When the single European currency unit was initially launched more than a decade ago it was nicknamed the “toilet currency” by bearish traders full of disdain for its prospects. Their claim was that the euro would quickly get “flushed away” beyond inception. Having watched its developments on Monday when bears threw everything but the kitchen sink full-on at the euro, one has to admit some respect for at least its staying power. In Tuesday’s early going the euro remains north of $1.4000 and finds a friendly IFO business confidence report at its back.
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Euro – The two-day assault on the single currency dragged it to as low as $1.3969 Monday and almost a full 10-cents lower than its earlier May high. Fast-fading has been the reassurance that the ECB will raise rates while the sovereign debt crisis refuses to stay out of sight. Weakening global growth prospects and a downturn at the core were put in to the cross hairs Monday causing speculators to take a fresh set of pot-shots at the euro. It may be premature to announce a revival and the upswing to a session high at $1.4116 might mark nothing more than pure relief at a warmer climate today. The German IFO business climate index for May remained the same at 114.2 as in April while there were positive takeaways in the survey’s current and expectations components. On the flipside today an admittedly dated March report for new industrial orders across the Eurozone dipped by more than forecast with orders slipping 1.8% at the time leaving the annual pace of change at 14.1% and down from 21.5%. The euro was also bolstered by comments from ECB governing council member Christian Noyer who warned over the potential for any kind of Greek debt restructuring. He called it a “horror story” and warned that the central bank simply couldn’t accept such an outcome. The euro has steadied at $1.4094 this morning.
U.S. Dollar – The dollar index has fallen by about one-half of one full index point from Monday’s best to 75.87 at Tuesday’s low, although it has recently stabilized at 76.00 for a mild 0.2% loss on the session. Goldman Sachs has reversed its bearish commodity call and says investors should bulk up on copper, crude oil and zinc leading to a bullish start to pre-market trading. The risk-on tone has cost the dollar some of Monday’s advance, although it is equally supported by a mild rise in bond yields. Later in the session investors expect to see an unchanged reading for new housing sales at an annualized pace of 300,000 units. Last month’s data was an 11% improvement from close to an all-time low. The Richmond Fed’s national manufacturing index is also due out today and is forecast to dip from 10 to an index reading of nine.
Canadian dollar – The Canadian dollar is also bucking two daily losses although is only marginally higher on the back of rising crude oil prices. The loonie has risen to buy $1.0239 U.S. cents and although it is in positive territory against the dollar, it is by a hair’s breadth. The reason for this is the recent softening in economic data that has led many analysts to tone down their view of further monetary tightening from the central bank. The market now puts the chance of a rate rise at its September meeting at just over one-in-three. One month ago the odds were as high as three-in-four. The Bank of Canada has promised to carefully consider further restraining the economy through tightening monetary policy and last week’s softer retail sales report along with a welcome dip in consumer price inflation will likely underpin the view from the Bank that it has policy set just about right.