US Dollar Retreats Lower Due to Overextended Up Move, Euro Gold Gain - 9.7.2013
The European common currency recovered from 1.2805 to 1.2883, gaining back some of its recent losses against the US dollar, during Draghi’s speech at the Committee of ECON of the European parliament. Draghi reiterated that accommodative monetary policy is warranted by the price outlook and that the Governing Council expects key ECB rates to remain at present or lower levels for an extended period. The latter indicates dovish attitude and Euro should have been under selling pressure but instead bounced up, likely on technical reasons. Investors were covering short positions due to speculation that prices overextended to the downside. In addition, the US dollar index retraced from major cap at 84.56 to 84.10, losing against a basket of other major currencies.
Earlier today Chinese CPI was higher than expected, at 2.7% for June compared to 2.1% in May. Increasing concerns about China’s monetary policy since higher inflation limits its possibilities greatly, while shadow banking is increasing and according to Fitch 36% of credit in China comes from alternative lenders. Asian stocks though followed its US peers closing in positive light, ignoring concerns coming from the second largest economy, Shanghai Composite was eventually closed 0.36% up and Hang Seng 0.44% higher. At the same time Japanese M2 Money increased by 3.8% in June according to BOJ, more than expected and up from 3.5% in May. NIKKEI 225 advanced by 0.89% to close at 14,612.45, while the Japanese Yen lost slightly after M2 release with the USDJPY rising from 100.80 to 101.21.
Elsewhere, the precious metal bias turned upside exploiting greenback's weakness and at the moment found resistance at a key level around 1260. Recent bounce up drove oscillators to overbought areas and that may hold attempts to higher ground. Looking ahead, eyes are on British Trade Balance and Manufacturing Production as well as Retail Sales for Swissy.