Is the Euro That Strong or Are People Not Interested in Trading It? (page 2 of 2)

According to the latest FXCM Speculative Sentiment index, it is the former since EUR/USD positioning is 8.7 percent above its monthly average. Given the weakness of recent economic data, the only things that are keeping the Euro propped are hawkish comments from ECB officials and continual demand from central banks. Both Eurozone consumer prices and labor costs fell short of expectations this morning which suggests that inflationary pressures are abating. However this doesn't seem to matter to the ECB as member Quaden clearly stated today that monetary tightening has not ended. The same sentiment is shared by the Swiss National Bank who raised interest rates by 25bp today, bringing the mid point of their target range to 2.5 percent. If the pace of economic growth remains unchanged and the Swiss franc fails to rally, they said that "further increases in interest rates are likely in the months ahead." Swiss retail sales are due for release tomorrow.

Softer Inflation Pressures Continue to Weigh on the British Pound

Despite stronger than expected retail sales in the month of May, the British pound refused to rally. This may be due to the fact that the price deflator dropped from April, which is an indication of softer inflation pressures. After the surprise decrease in average wage growth yesterday, the market has become very suspicious of whether the central bank really has the data to back up their hawkish monetary policy stance. A survey released today indicates that the British public expects prices to rise over the next year, but this is simply a reflection of consumer sentiment for prices rather than actual price increases by retailers.

Weak New Zealand Retail Sales Sends Commodity Currencies Tumbling

The Australian, New Zealand and Canadian dollars have all succumbed to dollar strength today despite firmer commodity prices. New Zealand retail sales were much weaker than expected in the month of April. After four straight months of gains, spending dropped by the biggest amount in 3 years. Vehicle sales, which are impacted by interest rate levels accounted for approximately 50 percent of the decline. Softer wage growth and consumer spending is certainly a problem and even though the RBNZ is still expected to raise interest rates this year, they may opt to wait until the third quarter. Meanwhile Australian consumer inflation expectations edged higher this month, but Australian Governor Stevens has a very different take. He actually feels that the inflation outlook gives the central bank time to assess economic data before making any changes to monetary policy. Weak data and a less hawkish stance have driven both currencies lower.