The dollar started the week on a generally weak footing, especially against commodity currencies that benefitted from some recovery in oil prices and tentative signs of stabilization in equity markets. Overnight, US and European stock futures have slipped again which could limit the downside for the dollar today. We may also see a wait-and-see approach by markets today ahead of tomorrow’s FOMC meeting. On the data side, markets will watch the Richmond Fed Manufacturing Index, new home sales, and the Conference Board Consumer Confidence Index, which are all likely to have fallen further. Despite the relevance of the consumer spending and housing narrative in the recession discussion in the US, the vicinity of a near-certain 75bp hike by the Fed tomorrow should limit the impact of the dollar of any data releases today.
As risk appetites wane, the US dollar is bouncing higher against the Canadian dollar. It set a new low for month today in late Asia/early European activity near USD/CAD 1.2815. However, it has jumped back and recorded new session highs near CAD1.2870. Canadian data prints are thin this week so broader movement will likely reflect risk appetite, the USD. Flows remain on the light side through summer trading. Thursday’s May GDP report is expected to register a 0.2% drop in output.Observe the USD/CAD chart.
The EUR continued to show elevated intraday volatility yesterday, despite remaining largely attached to the 1.0200 line. Today, all eyes will be on the EU emergency meeting to discuss last week’s European Commission proposal to reduce gas consumption by 15%. The original EC draft has been heavily revised and the new proposal reportedly includes a number of exceptions and lower targets based on each country’s specific circumstances. From a euro perspective, the constant threat of a complete shutdown in gas supply from Russia should put a cap on any recovery in EUR/USD and possibly trigger a new drop to parity. There are no major data releases out of the eurozone today.
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