The euro dollar opened at 1.3619 after a steep recovery from the London low at 1.3588 that peaked at the New York open. Strong UK June CPI (0.2% vs expected -0.1%, May -0.1%) and a weak German July ZEW survey (current 61.8 vs expected 67.4, June 67.7; expectations 27.1 vs expected 28.2, June 29.8) pushed the euro down having dawdled between 1.3610 and 1.3625 for most of the Tokyo session and the first two hours of London.
Concerns about Portuguese Banco Espirito Santo and part owner Espirito Santo International SA helped leave equities lower across Europe. Exchanges in Germany, France, Spain Italy and the United Kingdom were all negative but the euro managed to return to the vicinity of its European high 1.3628.
Overall June retail sales in the U.S. were soft (0.2% vs expected 0.6%) but had reasonable details, (ex auto 0.4%, expected 0.5%, core 0.6% vs expected 0.5%). The May numbers for the three categories were all revised higher. The Empire Manufacturing Survey was stronger (26.5 vs expected 17.0), gave the dollar some support and sent the euro back to 1.3589 but it was Fed Chair Janet Yellen's Congressional testimony that provided the biggest dollar rally.
The first part of her prepared statement recited many of the economy's ills including, unemployment, underemployment and a low participation rate. This sent the euro back to 1.3613. But comments about the influence of Fed low rate policies and how the "reach for yield" could create financial market vulnerabilities sank the euro more than 50 points to 1.3562 in less than an hour. Profit taking returned the united currency to 1.3580 just before the London close. Afternoon trading was desultory with a miniscule 8 point range from 1.3565 to 1.3573.
The euro is once again closing in on the two year support line at 1.3515. This is fortified by the June 5th low at 1.3503 and backed by the year's low at 1.3477. But is it unlikely that either will hold for long if the trend line gives way.
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