There appears to be a state of anxious tranquillity in the foreign exchange market. The US dollar is predominantly trading within narrow ranges, exhibiting minimal changes in levels. The euro is currently experiencing a range of approximately 15 ticks, while the greenback is limited to a movement of less than a quarter of a yen. Despite the slightly stronger than expected May UK GDP (0.1%), sterling remains one of the weakest currencies in the G10 and is currently testing $1.35 late in the European morning. The flow of news is minimal. The eurozone has recorded its inaugural monthly trade deficit in over three years. Last week’s portfolio flow data indicated that Japanese investors acquired the highest volume of foreign bonds since May, while maintaining their purchasing activity in foreign equities. The US reports that June retail sales are anticipated to have increased by approximately 0.4%, excluding automobiles and petrol. During the session, two Federal Reserve Presidents, Logan and Schmid, delivered their remarks. Governor Jefferson addresses the public this evening. The blackout period preceding the FOMC meeting commences this weekend.

The US two-year yield has decreased by approximately 15 basis points over the last two sessions, marking the most significant two-day drop since August of the previous year. The euro experienced a rebound from just under $1.1380 on Tuesday, climbing to nearly $1.1485. It has ultimately surpassed the peak established following the release of the soft US jobs data on July 2 ($1.1475). It is currently fluctuating within a narrow band of approximately $1.1460-75. Options for nearly 2 billion euros at $11.475 are set to expire today. The next target is in the 1.1500-10 area. If the euro has established a foundation, initial prospects may reach into the $1.1600-50 range. The yen appears to be largely sidelined, remaining within a range established five days prior. The dollar fluctuated within a range exceeding half a yen yesterday and is currently trading within a narrower band of less than a quarter yen, predominantly above JPY162. We observe a notable divergence between Japanese retail accounts that have built a significant net short dollar position and the latest Commitment of Traders report, which indicated a considerable net short yen position. A nearly two-week up trendline is positioned around JPY161.90 today.

Some attributed the strength of the sterling to speculation surrounding the appointment of the UK’s seventh Prime Minister since the Brexit referendum, with expectations that Home Secretary Shabana Mahmood will be named Chancellor of the Exchequer on Monday. Her centrist approach and commitment to fiscal discipline resonate with investors. However, the market may be getting a little ahead of itself; after all, Reeves, the current chancellor, was also regarded as moderate and fiscally conservative. Sterling appreciated approximately 1.1% yesterday, reaching nearly $1.3560, marking its highest point in two months. Despite the marginally improved May GDP figures, sterling has struggled to gain traction today. It is currently fluctuating within the range of approximately $1.3505 to $1.3545. As we previously noted, the 1.3500 area marks the halfway point of this year’s range. Options amounting to approximately GBP940 million are set to expire today.

Supported by the ongoing reduction of the US two-year premium relative to Canada, the Canadian dollar continued its recent upward trajectory yesterday, achieving its highest value in a month. The US dollar was sold to CAD1.4025. The US two-year premium experienced a slight contraction yesterday, nearing 130 basis points, marking the lowest level since June 11. The greenback has retained the majority of yesterday’s gains and has remained within the CAD1.4035-CAD1.4055 range thus far today. Options for 645 million at CAD 1.4050 expire today. If the US dollar is undergoing a “correction” following its two-month advance, the 38.2% retracement level is approximately CAD1.3980, while the 50% retracement is around CAD1.39. For the second consecutive session, the greenback has settled below the lower Bollinger Band, which is positioned near CAD1.4055 today. The Australian dollar reached $0.7020 yesterday, marking its highest level since June 22. The five-day moving average surpassed the 20-day moving average on Tuesday, marking the first occurrence of this event in two months. It is situated within a slightly broader range of just over 10 ticks around $0.7000. The next target is around 0.7535 and then 0.7575. It approached the upper Bollinger Band yesterday (now ~ $0.7015) but remained below it.