Dollar Extends Losing Streak

Daily Analysis - 26/06/2017

Federal Reserve Hike Expectations on the Fade

The US dollar fell against most major currencies on Monday, adding to Friday's losses when it shed -0.40%. Investors are increasingly betting against the greenback as hopes of a repeat Federal Reserve interest rate hike later this year evaporate amid questionable data and decelerating economic momentum.

EURUSD Hovers Below Strong Resistance

The dollar climbed to a three-week peak against the euro last week, buoyed by expectations that the US Federal Reserve, fresh from its recent rate increase, would tighten monetary policy again in September. Those expectations have since been tempered as key US economic data printed below forecasts. Highlighting the Central Bank's struggle, St. Louis Fed President James Bullard remarked on Friday that policymakers should wait on any further rate increases until inflation reliably heads towards the 2.00% mark.

Data on tap this week include June consumer confidence, a final reading of first quarter GDP along with pending home sales. In the meantime, EURUSD was last seen around the 1.11900-mark, with 1.1200 representing the key resistance level on the upside. If the pair breaks above, traders can expect additional weakness in the greenback to push EURUSD back towards mid-June highs.

US New Home Sales Pick Up

Sales of newly constructed homes in the United States rebounded in May according to a Commerce Department report late on Friday, adding to signs that the residential housing market remains on firmer footing. Sales of new single-family homes increased 2.90% last month to a seasonally adjusted annual pace of 610,000, pushing the sales rate up 8.90% compared to the same period last year. The median selling price soared 11.50% to hit an all-time high of $345,800. The average sales price also touched its highest ever, jumping 10.50% to $406,400.

The latest figures should ease investor concerns about the recent slowdown in construction highlighted by weak permit and housing starts data as home-builders begin to respond to the revival in demand. S&P 500 futures are rising Monday morning after two straight sessions of flat performance, edging higher to trend around 2440.

German Private Sector Growth Slows

Hurt by weakness in the services space, Germany's private sector grew at a slower than expected pace in June. Markit's flash PMI, which tracks manufacturing and services activity in Europe's largest economy, slid to a four-month trough of 56.1 in June compared to the 57.4 reading reported back in May.

The figure came in below the consensus forecast of economists but managed to remain well above the key level of 50, which separates expansion from contraction. Markit is currently projecting 2.00% growth for the German economy this year - the highest rate of expansion since 2011. Nevertheless, despite the optimism, DAX futures are currently hovering around 12750, just below the key resistance at 12800 after sticking within a narrow range over the past few sessions.

Canadian Inflation Cools

The annualized rate of Canadian consumer price inflation slowed more than forecast in May, moving further away from the Central Bank’s target. Besides diminishing the odds of an interest rate rise next month, when combined with high household indebtedness and falling energy prices, accommodation may remain in place for the foreseeable future. The headline CPI fell to 1.30% in May, printing well below April's 1.60% according to data from Statistics Canada.

Last month’s reading was the lowest since November of 2016, missing expectations of a 1.50% increase. Although a monetary policy decision is rapidly approaching, the inflation figures should give the Bank of Canada room to hold off on tightening interest rates during its July meeting. However, this contrasts sharply with hawkish comments from policymakers last week that sparked investor expectations of an earlier-than-anticipated rate hike. The dollar weakness has seen USDCAD fall as low as 1.3244 before rebounding modestly.