Outlaw Mondays

The US dollar is narrowly mixed to start the new week. Two main developments stand out. First, the dollar-bloc currencies are trading heavily.  The Australian dollar is pushing lower for the fifth consecutive session. The greenback is advancing against the Canadian dollar for the sixth consecutive session.  The New Zealand dollar is weaker for the fifth time in six sessions.  

The other development is the continued resilience of the euro. The euro reached almost $1.1815 after slumping to nearly $1.1725 before the weekend.  However, the euro appears to have peaked in front of a corrective retracement target near $1.1830.  News that German industrial production unexpectedly fell in June, for the first time this year, may help deter further euro gains today.  

German industrial output fell 1.1% in June.  The median expectation in news wire surveys was for around a 0.2% gain.  The drop follows a 1.2% gain in May.  The euro’s exchange rate for German producers, and the better stronger demand in Europe, and the world has underpinned world’s fourth largest economy.  Industrial output grew 1.8% in Q2 and contributed around 0.5 percentage points to Q2 GDP. Recall that the July manufacturing PMI slipped to 58.1 from 59.6, which was the weakest reading since March.  

In an otherwise, relatively light news session, China reported that the value of its reserves rose more than expected in July.  China’s reserves increased for the sixth consecutive month.  The $3.081 trillion follows June holdings of $3.057 trillion.  It is about $5 bln more than expected.  Recall China’s reserves briefly slipped below $3 trillion at the start of the year.  A combination of capital controls, and a stronger yuan, (reflecting in no small measure, the weakness of the US dollar), and improved economic activity have helped officials rebuild reserves.  

Meanwhile, over the weekend, the UN Security Council unanimously supported increased sanctions on North Korea.  That China and Russia consented is a diplomatic victory for the Trump Administration.  Some reports linked the lack of new trade action against China that was anticipated to be announced at the end of last week on intellectual property rights was held up by seeking China’s cooperation.