There was choppy trading on Tuesday with month-end adjustments having a significant impact across asset classes.

There was choppy trading on Tuesday with month-end adjustments having a significant impact across asset classes.

US equities posted gains with overall global trends mixed amid underlying reservations over US coronavirus developments. US and China economic data provided an element of support to recovery hopes.

The dollar made net gains into the US open before declining sharply towards the European close with position adjustment having a significant impact and selling eased on Wednesday.

Sterling recovered strongly in New York despite a lack of confidence in fundamentals with month-end factors in evidence.

The headline Euro-zone inflation rate increased to 0.3% for June from 0.1% previously and above consensus forecasts of 0.1%. The core rate edged lower to 0.8% from 0.9% which was in line with market expectations and markets maintained expectations of a very accommodative ECB monetary policy.

The Euro continued to lose ground into the New York open and EUR/USD dipped to test support below the 1.1200 level as the dollar secured wider market support.

The Chicago PMI index recovered slightly to 36.6 for June from 32.3 the previous month, although this was below expectations of 45.0 and the second-quarter figure dipped to the lowest level since 2009. Consumer confidence strengthened sharply to 98.1 for June from 85.9 in May and above consensus forecasts of 91.6. There was a strong increase in the present conditions index and a more moderate increase for the expectations index as the economic re-opening underpinned sentiment. There will be some doubts whether the boost in confidence will be sustained given the recent increase in coronavirus cases.

The EU announced new travel rules and confirmed the rumours that the ban will continue on US residents. The move helped support the Euro, although there was a greater impact from month-end positioning and a wider US dollar retreat as underlying risk appetite improved and commodity currencies secured net gains. EUR/USD moved to highs above 1.1250, but failed to hold its best levels and retreated to near 1.1220 on Wednesday with strong German retail sales data having little impact.

The dollar held a firm tone ahead of the Wall Street open, but was unable to challenge the 108.00 area. China’s central bank announced that it will cut the re-discount rate from July 1st which will cut funding costs for smaller companies. New York equities moved higher which curbed yen demand to some extent with USD/JPY finding support just above 107.50 despite wider losses against European currencies.

According to media reports, there was no consensus on whether to cap yields on short-term Treasuries. There were further concerns over US coronavirus trends with a total increase in new cases of over 46,000 for Tuesday and a further increase in Texas hospitalisations.

Japan’s quarterly Tankan manufacturing index declined sharply to -34 from -8 previously and below consensus forecasts of -31 while the non-manufacturing index declined to -17 from 8. In contrast the Chinese Caixin PMI manufacturing index, however, edged higher to 51.2 from 50.7. Overall risk appetite remained tentative given US virus data and US tensions with China over Hong Kong. After a move above the 108.00 level, USD/JPY dipped to near 107.60 as caution prevailed.

Sterling remained under pressure in early Europe on Tuesday as underlying sentiment remained negative. The wider than expected current account deficit for the first quarter of 2020 reinforced fears over the medium-term financing issues and underlying currency vulnerability.

Prime Minister Johnson announced a £5.0bn boost for infrastructure spending, although the overall impact was limited with the measures seen as broadly underwhelming in the context of wider stresses within the economy. Sterling remained under pressure with GBP/USD below 1.2300 and EUR/GBP around 0.9140.

Bank of England chief economist Haldane stated that in, his view, risks to the economy are more evenly balanced than in May, but remain skewed to the downside. Potential positive news on demand has been more than offset by downside risks to employment and he stands ready to adjust monetary policy at speed if needed.

Fellow member Cunliffe stated that it would be wrong to draw dogmatic lines on negative interest rates while the impact on financial structures was a particularly acute issue. Overall, there were expectations that the central bank would sanction additional quantitative easing while the negative rates issue remained open.

Sterling recovered strongly into the European close with position adjustment important as GBP/USD moved to a peak near 1.2400. The gains faded on Wednesday as underlying sentiment remained negative with trade unease also a feature.


Economic Calendar

07:00EUR German Retail Sales (M/M)(MAY)-3.50%-6.40%
07:00EUR German Retail Sales (Y/Y)(MAY3.90%-6.50%
08:45Markit/ADACI Mfg PMI(JUN)37.145.4
08:50Markit Mfg PMI(JUN)-40.6
08:55EUR German Manufacturing PMI (M/M)(JUN)44.636.8
08:55German Unemployment Rate(M/M)(JUN)6.20%6.30%
08:55German Unemployment Change(M/M)(JUN)200K238K
09:00Euro-Zone PMI Manufacturing(JUN)-46.9
09:30GBP PMI Manufacturing40.750.1
12:00USD MBA Mortgage Applications--8.70%
13:15USD ADP Employment Change(JUN)3500K-2760K
14:30CAD RBC Manufacturing PMI(JUN)-40.6
14:45USD Manufacturing PMI(JUN)-49.6
15:00USD Construction Spending (M/M)(MAY)--2.90%
15:00US Manufacturing ISM(M/M)(JUN)47.643.1
15:30USD Crude Oil Inventories-1.442M
19:00USD Fed FOMC Minutes--
22:00NZIER Business Confidence (Q/Q)--70

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.