U.S. Dollar Mostly Mixed in Illiquid Market Conditions

The U.S. Dollar was mixed against the major currencies on Monday, as the U.S. equity markets were closed for a national holiday, creating illiquid trading conditions. Still, the markets tilted towards a ‘risk-on’ bias, with the New Zealand Dollar appreciating the most in the Asian and European sessions.

The major headline from the overnight was a report issued by Standard & Poor’s, in which the rating agency noted that the French bank rollover plan would qualify as a distressed exchange and prompt a “selective default” on Greek government debt. The news certainly deflated investors’ expectations, as such a notice now prompts renewed talks on how to save the embattled European nation. Similarly, it now exposes creditors to taking a haircut, burdening them with a share of the bailout.

Next week, the finance ministers from the seventeen-nation Euro-zone will meet on July 11 to hammer out the details of Greece’s next bailout. Austrian officials noted last week that another €85 billion could be necessary in order to keep Greece from defaulting.

 

Fundamental Headlines

• Most European Stocks Gain on Greek Aid Approval – Bloomberg

• Republicans May Take ‘Mini’ Debt-Ceiling Deal – Bloomberg

• Almost 10% of European Insurers Fail Stress Tests – CNBC

• S&P Warning Sows New Uncertainty on Greek Rescue – CNBC

• Socialists Open Door for Strauss-Kahn – WSJ

 

EURUSD: The EUR/USD pair was mostly unchanged, though slid slightly lower on data that showed price pressures in the currency bloc were subsiding. The producer price index for May expanded at a slower-than-forecasted rate, growing at 6.2 percent versus 6.3 percent, according to a Bloomberg News survey. The PPI was 6.7 percent in April, on a year-over-year basis. Similarly, prices fell by 0.2 percent in May from April, when they had gained by 0.9 percent on a monthly basis.

Taking a look at price action, the EUR/USD pair declined off of its three-week highs set last week, trading just 17-pips over the key 1.4500 exchange, at the time this report was written. The 6-hour technical indicators suggest a top may be forming, with the 6-hour RSI falling to 61. Similarly, the MACD Histogram’s bullish divergence is fading, with the differential narrowing, at +7 now. The Slow Stochastic oscillator, on the 6-hour chart, issued a sell signal earlier, the %K now less than the %D, at 84 and 87, respectively. The technical picture, coupled with the S&P report, could lead to downside pressure in the EUR/USD pair.

 

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com