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20.07.2016 06:51

Asian session review: the dolar gained

US dollar shows strong demand after the housing data in the US, published yesterday, reminded the market that should not rule out an increase in the Fed's rate this year. Comments of a number of Fed officials, including Dennis Lockhart, also contributed to the dollar bid. According to Lockhart, Brexit did not bring direct harm to the US economy.

The probability of an increase in the key interest rate of United States at the FOMC September meeting is now estimated at 18% against 12.9% on Tuesday,

The data presented yesterday was more positive than expected along with indicators of retail sales and employment. The Commerce Department reported that housing starts jumped 4.8 percent to an annual rate of 1.189 million in June compared with the revised estimate for May at the level of 1.135 million. Economists had expected a slight rise by 0.5 percent to 1,170 million fromn 1.164 million, which was originally reported in the previous month. Building permits also rose by 1.5 percent to an annual rate of 1.153 million compared to 1.136 million in May. Economists had expected permits to grow to 1,150 million.

The euro declined since the beginning of today's session after yesterday's negative data from the ZEW, which reflected the deterioration of sentiment in the business environment of the euro area and Germany after the British referendum. Sentiment in the business environment in Germany fell to -6.8 from 19.2 in June. The last reading was the lowest since November 2012 and well below the long-term average of 24.3. The index of current conditions fell to 49.8 from 54.5. Economists expected the index to be 51.8. Meanwhile, the index of sentiment in the business environment in the euro zone decreased by 34.9 points to -14.7 points.

However, at the end of the trading session the EUR / USD rose slightly, helped by positive data on the index of producer prices in Germany, which in June were higher than analysts' expectations. The Producer Price Index, published by the Statistical Office of Germany rose by 0.4% in June, which coincided with the previous value, and was higher than the forecast of 0.2%. The annualized rate was -2.2%, after declining by -2.7% in the previous month.

Investors were also cautious on the eve of the main event of the week - the meeting of the European Central Bank. Many economists believe that ECB will refrain from further easing of monetary policy, despite the strengthening of the risks to the economic situation after Brexit, and will continue to focus on the implementation of the previously announced measures. However, the policy may indicate the possibility of QE program changes, which may include the extension of the terms of this program, and / or enlargement of the list of assets that are available for purchase. According to the result of the latest Reuters poll, 18 of 19 traders predict that during the July meeting ECB will not change the parameters of monetary policy.

Analysts at TD Securities: "markets will be disappointed if they expect to see strong signs of further easing of the ECB's monetary policy soon. We believe that the new lower interest rates are still likely before the end of the year, but there is no need to act immediately, as the market conditions are kept better than we expected, and only small reduce the forecast of economic growth in the euro zone. Anyway, Draghi is likely to establish the fact that even if the Bank of England has not responded yet, and there are clear consequences, there are doubts about the need for the ECB to think about the correction of policy. "

EUR / USD: during the Asian session trading in $ 1.0996-1.1015 range

GBP / USD: during the Asian session trading in $ 1.3065-1.3105 range

USD / JPY: during the Asian session trading in Y105.80-106.20 range

Market Focus

  • The eurozone started the third quarter on a solid footing, according to PMI survey data
  • Earnings Season in U.S.: Major Reports of the Week
  • German private sector output growth slowed for the second month running in July
  • ECB's Mersch says as conditions normalise, it is unlikely that uncoventional policies will remain necessary
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