Forex Market Commentary and Analysis (7 April 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3325
level and was capped around the $1.3410 level. There is growing talk that Greece will default
on its debt and this was exacerbated by a market rumour today that Germany is
withdrawing its support for financial assistance to Greece.The yield on 10-year Greek bonds reached
407bps over benchmark German bunds today, the highest level since the euro‚Äôs
introduction in 1999.Continued pressure
on Greek assets is also rendering it more difficult for other highly-indebted
eurozone countries including Portugal and Spain to address their fiscal
imbalances.The common currency also
came off on a report that the eurozone registered zero growth in the fourth
quarter, a downgrade from the earlier report of 0.1% growth and down from the
third quarter‚Äôs 0.3% growth rate.On an
annualized basis, Q4 growth was off 2.2% y/y from the previous reading of -2.1%
y/y.Other EMU-16 data released today
saw March PMI services improve to 54.1 from the prior reading of 53.7 while the
EMU-16 March PMI composite improved to 55.9 from the prior reading of
55.5.Also, EMU-16 February producer
price inflation printed at 0.1% m/m and -0.5% y/y.February retail sales data will be released
tomorrow.The European Central Bank is
expected to keep monetary policy unchanged tomorrow and for the foreseeable
future given the sluggish economic recovery and ongoing problems with eurozone
sovereign debt.In U.S. news, data released today saw MBA mortgage applications
decline 11.0% in the latest week while February consumer credit fell to ‚ÄďUS$
11.5 billion from the prior reading of +US$ 10.6 billion.Data to be released tomorrow include weekly
initial jobless claims, continuing jobless claims, and March ICSC chain store
sales.Former Federal Reserve Chairman
Greenspan defended his tenure at the Fed in Congressional testimony today,
adding enhanced regulation of financial institutions may have averted some of
the credit crises over the past couple of years.Additionally, Greenspan reported the
securitization of sub-prime mortgages also contributed to the crises as global
investors scrambed for yield.Fed
Chairman Bernanke today reported the U.S. is ‚Äúfar from out of the woods,‚ÄĚ
citing a ‚Äútroubled‚ÄĚ commercal real estate sector and ‚Äúvery weak‚ÄĚ hiring.Bernanke did not today reiterate that rates
will remain low for an ‚Äúextended period‚ÄĚ but noted ‚Äústimulative‚ÄĚ rates will aid
growth.Euro bids are cited
around the US$ 1.3175 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•93.40 level and was capped around
the ¬•94.25 level.As expected, Bank of
Japan voted to keep interest rates unchanged overnight with its main unsecured
overnight call rate unchanged at 0.1%.BoJ
Governor Shirakawa reported ‚ÄúWe have confirmed that the economy is currently
picking up steadily and on top of that, we are seeing some signs of future
progress.‚ÄĚGovernment pressure on the
central bank to ease policy further will likely continue and some BoJ-watchers
expect the central bank will loosen policy further again before the end of the
quarter.The central bank last month
doubled a lending program to ¬•20 trillion.Some dealers believe the BoJ will increase its growth forecasts later
this month on account of the recent improvement in the export sector.Data to be released in Japan tonight include
the February current account total, February trade balance, and February
machine orders.The Nikkei 225 stock
index climbed 0.09% to close at ¬•11,292.83.U.S. dollar offers are cited around the ¬•96.85 level.The
euro moved lower vis-√†-vis the yen as the single currency tested bids around
the ¬•124.60 level and was capped around the ¬•126.15 level.The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•141.75 level while the Swiss franc moved
lower vis-√†-vis the yen and tested bids around the ¬•87.00 figure. In Chinese news, the U.S. dollar depreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8255 in the
over-the-counter market, down from CNY 6.8257. People‚Äôs Bank of China announced it will sell
three-year bills tomorrow for the first time since June 2008 to drain cash from
the economy.PBoC-watchers believe this
tightening step will precede eventual increases in benchmark rates and will
probably coincide with increases in the yuan‚Äôs value.China overnight reported the U.S. and China
agree to ‚Äúrespect each other‚Äôs core concerns and major values‚ÄĚ and added China
wants positive ties with the U.S.The
big news involving China continues to be 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.It was reported today that China‚Äôs net
foreign debt totaled US$ 428.6 billion at the end of 2009, up 14% y/y.Chinese and U.S. officials will convene in
Washington, D.C. next week and will discuss China‚Äôs exchange rate policy and
other key issues.People‚Äôs Bank of China
adviser Li Daokui was on the tape overnight noting China may raise interest
rates if the increase in inflation continues and pushes inflation above
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.5285 level and was supported around the $1.5135 level. Data released in the U.K. today saw the March
BRC shop price index decline to 1.2% m/m while the March PMI services index
fell to 56.5 in March from 58.4 in February.Bank of England is expected to keep interest rates unchanged tomorrow
and to maintain its asset purchase program at ¬£200 billion.Cable continues to move lower as Prime
Minister Brown called for a general election on 6 May and Parliament was
dissolved.The consensus is that the
election could end in a hung Parliament even if challenger Cameron of the Tory
party unseats the unpopular Brown.Cable
bids are cited around the US$ 1.4455 level.The euro moved lower
vis-√†-vis the British pound as the single currency tested bids around the ¬£0.8750
level and was capped around the ¬£0.8820 level.
franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers
around the CHF 1.0745 level and was supported around the CHF 1.0680 level. Swiss
National Bank is thought to have intervened again today by selling the franc
but this will remain unconfirmed and is far from certain because while the pair
appreciated quickly, it did not appreciate by more than 35 pips.Still, the SNB may have sold francs for euro
in smaller size today to remind the market that it will not tolerate a stronger
franc.Data released in Switzerland
today saw February retail sales print weaker-than-expected at +3.1% y/y.U.S. dollar offers are cited around the CHF
1.0920 level.The euro moved higher vis-√†-vis the Swiss franc as the single
currency tested offers around the CHF 1.4355 level while the British pound moved higher vis-√†-vis the Swiss franc and tested
offers around the CHF 1.6380 level.
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