EC Doom And Gloom Takes Toll

The euro fell to a new three-month low yesterday near $1.1765 but recovered to nearly $1.1825 in early North American turnover and settled at $1.1800.Today, it found support near $1.1770 in late Asian turnover. There is an option for a little more than a billion euros at $1.18 that expires today. Note that there is a 1.32 bln euro option struck at $1.17 that expires tomorrow. A move above the $1.1825-$1.1835 area would help stabilize the tone. Yet, ahead of Thursday's ECB meeting, the market will likely be cautious.  Sterling was sold through its 200-day moving average (~$1.3700) for the first time since last September. Follow-through selling saw it dip below $1.3630 before finding a bid. However, sellers emerged on the bounce toward $1.3675.A break of $1.3600 would signal another half a cent loss that would see sterling test the (50%) retracement of the rally from early last November.  


The National Bureau of Economic Research made it official yesterday:the covid recession that began in February 2020 ended two months later in April. It was the shortest recession on record, and although it does not use the rule of thumb of two consecutive contracting quarters is a recession, the economy did contract in Q1 20 and Q2 20. If the duration was a record, so was the magnitude. At annualized rates, the world's largest economy contracted by 5.0% in Q1 and a breath-taking 31.4% in Q2, during which time NBER says the economy had was already beginning to recovery in May and June. While output has been recouped, the Federal Reserve does not project the labor market to fully recover until 2023. To reanimate the economy, monetary and fiscal policy were deployed in size; the full consequences have yet to be seen and are still being debated.  

The US reports June housing starts and permits data today. Housing starts fell in three of the first five months of the year but remain at elevated levels. They averaged (seasonally adjusted annual rate) 1.577 mln in the first five months and stood at 1.572 mln in May. The average for the first five months of 2020 was 12.88 mln and in 2019 12.35 mln. Permits have softened slightly during this period as high prices of materials and difficulty securing labor saw slower activity. However, May's permits of 1.683 mln are still high historically. Separately, the infrastructure legislation is being pushed forward, and negotiations are coming to a head.  

Canada will reopen its border to vaccinated people from the US on August 9 and do so for people traveling from other countries in early September. Canada's economic calendar is quiet until Friday's May retail sales report. Mexico reports its biweekly CPI figures on Thursday, followed by retail sales on Friday. Note that the communist candidate Jadue lost a primary vote in Chile ahead of the November election, and local stocks rallied, though the peso was no match for the dollar and slipped by around 0.5%.  

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Read more by Marc on his site Marc to Market.

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