EUR/USD dipped to 12-week lows below 1.1850 as Euro confidence remained subdued.

Position adjustment was significant on Wednesday ahead of the end of the second quarter. There were further reservations over global coronavirus developments, especially in Asia. US bond yields moved lower during the day.

Wall Street equities posted slight gains with the S&P 500 index at record highs. Global bourses were less buoyant with net losses. The dollar strengthened despite lower bond yields with further short covering ahead of Friday’s jobs data.

EUR/USD dipped to 12-week lows below 1.1850 as Euro confidence remained subdued. USD/JPY tested 15-month highs above 111.10. Sterling was little changed overall with GBP/USD retreating to near 1.3800. Commodity currencies lost ground amid the firm US dollar.

German unemployment declined 38,000 for June after a revised 19,000 fall the previous month and a larger than expected decline on the month.

The headline Euro-zone CPI inflation rate retreated slightly to 1.9% from 2.0% previously and in line with consensus forecasts while the underlying rate also met expectations with a decline to 0.9% from 1.0% the previous month. The data had little impact on ECB policy expectations.

The Euro was unable to make any headway ahead of the New York open and drifted lower amid a firm US dollar, although tight ranges prevailed.

ADP data recorded an increase in private-sector payrolls of 692,000 for June and well above consensus forecasts of 600,000, although the May increase was revised down to 886,000 from 978,000. There were strong gains in the services sector with the increase driven by the leisure and hospitality sector, but ADP commented that employment was still around 7 million below pre-covid levels. The dollar secured a limited advance following the data as confidence in the labour market was sustained.

After a 4.4% decline the previous month, pending home sales increased 8.0% for May to the highest level since 2005 as housing strength continued.

The Chicago PMI manufacturing index retreated to a 4-month low of 66.1 from 75.2 previously with a decline in unfilled orders. The prices paid index, however, strengthened to the highest level since 1979 as cost pressures intensified.

The dollar maintained a firm tone through the month-end fix and EUR/USD dipped to lows around 1.1850. The US currency overall posted the strongest monthly advance since November 2016 and maintained a firm tone on Thursday as EUR/USD traded at 12-week lows just below the 1.1850 level.

US Treasuries posted gains on Wednesday despite the strong ADP employment reading with the 10-year yield edging below 1.45%. The yen, however, was unable to make any headway during the day amid underlying weak sentiment and USD/JPY strengthened to challenge the important resistance area around 111.00.

Dallas Fed President Kaplan maintained his hawkish policy stance with comments that he could see a broadening of price pressures that are spreading into other sectors. He added that he wanted to see a tapering of bond purchases before the end of this year.

Japan’s Tankan manufacturing index strengthened to 14 from 5 previously, but slightly below expectations amid supply-side issues, while the non-manufacturing index improved slightly to 1 from -1 previously. The Chinese Caixin PMI manufacturing index declined to 51.3 from 52.0 previously.

Overall risk appetite held steady on Thursday with USD/JPY continuing to test 15-month highs above 111.10 but struggling to extend the move.

The UK recorded a current account deficit of £12.8bn for the first quarter of 2021 from a revised £22.8bn the previous quarter. There were also strong capital inflows for the quarter with evidence of relief that a disorderly Brexit has been avoided.

There was a small downward revision to first-quarter growth and Sterling edged lower early in Europe. There was underlying support against the Euro and some relief that the EU formally agreed to extend the grace period for shipping chilled meat into Northern Ireland by a further three months.

Out-going Bank of England chief economist Haldane used his final speech to reiterate warnings over the risk of higher inflation and called for immediate action. The policy committee is expected to maintain a more balanced stance, but the rhetoric provided an element of Sterling support.

GBP/EUR posted gains to near 1.1670 with choppy month-end trading, but GBP/USD retreated to 1.3800 against the strong dollar.

Comments from Bank of England Governor Bailey will be watched closely on Thursday with the international inflation developments also important for risk sentiment.

Economic Calendar

Expected Previous
07:00 EUR German Retail Sales (Y/Y)(APR) 5.10%
07:00 EUR German Retail Sales (M/M)(APR) 5.00% -6.80%
07:30 CHF Retail Sales (Y/Y)(MAY) 35.70%
07:30 CHF CPI (M/M)(JUN) 0.30%
07:30 CHF CPI (Y/Y)(JUN) 0.60%
08:00 European Central Bank President Lagarde Speaks
08:45 Markit/ADACI Mfg PMI(JUN) 62.3
08:50 Markit Mfg PMI(JUN) 59.2
09:00 Unemployment Rate(MAY) 10.70%
09:00 Euro-Zone PMI Manufacturing(JUN) 62.8
09:30 GBP PMI Manufacturing(JUN 01) 65.6
10:00 Euro-Zone Unemployment Rate(MAY) 8.00%
11:00 OPEC Meeting
13:30 USD Initial Jobless Claims 411K
14:45 USD Manufacturing PMI(JUL)
15:00 US Manufacturing ISM(M/M)(JUN) 61.2

*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.