The EUR/USD opened weaker in reaction to the news that the International Monetary Fund pulled out of talks with Greece. Adding to the selling pressure was renewed shorting and liquidation in reaction to impressive U.S. retail sales data. Finally, German Chancellor Angela Merkel threw more gasoline on the fire after she said that too strong a Euro made it difficult for countries to carry out much needed reforms. Her statement may have started a currency war.
Her statement makes it clear that Europe wants a weaker Euro. At the same time, the U.S. would like to see a weaker dollar. If the strong data continues to support a Fed interest rate hike in September then it looks as if the EUR/USD should attract more sellers over the near-term.
After failing to follow-through to the downside after Merkel’s comments, the EUR/USD began a rebound rally from 1.1150, slightly above the major 50% level at 1.1102.
In other news affecting the EUR/USD, German WPI rose 0.5% versus an estimate of 0.3% Industrial Production, however, disappointed investor with a reading of -0.8% versus an estimate of a 0.1% gain.
Despite a weaker-than-expected U.K. Construction Output report, the GBP/USD managed to rally. The catalyst behind the rally was speculation of the timing of the next interest rate hike by the Bank of England. Fueling the move higher was a comment by BoE policymaker Ian McCafferty, who said that some of the headwinds holding back the economy were “now starting to fade”. This means that “we are approaching the time when monetary policy will need to begin its journey back to more ‘normal’”. McCafferty also added that “the time of the extraordinary policy stance of recent years is gradually drawing to a close”.
The rally by the Euro and British Pound helped pressure the U.S. Dollar which helped underpin August Comex Gold futures. The rally, however, only helps maintain the markets sideways trend and does not appear to have put the Forex pair in a position to turn the main trend to up.
August Crude Oil futures were under pressure on Friday as investors expressed concern over whether demand would be able to keep up with current production levels.
In other economic news, the U.S. Producer Price Index increased 0.5 percent for May, beating expectations for a 0.4 percent rise. The gain was the largest since May 2012. Preliminary University of Michigan Sentiment beat hits estimate 94.6 to 91.3. Preliminary University of Michigan Inflation Expectations fell slightly to 2.7%. Last month, the report posted a 2.8% reading.
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