The Euro strengthened modestly against the dollar and the yen Tuesday, lifted by better-than-expected U.S. economic data in light trading ahead of the U.S. Independence Day holiday. U.S. factory orders in May climbed 0.7%, more than the expected 0.1% gain. The report helped to offset Monday’s weak manufacturing reports from the U.S. and China, which had stoked fears of a global slowdown and sent the Euro lower.
Analysts said the currency’s rebound Tuesday could also be the result of lingering optimism from last week’s European Union summit, where leaders agreed to create a single banking supervisor and expand the use of rescue funds. The market’s getting used to the idea that the immediate systemic risks the euro crisis might have posed have dissipated for the time being.
Trading volumes were light Tuesday ahead of the U.S. holiday Wednesday. Currency traders were also reluctant to take large positions before a European Central Bank meeting on Thursday, where the ECB is widely expected to cut its benchmark interest rate by 25 basis points. However, if the ECB goes further, the euro would move lower because additional easing measures haven’t been fully priced in by the market.
Market participants are also watching to see what the U.S. Federal Reserve will do to shore up the economy. Friday’s monthly U.S. nonfarm payrolls report should provide some clarity on the Fed’s next step. The last few reports have come in below expectations, and more weak data would strengthen the case for additional stimulus from the central bank. The June unemployment rate is expected to remain unchanged at 8.2%, with 95,000 jobs added.
With investors willing to buy riskier currencies Tuesday, the JPY fell. Against the JPY, the USD was higher at Y79.792 from Y79.501 late Monday. The EUR was at Y100.613 versus Y100.035. The AUD and the CAD, which are closely linked to commodities, were also beneficiaries of the risk-positive environment. The AUD was trading at $1.0282 versus $1.0248 late Monday.
EasyForexNews Research Team