falling 1.8% for May, the third consecutive decline following a sharp drop in orders reported last week. The Euro dipped lower following the release with a more serious test of EUR/USD support close to the 1.3580 area. The impact was offset to a limited extent by a small improvement in the Sentix business confidence index.
There was further speculation that the Bank of England would move closer to raising interest rates at this week’s policy meeting. Sterling has, however, already priced in a more aggressive central bank stance and the main feature on Monday was another round of profit taking on over-extended long positions. GBP/USD was undermined by the failure to break above resistance in the 1.7180 area and there was also a sharp corrective EUR/GBP move. From lows just below 0.7915, there was a recovery to 0.7940 to correct over-sold conditions rather than reflecting any enthusiasm for the Euro.
The Euro recovery against Sterling also helped underpin EUR/USD during the European session. There was solid buying support close to 1.3580 with move to just above 1.3600. There were expectations that underlying yield spreads would move further against the Euro over the next few months which curtailed underlying buying support.
There was whippy action in the Canadian dollar triggered to a large extent by economic data releases. The latest building permits data was sharply stronger than expected with a 13.8% gain for June and USD/CAD dipped to test support near 1.0630. In contrast, there was a much weaker than expected figure for the latest PMI index with a slide to 46.9 from 48.2 which undermined underlying confidence in the outlook and USD/CAD more than recovered losses to near 1.0670.