Euro at almost 7-week high after German orders

‘Fully Valued’

German factory orders, adjusted for seasonal swings and inflation, increased 3.8% from May, when they fell 0.5%, the Economy Ministry in Berlin said today. Analysts forecast a gain of 1% in June, according to the median of 42 estimates in a Bloomberg News survey.

“The euro is looking pretty fully valued versus the dollar here,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The data is telling us we’ve probably hit the bottom in the euro area and we’re heading towards some modest growth. Whilst we’re seeing some degree of improvement it’s a much slower recovery than we’re seeing elsewhere.”

European Central Bank President Mario Draghi said last week that economic indicators signal the euro region is past the worst of its longest-ever recession, while reiterating that interest rates will stay low for the foreseeable future.

The euro’s gains were limited after ECB Chief Economist Peter Praet said interest rates may be cut from a record-low 0.5%.

‘Neutral Bias’

Reserve Bank of Australia Governor Glenn Stevens trimmed the overnight cash-rate target by a quarter percentage point to 2.5% and said the central bank’s board “has previously noted that the inflation outlook could provide some scope to ease policy further.” That contrasted with last month’s view that the outlook for prices “may provide some scope for further easing.”

“They haven’t said that they have more room to cut rates,” said David Forrester, a senior vice president for Group of 10 currency strategy at Macquarie Bank Ltd. in Singapore. “It’s considered more of a neutral bias than an easing bias. I think we’ll see a squeeze” higher in the Aussie, he said.

Australia’s dollar appreciated 0.6% to 89.85 U.S. cents after sliding to 88.48 cents yesterday, the weakest level since August 2010.

Trade Gap

The dollar briefly pared losses as the U.S. trade gap shrank 22.4% to $34.2 billion from a revised $44.1 billion in May that was smaller than previously estimated, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of 72 economists called for a $43.5 billion deficit. Exports increased to an all-time high while imports fell to a three-month low.

Trading in over-the-counter foreign-exchange options totaled $25 billion, compared with $19 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $10.5 billion, the largest share of trades at 42%. Options on the Australian dollar-U.S. dollar rate totaled $2.5 billion, or 10%.

Dollar-yen options trading was 65% more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Aussie-greenback options trading was 12% less than average.

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