Morning Commentary: Zzzz…

Foreign Exchange - Morning Commentary
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
On Monday, we wrote about uncertainty causing short term market paralysis in many asset classes despite all the optimism in U.S. and global equities as they remain at or near all-time highs. Uncertainty surrounding the future course of the U.S. economy, Fed policy, and the continued stalemate between U.S. and China over trade have investors and traders largely watching from the sidelines in the short term. Markets (including equities now) have reached an equilibrium point of balancing both positive and negative aspects of the future. It will take some new initiative or development to shift the market dynamics once again.
As we arrive today, the near term theme of consolidation and range trading continues to dominate almost all asset classes this week. Equities, G7 interest rates, commodity prices, and in particular, foreign exchange have all been characterized by narrow ranges and low volumes. The euro and Japanese yen once again both traded in an incredibly narrow range of just 22 bps. Although economic data from overnight provided a brief spark of life, the market has succumbed to apathy and boredom.
Many of the commentaries I read are stressing neutrality at this time regarding any position-taking. The next two potentially market moving events are the ECB policy meeting next week and the Fed meeting on July 31. Until there is a change in market perceptions or dynamics, continue to expect more of the same in the short term.
  • U.S. Housing Starts for June came in slightly weaker than forecast and declined for the second month in a row as a drop in multifamily starts, which includes apartment buildings and condominiums, outweighed a pickup in single family starts. Housing permits, a proxy for future construction, dropped by 6.1%. U.S. interest rates are nearly unchanged.
  • Canadian CPI for June fell by 0.2% which was slightly better than expectations of a decline of 0.3%. May CPI rose by 0.4%. CPI YoY fell from 2.4% to 2.0%, and Canadian interest rates are fractionally lower while the Canadian dollar is stronger.
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