- US housing starts fall 5% in June, May revised to down 14%
- BOC hikes rates 0.25% to 0.75%, as expected; statement more dovish than expected
- French , Spanish banks said to pass stress tests
- Dallas and Kansas City Feds ask for discount rate hike. St. Louis drops pleas for higher rate
- BOE’s Posen: MPC could go either way with policy
- Rumors circulate Fed may lower rate paid on reserves
- US equities reverse big early losses, rally strongly at close; end 1.1% higher at 1083 ahead of Apple earnings
- US 10-year note unchanged at 2.96%
It is still not entirely clear what prompted the sharp reversal of EUR/USD beyond talk of Asian CB sales from fresh trend highs at 1.3028 to intraday lows at 1.2840 but the move left the market both battered and confused. US markets were thin and whippy consequently, as traders hugged the sidelines as much as possible. EUR/USD rallied as high as 1.2923 early in the US afternoon on reports that the Fed is considering ending interest payments on excess reserves held at the Fed in order to encourage lending.
Also a short-term plus (in a way) is ongoing confirmation from finance officials that their banks are passing stress tests. Spain and France said today where will be no failures while German Landesbanks are said to have survived the ordeal unscathed. Too my mind, it would be a Pyrrhic victory for European banks to skate through the tests without having t raise capital. Few will be convinced the process was vigorous enough to free up bank-to-bank lending, the mother’s milk of credit expansion.
GBP sold off heavily after poor UK public sector borrowing figures, spiraling as low as 1.5155 in early US trade. It reversed course at mid-morning and then rallied as high as 1.5303, just short of overnight highs, before stalling.
EUR/GBP fell back below the broken downtrend at 0.8457, ending the bullish run on that cross in its tracks. It fell as low as 0.8432 before stabilizing and ends at 0.8440.
USD/JPY rallied strongly after buying from A US custody bank broke the greenback out of its hourly downtrend and caught the market short. A reversal in US equities boosted risk appetite (or quelled fear, if you prefer), further prompting USD/JPY covering. Stops lie at the 87.60 level.
The Canadian dollar fell initially after the BOC hiked rates but stopped well short of guaranteeing further hikes. The BOC is data dependent, going forward, the MPC said. It rallied as high as 1.0586 before reversing field in the afternoon and sliding back to 1.0440 as equities set the tone.
AUD recovered morning losses and ends on its highs around 0.8838/ 0.8860/70 remains strong resistance near-term.
