The US currency will continue to be unsettled by speculation over underlying reserve diversification with the huge debt issuance important in undermining currency sentiment. The dollar will, however, gain some support on yield grounds if global confidence in the currency can be sustained. There will also be further fears over the Euro-zone outlook which will limit Euro support, especially as there will be further unease over the Latvian situation. It will be difficult to secure a decisive trend given the lack of confidence in both regions. Overall, there is scope for further dollar support towards the 1.4150 level against the Euro even with gains soon running into selling pressure with Euro support near 1.3950 over the next 24 hours.
The Euro found support close to the 1.3950 region on Thursday and then gained steadily during the day. The currency pushed to a high above the 1.4150 level against the dollar in New York before consolidating just above 1.41.
The US data failed to have a major impact as it was close to market expectations, although there was a small net positive impact on risk appetite. Both headline and core retail sales rose 0.5% in May after revised declines of 0.2% the previous month. Much of the increase did, however, reflect a rise in prices, notably for energy, rather than any major spending increase. The rise in building material sales will have some positive impact on confidence surrounding the economy.
Initial jobless claims fell to 601,000 in the latest week, although the number of continuing claims rose sharply to a fresh high of 6.82mn, dampening the optimism sparked by last week€™s decline in continuing claims.
Following the US Treasury bond auction 10-year bond yields were close to 4.0%. Markets are still struggling for direction with the rise in yields deemed a negative factor for the dollar on Thursday on improved risk appetite and fears over the US funding requirement while the previous auction result was seen as positive due to investor capital inflows. Higher yields relative to German bonds should provide some underlying dollar support even with confidence very fragile.