Dollar Seeks Direction, RBA Minutes Up Next

The US sizzled in European trading, sending USD/JPY above 100.00 and EUR/USD below 1.30 but a poor reading on June retail sales reversed the gains. Overall sales rose 0.4% compared to 0.8% expected. With volatile auto and gas sales stripped out, sales fell 0.1% compared to the +0.4% consensus – it was the lowest reading since June 2012. 

Economists had expected rising housing prices, equities, jobs and consumer sentiment to boost spending but the improvement didn't materialize. Afterwards, a number of economists downgraded Q2 growth forecasts below 1%. At that pace, it will be nearly impossible for the Fed to taper in September.

EUR/USD jumped after the release and eventually hit 1.3075, just shy of the Asian high of 1.3080. USD/JPY finished the day a half-cent higher at 99.75 but was well below the 100.47 session high. Overall, the market is struggling for direction ahead of Bernanke's testimony on Wed-Thurs.

One market that isn't struggling for direction is the S&P 500, which closed 0.14% for an eighth consecutive gain. The winning streak matches a January climb for the longest rally of the year but the 4.3% cumulative gain dwarfs the 2.3% rally earlier in the year. The index is now just 5 points from the record high set in May.

The main event on the calendar is the minutes of July RBA meeting at 0130 GMT. The market is pricing a more-than 60% chance of a rate cut in August following comments from Stevens. He said the board deliberated for a long time at the last meeting and it will be interesting to see how close they were to cutting.