With the exception of the Yen the overnight session was another quiet one in the world of currencies. Most major currencies were contained in previously established ranges as thin summer markets lacked conviction. The Japanese Yen however was broadly softer following chatter that the local government was investigating the possibility of a corporate tax cut to offset the increase in Consumption Taxes. The Japanese unit gave up ground to all major currencies, losing over a big figure to the Greenback and retreating 1.2% versus the Euro, its biggest slide in over 2-months against the common currency. The reports were interpreted as negative for safe-haven assets like Japanese Government Bonds, however were a boon to Japanese corporates, and helped lead the Nikkei and Topix to 2.57% and 1.99% expansions respectively overnight.
The news in Japan helped lead Asian stocks to their 4th consecutive rally with the Hang Seng putting on 1.21% and the Australian ASX advancing 0.96%. Despite the news and action in the Yen, trading in the Aussie and Kiwi was muted. Both currencies were softer, but traded in tight ranges versus the USD as markets awaited this morning’s American Retail Sales data.
Turning to the European session, UK CPI for the month of July was released and printed in line with expectations at 2.8%. This is minor contraction from last month’s 2.9%, which was the highest result in over a year. Digging into the numbers, the greatest upward pressures came from gasoline, while airfare and clothing had the biggest downward impact. The Sterling seemed to shrug the data off, and at the time of writing is trading near opening levels against both the EUR & USD.
Elsewhere in Europe the German ZEW Economic Sentiment Index was released, printing 42.0, which bests expectations of 40.0 according to a Reuters survey. The “ZEWâ€, as it is often affectionately referred to, is an index of survey results conducted by the Zentrum fur Europaische Wirtschaftsforschung (Translated to English means “Centre for European Economic Researchâ€). The survey asks about 275 German institutional investors and analysts for their 6-month economic outlook. The Euro was unmoved by the data, as markets remained hesitant to make any moves ahead of the US Retail Sales.
As the American session warmed up this morning we got US Retail Sales. While the headline number printed 0.2%, missing expectations of 0.3%, the core number (ex-Autos) chimed in at 0.5%, besting the Reuters consensus forecast of 0.4%. The Greenback has caught a quick big in the immediate aftermath of the release, however remains inside of recent ranges.
The USDCAD is mildly higher in early morning trading as the Loonie defends itself against the USD. In the near term historical support around 1.0250 and resistance at 1.0440 look to guide action in the pair. Given the thin summer trading conditions and the absence of Canadian data until Friday, a breakout one way or the other relies on sentiment surrounding Tapering and the results of the multitude of American data this week. Tomorrow has monthly American PPI on the docket, expectations are for +0.3% (2.4% annualized).
Further reading:
US Retail Sales continue rising in July – trigger USD rally
UK CPI
