Yesterday, there was little follow-through price action Monday’s rise in US yields that also lifted the dollar. Changes in yields/yield differentials were small. EMU PMI’s were mixed, but a manufacturing performance temporarily supported the euro. Risk sentiment (while positive) was also no clear guide for FX trading. EUR/USD closed the day at 1.1687, little changed from Monday. Similar picture for USD/JPY. Investors stay cautious on yen shorts ahead of next week’s BOJ meeting.
USD/JPY closed unchanged at 111.20. Overnight, Asian equities are trading mixed. Japan slightly outperforms. The yuan is holding near yesterday’s low, but there are no additional losses (USD/CNY 6.80 area). Australia headline inflation was marginally softer than expected at 0.4% Q/Q and 2.1% Y/Y, indicating no hurry for the RBA to raise rates. The Aussie dollar eased back to the 0.74 area. Today, the eco calendar contains German IFO confidence and US new home sales. IFO confidence is expected to ease slightly further, but yesterday’s (manufacturing) PMI suggests that the negative fall-out from the trade war might still be modest, at least for now.
The meeting of president Trump with EU’s Juncker, will be key for trading. The euro probably needs a constructive outcome (at least no escalation in the tariff war). It is impossible to predict Trump’s tactics. In the run-up to the meeting, investor cautious might prevail, being a tentative supportive for the dollar. EUR/USD is holding the 1.15/1.1850 range. This range won’t be easy to break. Trump’s comments on Fed policy might still cap a leap higher of the USD. Still, the upside momentum of USD/JPY looks to be broken. Investor nervousness on trade might be a slightly supportive for the yen, especially as the Japanese currency is again better bid ahead of next week’s BOJ meeting.
Yesterday, EUR/GBP held a tight range in the 0.8920 area for most of the day. However, late in the session, UK PM May declared that she will take the lead of the Brexit negotiations. This move contains several political risks. However, markets apparently still consider it as slightly reducing the risk of a no deal Brexit. EUR/GBP dropped a few ticks below the 0.89 barrier. Today the CBI retail data are expected to have eased in July. Yesterday’s EUR/GBP price action is slightly positive for sterling short-term. The pair moves further away from the key 0.8968 resistance. A cautiously sterling positive momentum might persist going into next week’s BoE meeting.