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The Pound continued its steady march higher reaching above 1.6500 after bottoming at 1.6309 yesterday. A 1.2% jump in retail sales help provide support but wasn't the catalyst for the move.

Talking Points
• Japanese Yen: Testing 94.50
• Pound: Retail Sales Beat Expectations
• Euro: Erasing Earlier Gains
• US Dollar: Existing Home Sales On Tap

Euro Erasing Gains, Pound Finds Support From Higher Retail Sales

The Pound continued its steady march higher reaching above 1.6500 after bottoming at 1.6309 yesterday. A 1.2% jump in retail sales help provide support but wasn't the catalyst for the move. Consumer consumption rose after an unexpected 0.9% fall in May as apparel sales skyrocketed by 4.7%. The U.K. housing market also saw signs of improvement with home loans rising to 35,325-the highest since March, 2008-according to the British Banker's Association.

The rise in mortgages confirms the BoE's lending report which called for improvement in home loans in the months ahead. However, the report also stated that credit for consumers and businesses continues to remain a challenge which could increase the chances of further quantitative easing from the central bank. However, yesterday's minutes from the MPC's last policy meeting indicated that they are leaning toward ending the asset purchase program but will wait until they can better assess the impact of current actions. We should get further insights at the August meeting when the central bank will release its quarterly inflation report. Until then we could see sterling continue to remain range bound between 1.6000 and 1.6700 which could spell weakness ahead.

The Euro has started to erase earlier gains after reaching an intra-day high of 1.4267 as traders appear reluctant to become too bullish. There is still a fair amount of uncertainty pertaining to a global recovery and although there have been signs of improvement; broad based unemployment has limited the expected potential for a rebound in growth. The Euro-Zone current account showed that demand from abroad remains weak as exports fell by 5.9%. However, on a seasonal adjusted basis the deficit narrowed to -1.2 billion from -6.1 billion as it showed a surplus in the goods account. Meanwhile, French business confidence rose for a fourth straight month to 78 from 77 on improving household demand supporting the notion that the regions' economy is stabilizing. Technically the support/resistance line at 1.4180 continues to be a key level and could limit downside risks today. Yet, if the Euro continues to remain range bound a re-test of 1.3900 remains a possibility over the near-term.

The dollar has come under some pressure overnight as we have seen an increase in demand for risky assets. Earnings season for the most part has been positive outside of Morgan Stanley's loss yesterday which has limited downside risks. Today we will have several; blue chip names report including 3M, AT&T and McDonald's which could impact sentiment. Regardless jobs and housing data today will generate significant focus as they still remain as the critical elements in a recovery. Initial jobless claims are expected to increase to 557,000 from 552,000 which could dampen optimism as unemployment is expected to continue to rise until the end of the year. Meanwhile, existing home sales could add to the signs that the housing market is stabilizing with an expected 1.3% increase in June.

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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com