China’s equities reversed all of their initial drop on Tuesday prompting a moderate rebound in the G10 commodity-bloc currencies (AUD, NZD and CAD). Still, since the start of July, the COP, BRL, RUB and AUD have been among the worst performing currencies. The volatility affecting these higher yielding currencies could be a factor discouraging eurozone investors from seeking higher returns overseas, particularly with falling inflation expectations at home again supporting real rates in Europe. With the eurozone running a large current account surplus, we should expect the EUR to hold up better in the current environment. However, an eventual stabilization in commodity prices would leave the EUR vulnerable again, particularly as our position indicator suggests EUR short positioning has now been completely erased . The eurozone data calendar is light on Tuesday while Sweden will release June retail sales numbers.
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