Forex Market Review – Euro slips on caution over EU Summit deal

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Euro slid against the dollar in the European session after Friday’s sharp rally, as investors booked profits. EURUSD which was at a high of 1.2679 in the Asian session, slipped down to as low at 1.2585 going into the U.S. session.

 

Further weighing on the single currency was news that Finland and the Netherlands will block the euro zone’s permanent bailout fund from buying bonds in secondary markets. This was a blow to optimism after EU leaders surprised markets on Friday by agreeing to let the rescue fund inject aid directly into troubled banks and intervene on bond markets to support indebted euro zone member states.

 

Sterling consolidated against the dollar though gains are expected to be limited after UK June PMI data indicated that manufacturing activity is still contracting and below the 50.0 mark dividing growth from contraction.  The data makes it more likely that the Bank of England will opt for further quantitative easing at its next policy meeting later this week in order to stimulate a sluggish economy. GBPUSD  traded a low of 1.5640 and rose to as high as 1.5709.

 

Yen was trading higher against the dollar and euro after the Japanese tankan index showed that business confidence amongst Japan’s largest manufacturers grew more than expected. USDJPY touched as low as 79.44, down 0.6 percent from Friday, before recovering  to 79.76. EURJPY consolidated losses after falling to 100.32 from Friday’s 101.38.

 

Aussie was the best performer, rising to a to a two-month high against the greenback ahead of the Reserve Bank of Australia interest rate announcement tomorrow. AUDUSD peaked at  1.0276, the highest since May 3rd.