DAILY FOREX REPORT 8/july/2014

MARKET HEADLINES

• Euro struggles after German data, nears 2-year low vs sterling The euro fell on Monday, hitting a 22-month trough against the British pound, after weak German industrial data highlighted the divergent economic prospects between the euro zone and those of its biggest trading partners. German industrial output fell 1.8 per cent on the month in May, its biggest drop in more than two years, and surprised most who had forecast an unchanged reading. It kept alive expectations that the European Central Bank would have to loosen monetary policy further in coming months in the face of disinflationary pressures and subdued economic growth. In contrast, the Bank of England is expected to tighten policy before the end of this year or early next year. Investors have also brought forward the timing of the first rate hike by the U.S. Federal Reserve to the middle of 2015 after a stellar jobs report last week. That helped the dollar index trade near its highest in nearly two weeks, at 80.359. The euro was down 0.1 per cent at $1.3576, its lowest since July 26, while it fell to a 22-month low against the pound of 79.14 pence after the German data. "The German data was a bit weak and in line with recent euro zone data. This will add to selling pressure in the euro in the near term," said Yujiro Goto, currency analyst at Nomura. He expected euro/dollar to drift lower, especially in light of last week's U.S. jobs data. The strong non-farm payrolls report prompted traders to slightly increase bets that the Fed will lift rates in June next year.
• Dollar creeps higher as equities prepare for earnings The dollar was on its strongest run since late October on Monday as the momentum of last week's stellar U.S. jobs data carried markets towards what will be a crucial earnings season for record high shares. Weak manufacturing data from Germany took the wind out of European shares and the euro in early trading, but for the most part moves were minor and there was little reaction from the region's bond markets. The dollar, meanwhile, was up for its fifth straight day against a basket of other major currencies - its longest streak of gains since October - supported by the steady climb in U.S. bond yields since last week's robust U.S. jobs report. "Overall the dollar is a bit stronger and that will remain in place over the next week," said Vasileios Gkionakis Global Head of FX Strategy for UniCredit in London. "Rates in the U.S. are going to grind higher, dollar/yen is going to grind higher and probably in the next week or two against the euro as well." German industrial output fell 1.8 per cent on the month in May, its biggest drop in more than 2 years, confounding expectations of unchanged industrial output in Europe's powerhouse.  
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