Dollar Spirals Lower

The dollar opens trading today licking its wounds after being taken to the woodshed early Thursday on the heels of a successful Spanish auction of long-term debt.
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By Joe Manimbo of Travelex

NEW YORK (

TheStreet

) -- The dollar opens trading today licking its wounds after being taken to the woodshed early Thursday on the heels of a successful

Spanish auction

of long-term debt. Recall that the eyes of the world are on Spain (when they are not focused on soccer) and developments out of the eurozone have been pacing the market for the recent past.

Spain's ability to raise almost €3.5 billion in 10- and 30-year issues provided an element of calm and was the impetus that sent the dollar spiraling lower early this morning. This is by no means a resolution of the debt crisis in Europe, but certainly a positive sign.

Also underway in the eurozone is the much anticipated summit of EU member states. At the meeting, EU leaders are discussing measures that they can take to emerge from the current crisis, and, more importantly steps that they can be taking to prevent future crises. To date, the EU has been unsuccessful in completely stamping out speculation that some member states will be requiring external liquidity measures to weather the current storm.

The other big event on Thursday was the Swiss National Bank meeting and accompanying policy statement and it did not disappoint. As expected, the Swiss left rates unchanged, but did drop key language from their subsequent policy statement regarding their propensity to intervene to stem inflation. That was all traders needed to dump dollars and euro in favor of the franc which hit new five-week peaks on the dollar and brushed up against their recent all-time high versus the single currency.

Sterling got an added boost from much stronger than expected retail sales figures for May. The Pound is trading just off one-month peaks against the buck.

The data deluge continues today in North America with U.S. May CPI, weekly jobless claims and Q1 Current Account data due at 8:30 EDT, followed by the U.S. June Philly Fed Survey at 10 EDT. If the past is any indication, though headlines should once again rule the day as traders' appetite for risk will most likely control the movements in the currency markets.

Currencies Outlook

EUR:

The euro was once again the big beneficiary of increased risk appetite. This time the news of a successful auction of long-term debt in Spain was the catalyst for the move higher. It should be noted that, though they were successful in marketing the issue, the premium investors are demanding is higher than in the past, but the spread over comparable German bonds was slightly narrower than yesterday's record levels. Traders had been keenly attuned to their screens for news out of the bloc and this development allayed some concerns. Also of interest will be any statement on the success (or lack thereof) of the ongoing EU Summit at which member states are outlining new fiscal rules and enforcement steps to address and prevent crises such as we are witnessing.

CHF:

The SNB certainly did not disappoint trades, especially those that were long francs as they dropped from their statement one of two references to decisively fighting an excessive rise in the franc. The SNB had been intervening in markets to undermine their currency's rapid rise as a means for combating local deflation. Swissy trades just off all time peaks as a result and the table is more or less set for further franc appreciation.

GBP:

Sterling drew additional support from a much stronger than forecast Retail Sales report for May. The reading of +0.6% was double last month's reading and six times that of the forecast. Interestingly, the "electronic goods" component seemed the culprit as British consumers scooped up TV's ahead of the World Cup. (It is too soon the tell what the impact will be on the U.K. economy of those consumers exercising their warranties after smashing the aforementioned televisions on the heels of England's disappointing result in the first round).

USD:

U.S. CPI for May came in line with forecasts showing a slight decline of -0.2% at the headline level. Core CPI was +0.1%. Weekly jobless claims unexpectedly rose by 12,000 to 472,000. The four-week moving average of claimants, a more telling measure fell slightly. The current account gap widened to $109 billion, which was narrower than forecast.