FOREX-Dollar falls on rising euro, higher U.S. stocks

(New throughout; changes dateline, previous LONDON)
By Kate Duguid
NEW YORK, July 14 - The dollar fell in North American trade
on Tuesday as the euro rose on optimism about the possibility of
a European Union stimulus package and as U.S. stocks gained.
The U.S. dollar index =USD , which measures the safe-haven
greenback against a basket of six rival currencies, was down
0.31% to 96.265. The weaker dollar was partly attributable to a
move higher in the euro EUR= on hopes the European Union will
agree on a rescue financing package that will limit the economic
damage to the bloc from the coronavirus pandemic. The euro was
up 0.47% at $1.139.
The European Union's approval of its recovery fund may see
the euro test $1.150 with a break leading to a test of crucial
resistance levels around $1.180. "Market consensus has shifted towards the euro on the
assumption that euro area will suffer less economic damage and
that a large rescue package will be approved," said Karl
Schamotta, chief market strategist at Cambridge Global Payments.
"History would suggest that market participants shouldn't
get their hopes too high around a rescue package. Ultimately it
is likely to be smaller and more diluted than what is on the
table right now."
The S&P 500 index .SPX was higher on Tuesday morning,
despite having started off the day in the red. U.S. stock
indexes initially fell after three banks - JPMorgan JPM.N ,
Wells Fargo WFC.N and Citigroup C.N - reported mixed
earnings.
"The correlation between equities and foreign exchange have
strengthened substantially in the last month," said Schamotta.
"Market consensus is shifting against the dollar and it does
look as if traders are looking for any opportunity to sell
dollars and pick up currencies with greater appreciation
potential."
But although Refinitiv data suggests second-quarter results
will show the second-biggest quarterly drop in corporate
earnings since 1968, investors maintain some degree of
confidence in the U.S. consumer. U.S. consumer prices rebounded by the most in nearly eight
years in June, according to consumer price index data from the
Labor Department released Tuesday, but a resurgence in new
COVID-19 cases after the reopening of businesses suggests a
moderation in demand that could keep inflation muted and allow
the Federal Reserve to keep injecting money into the ailing
economy.