Forex Market Review (European Session) – Dollar broadly weaker, Loonie hits 2-week high on stronger oil prices

Selena Nicholas, XM Investment Research Desk
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The dollar was broadly weaker amid softer US Treasury yields in the wake of a series of disappointing US economic data. The Canadian dollar was one of the top performing major currencies today, reflecting firmer crude oil prices. Hopes of extending an OPEC production cut deal helped boost the US oil benchmark by 3%.

The dollar index extended losses in the European session, driven lower by weaker US economic data. Following Friday’s soft retail sales and CPI releases, the US Empire State manufacturing index published today printed a negative result for the first time since October. The New York Fed’s barometer on current business conditions slid in May to -1.0 from +5.2 in April. The forecast was for a reading of +7.0. Details showed declines across the board, including capital expenditures, new orders and prices paid.

The dollar fell after the data but further losses were cushioned by separate US data which showed that home builder sentiment rose in May. The NAHB Housing Market Index ticked up to 70 early this month from 68 in April, beating market expectations of 68.

The yen was the only major currency that did not gain against the broadly weaker greenback, leaving dollar / yen little changed during the session, between 113.30 and 113.70 yen.

The Canadian dollar reached its strongest level in two weeks versus its US counterpart. The main driver behind the loonie’s strength was the rise in oil prices, which were boosted on reports that Russia and Saudi Arabia favour extending oil production cuts into early 2018. USD / CAD fell to as low as $1.3600 before recovering slightly. The pair was trading above $1.3700 early in the Asian session. Canadian retail sales and inflation data due later in the week could impact the loonie, as both data points are expected to improve. WTI oil rose back above $49 a barrel during European trading, from the $47 area it was trading in earlier in the day .

In Europe, there was a lack of data releases. The euro was driven higher mainly by the weaker dollar. The single currency rose to $1.0988, extending Friday’s gains. The German ZEW report, Eurozone CPI and GDP data this week will be looked at for their affect on the euro.

Sterling rose back above the key $1.2900 level. UK inflation numbers on Tuesday and employment data on Wednesday will be key upcoming risk events for the pound. But overall the outlook for the British currency remains positive since opinion polls for the upcoming UK elections in June continue to point to a significant lead for Prime Minister Theresa May’s Conservatives over the Labour party. Meanwhile, a speech by May later tonight will likely attract market attention and could have an impact on the pound.