Key ECB meeting this week.

Headline US retail sales increased 1.0% for June and above consensus forecasts of 0.8% and followed a revised 0.1% decline the previous month.

Underlying sales also increased 1.0% on the month after a revised 0.6% gain previously while the control group registered a 0.8% increase on the month. Sales are not adjusted for inflation.

The University of Michigan consumer confidence index edged higher to 51.1 for July from the 40-year low of 50.0 previously and slightly above expectations. There was a slightly stronger bounce in current conditions, but the expectations index edged lower with the weakest reading since 1980.

The 1-year inflation expectations index edged lower to 5.2% from 5.3% while the 5-year index dipped to a 9-month low of 2.8% from 3.1%.

Given the notable Fed focus on inflation expectations in making policy decisions, fears over a 100 basis-point hike this month faded after the Michigan confidence data.

Lower yields and hopes that Fed will be able to take a slightly less aggressive stance underpinned risk appetite with all major bourses making headway.

Lower US yields also sapped potential dollar support and EUR/USD managed to secure a further limited net recovery to near 1.0100, although sentiment remained notably fragile.

The Fed blackout period is now in effect and markets will continue to monitor media reports closely given that there was a Wall Street Journal report just ahead of the previous meeting which warned that the Fed was considering a 75 basis-point rate hike.

The ECB will hold its latest policy meeting on Thursday and there will be a significant element of caution ahead of the meeting with a particular focus on peripheral yields.

There was a stronger than expected US New York manufacturing survey, but inflation pressures eased. US yields declined after the US University of Michigan consumer confidence data. Fed expectations were also scaled back after inflation expectations declined. The 10-year yield retreated to around 2.91%

Weak underlying Euro-Zone confidence was still an important background factor, but gas prices declined slightly. EUR/USD managed to hold above parity and rallied to around 1.0085.

Lower US yields undermined dollar support against the yen. USD/JPY retreated to lows just above the 138.00 level before recovering. Lower global yields provided Swiss franc support while stronger risk appetite limited potential support. USD/CHF retreated to 0.9760 with EUR/CHF around 0.9850.

Sterling under-performed on the major crosses amid a lack of confidence in UK the fundamentals. Stronger risk appetite provided an element of relief for the UK currency. GBP/USD found support above 1.1800 and secured a net gain to around 1.1880 on Monday. GBP/EUR dipped to 1.1760 before trading just above 1.1780.

Commodity currencies rallied as global risk appetite improved. AUD/USD secured net gains to 0.6800 and traded close to this level on Monday. USD/CAD retreated to the 1.3000 area.

Economic Calendar