Dollar Comes Back Bid

The US dollar is extending its recent gains against most major currencies today. The euro is lower for the third session after last week’s attempt above $1.1400 was rebuffed. While today’s euro losses began in Asia, Europe has taken it down further. The single currency is approaching the 20-day moving (~$1.1206), which it has not traded through since June 8.  

Many observers are scratching their heads. The downside risks emanating from Greece has eased. The ECB has again lifted the ELA ceiling to help offset run on deposits that were partially spurred by worries, fanned by official comments and an eager media, of imminent capital controls, bank holidays, and the much threatened Greek exit. It is the third increase in as many days, as the ECB continues to drip-feed its approval. Greek stocks and bonds are rallying, and more broadly, European stocks and bonds have rallied.

We note that the relationship between German bunds and the euro appears to have loosened in recent days. Today the 10-year bund yield is off a little more than a single basis point and does not explain the euro’s decline. We cautioned that the large jump in gross long euro positions in the futures market last week (50%+) were likely in weak hands. The euro averaged $1.1275 during the futures reporting period. This is the middle of the $1.10-$1.15 trading range that has dominated activity since the March lows were recorded. Establishing positions in the middle of the range leaves participants vulnerable. We noted that in the options market, it appeared that participants were buying downside protection. This seemed to be a more bearish tell than the price action in the spot market. 

The euro’s losses are not only in the face of the somewhat less angst over Greece, but also is being registered despite the better than expected flash eurozone PMI.  The composite PMI rose to 54.1, a new cyclical high. Both Germany and France best expectations. Germany manufacturing PMI rose to 51.9 from 51.1. The service PMI rose to 54.2 from 53.0. France’s news was even more pleasing. The manufacturing PMI rose to 50.5 from 49.4. It is the first reading above the 50 boom/bust level since April 2014. The service PMI rose to 54.1 from 52.8,