Euro Falls Despite Successful Italian Bond Auction; Retail Sales Are Next

The price action over the past two sessions has been choppy. Since

London open, the greenback was able to recover a large portion of

earlier losses. Series of downgrades continues. Italian debt auction

went reasonably well. Market turns to US Retail Sales.

After the huge USD selloff yesterday, on the back of acknowledged

possibility of QE3, the price is consolidating with slight USD

positive bias. Moodys downgrade of government guaranteed debt of five

Irish banks is putting some pressure back on the Euro. At the same

time, the feared Italian debt auction went rather well. Italy

successfully sold almost EUR 5 bln in debt but it will have to pay the

highest yield on record for the 15 year and even the 5 year reached a

yield not seen since 2008.

On the data front, Euro zone June CPI came out in line with

expectations at 2.7% y/y and core CPI printed 1.6% slightly higher

than May reading of 1.5%.

New York session starts at 8:30 am ET with June Retail sales that are

expected to decrease by -0.1% after dropping to -0.2% in May. Last

month was the first time since August 2010 that retail sales actually

contracted on monthly basis. Core Retail Sales are expected to grow by

0.1% from previous 0.3%.

The unemployment claims are expected at 413K and as long as we do not

see a move below 400K it is hard to imagine the economy improving.

Core PPI is expected to increase 0.2% in June.

Fed Chairman Ben Bernanke continues his testimony in Washington DC at

10:00 am ET. Yesterdays testimony sent USD sharply lower on remarks

that additional monetary stimulus might be needed should deflationary

risks reemerge. It is unlikely that todays testimony or the QA

session should reveal something new so the impact should be limited.