Forex Market Commentary and Analysis (5 April 2010)
The euro depreciated vis-Ă -vis the U.S. dollar today as the single currency tested bids around the US$ 1.3485
level and was capped around the $1.3590 level.The common currency came off despite light liquidity on account of the
Easter Monday holiday and Bank holiday in some trading jurisdictions.Traders will pay close attention to a few key
events this week.First, former Federal
Reserve Chairman and former U.S. Treasury Secretary Rubin will testify in
Congress this week about the economic crisis.Greenspan was on the tape yesterday saying the U.S. economic recovery
has a â€śway to goâ€ť and said the build-up in inventories will expand.Second, traders will pay close attention to
the Fedâ€™s meeting today in which policymakers will be discussing requests from
Fed district banks to increase the discount rate.The Fed has raised the discount rate a couple
of times over the past months and while another increase would not likely have
a significant impact on liquidity, it would again signal the Fed is determined
to normalize monetary policy without having to raise the headline federal funds
target rate.Third, Fed officials
including Chairman Bernanke, Kocherlakota, Dudley, and Hoenig will speak this
week and will offer some of their latest views concerning policy.Fourth, major central banks will be releasing
their interest rate decisions this week including Bank of Japan, the European
Central Bank, Bank of England, and the Reserve Bank of Australia.The central banksâ€™ decisions are an
interesting study of the varied points the central banks are at in their
interest rate cycles with RBA clearly the most hawkish and BoJ the most
dovish.Fifth, traders will closely
monitor economic data to see if the decent gains reported on Friday regarding
U.S. March non-farm payrolls are sustainable and evidence traction in the
beleaguered labour market.Data released
in the U.S. today saw the March ISM non-manufacturing index print at 55.4, up
from the prior reading of 53.0, while February pending home sales were up 8.2%
m/m and 17.3% y/y.Minutes from the
Federal Open Market Committee will be released tomorrow.In
eurozone news, the European Central Bank is expected to keep monetary
policy largely unchanged on Thursday.ECB
officials may note the recent increase in inflationary pressures in the
eurozone but will be unable to tighten policy at this time on account Greeceâ€™s
ongoing fiscal problems and similar issues in Portgual, Spain, Italy, and
elsewhere.Euro bids are cited
around the US$ 1.3335 level.
The yen depreciated vis-Ă -vis the U.S. dollar today as the
greenback tested offers around the ÂĄ94.70 level and was supported around the ÂĄ93.65
level. The yen traded at its highest
level since 24 August 2009 before coming off today and the pair has gained more
than ÂĄ6 in about a month.Bank of Japanâ€™s
Policy Board convenes this week and it is expected to release its policy
decision early Wednesday.The central
bank may elect to expand its expansionary policies to further combat deflationary
pressures that remain severe.Alternatively,
BoJâ€™s 30 April Policy Board meeting will include its semi-annual economic
projections and could be the meeting when Policy Board members adjust policy
further following last monthâ€™s additional easing steps.Data to be released in Japan overnight
include the February leading and coincident indices followed by March official
reserve assets on Wednesday.As
expected, last weekâ€™s Bank of Japanâ€™s Q1 Tankan survey of corporate sentiment
improved q/q with the large manufacturersâ€™ index up to -14 from -24 in Q4 and
the non-manufacturerâ€™s index higher at -14 from -22. Also, the large manufacturersâ€™ outlook improved
to -8 from -21 in Q4 and Q1 all-industry capital expenditures improved to -0.4%
from -10.8%.The Nikkei 225 stock index climbed 0.47% to
close at ÂĄ11,339.30.U.S. dollar offers
are cited around the ÂĄ96.85 level.The euro moved lower vis-Ă -vis the yen
as the single currency tested bids around the ÂĄ127.10 level and was capped around
the ÂĄ127.90 level.The British pound moved higher vis-Ă -vis the yen as sterling tested
offers around the ÂĄ144.85 level while the
Swiss franc moved lower vis-Ă -vis the yen and tested bids around the ÂĄ88.70
level. In Chinese news, the U.S.
dollar was unchanged vis-Ă -vis the Chinese yuan as the greenback closed at CNY
6.8257 in the over-the-counter market. The big news involving China is that the
Obama administration is delaying the release of a report due 15 April that
could have potentially labeled China a currency manipulator.The move to delay the release of the report
could signal negotiations are ongoing between the two countries or could signal
China may let the yuan appreciate further in the coming days.Chinese leadership will visit Washington,
D.C. on 12-13 April.Data to be released
in China this week include the Q1 Entrepreneur Climate Index on Wednesday.
British pound appreciated vis-Ă -vis the U.S. dollar today as cable tested offers
around the US$ 1.3535 level and was supported around the $1.3460 level. Liquidity was light on account of the Bank
holiday in the U.K. and will return to normal overnight and tomorrow.Traders do not expect any major announcements
out of Bank of England when its Monetary Policy Committeeâ€™s interest rate
decision is announced on Thursday.The
central bank is unlikely to modify policy significantly before the U.K. General
Election in keeping with tradition.Many
political pundits continue to speculate an election may be held on 6 May. The
ongoing consensus is that the David Cameron and his Tory party will likely
unseat Prime Minister Brown and his Labour party but Parliament may be hung if
the Tories cannot form a majority government.Many data will be released tomorrow including Q4 BoE housing equity
withdrawal, March PMI construction, and March Nationwide consumer confidence.March Halifax house prices will also be
released early this week.Cable bids are
cited around the US$ 1.4455 level.The euro moved lower vis-Ă -vis the
British pound as the single currency tested bids around the ÂŁ0.8820 level and
was capped around the ÂŁ0.8860 level.
franc depreciated vis-Ă -vis the U.S. dollar today as the greenback tested offers
around the CHF 1.0645 level and was supported around the CHF 1.0585 level. Swiss National Bank is said to have intervened
in the market last week by selling Swiss francs in what is estimated to have
been a massive operation.Swiss
monetary, financial, and government officials have been warning that they will
not tolerate a further increase in the franc in recent weeks but many traders
speculated the central bank would not intervene to weaken the franc on account
of growth in the Swiss economy.While
forecasts for economic growth and inflation have both been upwardly revised in
recent weeks, SNBâ€™s latest probable intervention underscores their commitment
to preserving an export-driven recovery.March CPI data will be released tomorrow followed by February retail
sales on Wednesday and the March unemployment rate on Thursday. The euro moved lower vis-Ă -vis the
Swiss franc as the single currency tested bids around the CHF 1.4315 level
while the British pound moved higher
vis-Ă -vis the Swiss franc and tested offers around the CHF 1.6240 level.
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