German June jobless numbers rose 31K over the month, bringing the jobless rate to 8.3%. The rise over the month was slightly weaker than our forecast and median for a rise of 45K. However, the number of people in enforced short term is rising and the government just extended the length of the scheme that allows companies to cut working hours in times of weak demand, with the government topping up the reduced wages. This can only ever be a temporary solution and if demand has not picked up by the time the agreements run out Germany could face mass scale job cuts. In any case, as a lagging indicator unemployment will continue to rise even if growth starts to stabilize in H2 and the risk of social unrest, or increased support for radical parties in the upcoming election is rising.
EUR/USD moved up to 1.4152 highs amid reports of sovereign account interest in early trade. Further gains were stymied by option related offers and profit taking after the 1.4150 area held. Some of the flows are being supported by month end flows, with U.S. accounts noted as dollar buyers in the early European flurry, which has tempered broader losses. EUR/USD moved back in to the 1.4100 area, where good size option expiries are noted today, along with 1.4090, 1.4035 and 1.4000 open interest. The underlying trend supports further gains, with the technical picture indicating higher levels and the fundamental backdrop highlighting an improvement in global economic indicators and risk appetite. EUR/JPY buying interest was a feature of the Asian session, which saw 135.95 highs before selling pressure set in amid a disappointing take up in today’s Japanese investment trust launches. EUR/GBP also sagged to trade in to 0.8450, which is another negative lead for EUR/USD, although we suspect that broader dollar movement will be the driver over the month end.