• The greenback traded mixed on Monday. The S&P 500 rose 6.37 to 1,071.25. The yen declined slightly versus the dollar. The euro gained against most of its major counterparts. The EUR/JPY advanced to 112.31. Sterling fell for a second day following its unsuccessful attempt to penetrate the 1.55-area resistance. The Canadian dollar was little changed ahead of Tuesday’s Bank of Canada interest rate decision. The BOC is expected to raise its key interest rate to 0.75% from 0.50%. The Australian dollar was down modestly.
• Despite a downgrade of Ireland’s credit rating, the EUR/USD rose on speculation the release of European bank stress-test results this Friday will show strength in the region’s banking sector. Moody’s Investors Service cut Ireland’s credit ranking by one notch to Aa2 from Aa1, citing “the government’s gradual but significant loss of financial strength; Ireland’s weakened growth prospects; and the crystallization of contingent liabilities from the banking system.” Having risen since its low in early-June, the EUR/USD is currently overbought; thus, requiring some consolidation before moving higher. If the 1.30-area resistance is broken, the pair may rally to 1.35. Support is in the 1.25 area.

Financial and Economic News and Comments

US & Canada

• The National Association of Home Builders/Wells Fargo housing market index decreased to a lower-than-anticipated 14 in July from a downwardly revised 16 in June, suggesting US homebuilder confidence fell for a second successive month to the lowest level since April 2009, an NAHB report showed. A reading below 50 means most respondents view conditions as poor. The measure of current single-family home sales declined to 15 from June’s 17. The gauge of buyer traffic slid to 10 in July from 13 in June. The measure of sales expectations for the next six months slipped to 21, the lowest level since March 2009, from 22.

• Foreigners bought a record net C$23.156 billion ($21.94 billion) of Canadian securities in May, led by federal government debt instruments, after a C$12.361 billion purchase in April, according to figures from Statistics Canada. Meanwhile, Canadian investors sold a net C$2.898 billion of foreign securities in May, the biggest repatriation of funds from abroad since January, after a C$194 million purchase a month earlier.

Europe

• The euro-area seasonally adjusted current account recorded a fifth consecutive monthly shortfall in May, with a €5.8 billion ($7.5 billion) deficit (corresponding to a €16.7 billion deficit nsa), widening from a revised €5.6 billion deficit in April (corresponding to a revised €7.5 billion deficit nsa), a report from European Central Bank showed.
• Eurozone seasonally adjusted construction output was down 1.0% m/m in May, the four decrease in five months, after a 0.3% m/m decline in April, Eurostat reported. Construction output fell 6.3% y/y wda, a 27th straight year-on-year slide, following April’s revised 5.7% y/y decrease.

• UK house prices fell 0.6% m/m July, the first fall in seven months, to an average of £236,332 ($359,815), after a 0.3% m/m increase in June, Rightmove Plc reported. House prices rose 3.7% y/y, a 10th straight year-on-year gain, following June’s 5.0% y/y advance. London’s house prices decreased 1.7% m/m to £422,248 in July, but grew 4.8% y/y.

Asia-Pacific

• The People’s Bank of China and the Hong Kong Monetary Authority signed agreements to ease restrictions on yuan transfers between banks and companies in the city.
• The Bank of Japan may use monetary policy easing measures if the yen stays around 85 to the USD, Dow Jones Newswires reported.

FX Strategy Update

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