DAILY FX WRAP: USD strength dominates major pairs while the Greece situation appears no closer to a resolution and fears of a slump in China see weakness in commodities.
Today has been a day of USD strength, with the DXY spending the session firmly in the green and making a break above the 100DMA at 96.31. The USD was bolstered early in the session by EUR weakness, with participants remaining uncertain as to the future of the single currency as the threat of a Grexit continues to loom. EUR weakness was seen as European traders came to their desk and reacted to last night’s decision by the ECB to adjust the haircuts on collateral accepted by the Bank of Greece for the ELA. The saga continued today with source comments initially suggesting that a proposal was not going to be provided to the Eurogroup today, with later sources noting that an oral presentation was given, with the written proposal to be provided tomorrow.
Away from Brussels and the lack of a Greek deal, USD was further supported by this afternoons US data, with Trade Balance showing a smaller than anticipated deficit (-41.87bln vs. Exp. -42.70bln) and market participants looking ahead to tomorrow’s Fed minutes release, with focus to be on the debate surrounding the timing of rate lift-off. Of note, Bank of America analysts note that short USD positioning by HF and RM accounts is close to matching last years highs, highlighting the scope for long USD positions to increase.
Finally, commodity currencies were also seen weaker across the board with the focus on the growing concerns over the economic slowdown in China, as the PBoC and other regulatory bodies continue to try to prop-up the stock market. This has seen palladium, platinum, copper and iron ore all trade at multi-month lows, with WTI yesterday seeing its largest drop since February and Brent and WTI crude futures residing below the USD 56.00 and USD 51.00 handles respectively.
Looking ahead, tomorrow sees a light calendar in terms of data, with the aforementioned FOMC minutes and ongoing Greek situation likely to remain in the spotlight. Also of note, comments are expected from Fed’s Williams, ECB’s Nowotny, Noyer and Coeure as well as UK Chancellor Osborne’s Budget Statement.