Risk conditions also held firm for most of Monday before dipping as the imposition of fresh lockdown measures in California helped trigger a slide in confidence.

Risk conditions also held firm for most of Monday before dipping as the imposition of fresh lockdown measures in California helped trigger a slide in confidence.

US equities initially posted gains with the Nasdaq at another record high before a sharp reversal as risk appetite dipped and volatility increased.

Risk appetite was more fragile on Tuesday, although Chinese trade data provided some relief with bourses above intra-day lows.

The dollar lost ground amid a lack of defensive support before regaining some territory with EUR/USD unable to hold the 1.1370 area.

Sterling lost ground even with robust global risk conditions and losses increased as equities dipped. GDP data was disappointing with GBP/USD below 1.2550. The yen and Swiss franc failed to gain significant defensive support when equities dipped.

There were no significant Euro-zone data releases on Monday with political developments and global equity market trends crucial for dollar direction. There was an element of Euro caution ahead of the EU Summit which will start on Friday with the recovery fund the main area of focus.

In comments on Monday German Chancellor Merkel stated that Italy and Germany had agreed on the basic structure of the recovery fund, but she was unable to say whether agreement would be reached on the budget and recovery fund at this week’s Summit. Markets will continue to monitor rhetoric closely over the next few days.

The dollar briefly regained some ground ahead of the New York open, but then lost ground once again as the strength in global equities continued to undermine support for the US currency. Commodity currencies made further gains initially which stifled support for the US currency.

There were fresh concerns over the US economic outlook with further evidence that overall gasoline demand was weakening again from the recovery peak seen in June.

After a brief dip, EUR/USD strengthened against the vulnerable dollar with a peak at 1.1375 before a retreat as the US currency regained ground amid a reversal in US equity markets. Risk conditions remained slightly more fragile on Tuesday with EUR/USD just below 1.1350 as market caution prevailed.

The Japanese government stated that there was no need to declare another state of emergency declaration at this stage which had little overall yen impact.

Markets will be monitoring the latest US earnings data which will start this week. US equities continued to advance ahead of the New York open and there was a significant dip in the Japanese yen as defensive demand for the currency faded with USD/JPY strengthening to the 107.30 area.

There was a slowdown in new coronavirus for Florida and Arizona on the day which provided an element of relief. There was, however, very choppy trading in the Nasdaq index with a sharp intra-day reversal in Tesla and other major tech stocks undermining the overall index. These losses also had an impact in undermining wider risk sentiment as overall equity markets retreated. There were sharp losses late in the session with sentiment undermined further by California’s decision to close indoor activities in bars and restaurants to control the coronavirus outbreak. The dollar held broadly steady as the yen failed to secure defensive support.

In yuan terms, Chinese exports increased 4.3% in the year to June compared with expectations of 3.5% and imports posted a 6.2% gain compared with expectations of a 4.7% decline which provided some relief. Overall risk appetite was cautious, especially with further US-China political stresses and USD/JPY settled around 107.25.

Sterling held a firm tone in early Europe, but GBP/USD failed to hold the gains with further selling after it again failed to break above the 1.2670 area. In comments on Monday, Bank of England Governor Bailey stated that the bank is seeing the economy come back somewhat, but there is a long way to go and the bank is very worried about jobs.

Sterling gained initial support from the strong tone in global risk appetite, but it failed to sustain the advance and lost ground during the day. Markets fretted over the huge amount of Brexit preparation needed over the next few months with a very tight timetable. There were important concerns that UK trade would face notable disruption from the end of this year even if a trade deal was put in place with the EU which hampered underlying sentiment.

BRC data recorded an annual increase in like-for-like retail sales of 10.9% from 7.9% previously. GDP increased 1.8% for May following the April slump of 20.4%, but this was well below market expectations of 5.0%, reinforcing concerns over a weak underlying recovery profile. Manufacturing production recovered more strongly, but Sterling overall was unimpressed by the data as GBP/USD traded just below 1.2550.

Economic Calendar

Expected Previous
07:00 GBP Claimant Count Change(M/M)(JUN) 400.0K 528.9K
07:00 GBP Industrial Production (M/M)(MAY) -6.00% -20.30%
07:00 GBP Industrial Production (Y/Y)(MAY) -20.00% -24.40%
07:00 GBP Manufacturing Production (M/M)(MAY) -8.00% -24.40%
07:00 GBP Manufacturing Production (Y/Y)(MAY) -23.90% -28.50%
07:00 GBP Trade Balance(MAY) -8.10B -7.49B
07:00 GBP Trade Balance Non EU(MAY) -1.56B -2.66B
07:00 Germany CPI (M/M)(JUN) 0.60% -0.10%
07:00 Germany CPI (Y/Y)(JUN) 0.90% 0.60%
07:00 Germany Harmonised CPI (Y/Y)(JUL) 0.80% 0.50%
07:00 Germany Harmonised CPI (M/M)(JUL) 0.70% 0.00%
07:30 CHF PPI (M/M)(JUN) - -0.50%
07:30 CHF PPI (Y/Y)(JUN) - -4.50%
10:00 German ZEW Survey (Economic Sentiment)(M/M)(JUL) 60 63.4
10:00 Euro-Zone Industrial Production (Y/Y)(MAY) -29.50% -28.00%
10:00 Euro-Zone Industrial Production (M/M)(MAY) - -17.10%
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment)(JUL) - 58.6
13:30 USD CPI Ex Food & Energy (Y/Y)(JUN) 1.30% 1.20%
13:30 USD CPI Ex Food & Energy (M/M)(JUN) - -0.10%
13:30 USD CPI (M/M)(JUN) - -0.10%
13:30 USD CPI (Y/Y)(JUN) 0.20% 0.10%

*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.