Credit Agricole

European morning: Euro to benefit from ZEW?

Data wise it will be quiet today with July ZEW economic sentiment being the only notable release. At 75.2 (prev. 79.8) the survey is expected to have moderated in July with concerns about the delta covid strain taking its toll on growth likely to have driven such an outcome. However, given the survey’s close correlation with German stocks, which did relatively well during the survey period, material downside seems unlikely. So much still implies it will stay predominantly about the USD angle to drive majors such as EUR/USD from here.

USD: Focus turns back to data The USD has been on the defensive since Friday’s mixed payrolls release, which has been fuelling the view of weaker unemployment keeping the Fed in position to stick to unchanged policy stance for longer. All in all, the USD should remain highly sensitive to data with today’s focus being on the release of June ISM services PMI. Our US economist expects it to post a modest decline to around 63.0 from 64.0 last month. However, he notes that last month’s reading represents an all-time high since the series began in 1997 and so much suggests that at a minor setback would still leave overall business activity in very strong territory. This makes sense as vaccinations continue to progress and numerous restrictions have been lifted. With upside risks certainly on the cards, incoming data may well help the USD to rebound anew with our preference still being for longs in USD/JPY. On top of that, our positioning based model suggests USD should be bought against CHF too.

Natixis

The dollar drifted lower on Tuesday and the kiwi rose most among other majors as investors brought forward rate hike expectations for New Zealand, following a strong business survey, while pressure for U.S. hikes eased in the wake of mixed jobs data. Sterling rose 0.3% to a one-week high of $1.3888 as markets looked forward to England becoming the first major country to formally start living with the coronavirus by dropping COVID-related curbs in a fortnight's time.

The euro ticked 0.1% higher to $1.1872 and the yen rose by about the same margin to 110.83 per dollar. The New Zealand dollar jumped as much as 0.8% to $0.7035. The Aussie rose 0.5% to $0.7563 but was largely unmoved by the Reserve Bank of Australia holding rates and paring its bond purchases - all mostly as expected. The moves extended a dip in the dollar since U.S. labour market data last week that was upbeat but not so strong as to risk bringing forward the day when the Federal Reserve might start tapering its asset buying.