10:00 GMT- Apr 15 (global-view.com) Today has seen a USD Tax Day rebound. The slew of Chinese data awaited today were strong as expected with GDP up 11.9% y/y. The CPI increase of 2.4% was a bit less than expected and did not look that bad in absolute terms, but a fast increase in its underlying rate is masked by base effects from a year ago. A monetary tightening and some sort of an exchange rate adjustment in the near future would not be surprising. Its hard to see how a modest change in the CNY exchange rate could impact trade in any meaningful way, but it has been a headline item today.
Greece reportedly cancelling its U.S. bond issuance, not just its "road show". Presumably behind the widening of CDS today and the weaker EUR. It is rather naive of their advisors to think there would be a lot of interest in the U.S. for their debt. The news Increases the possibility that Greece will have to use its EU and IMF facilities.
A more lasting event yesterday was testimony by Fed Chairman Bernanke before the House Joint Economic Committee where he gave no signals of a future change in Fed policy. Many had been hoping for the central bank to back away from its extended ease terminology, but it did not. Markets often work on a much faster timetable than the economy. The Fed Beige Book was mildly constructive. The U.S. sees an active data calendar today.
The EURUSD is down sharply on the day while the EURGBP has eased. The GBPUSD is lower. The focus of trade this week has mainly has been on position adjustments and perhaps some reserve adjustments. Greek Credit Default Swaps (CDS
) have been moving back out today (pre-weekend?).
In the U.K., the general election is May 6. The vote has markets waiting each day for new headlines. New polls show the lead of the Conservatives over Labour growing. This goes on for another weeks.
We maintain our cautiously bearish bias for the EURUSD and GBPUSD. The EURGBP is a toss-up.
The EURCHF is steady. Some have been noting that the SNB has changed tactics and it has has been in the markets supporting the EUR vs. CHF much of the time. Weakness of the EUR vs. the CHF is a bad omen for the EUR.
The USDJPY pair is steady, and the EURJPY cross is weaker. More Toushin bonds are due to be issued tomorrow. The Hatoyama government continues to pressure the Bank of Japan to stimulate growth and favors an easier exchange rate. A group of junior Japanese ruling party lawmakers (DPJ) called on the government Tuesday to push USDJPY to 120 to combat deflation. Some traders focus intently on the Japanese vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
Chatter that there is a lot of yen waiting in the wings ready to be sold persists. We remain bullish USDJPY, but EURJPY is a tough call. Some say that an expected CNY revaluation would give the JPY a lift, but we would be surprised if the exchange rate is raised by more than a token amount.
The risk trade is off. The commodity currencies (CAD, AUD and NZD) are mixed. Recent comments by Canadian FinMin Flaherty suggest little concern about the strength of the currency. A strong currency eases the pressure from the central bank to tighten policy too early. Oil and gold are down. We continue to favor the AUD and CAD from a fundamental perspective.
Far East equities closed higher. European bourses are mixed. U.S. equities are lower. U.S. Treasury markets are still watching the psychological 4.00% level in the 10-yr note. The U.S. 10-yr was last 3.83%, -2 bps. Bonds are a counter to risk trades because risk investments must somehow be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades falls.
UPCOMING DATA HIGHLIGHTS:In North America, the U.S. will release the closely followed weekly jobless claims data and the Empire PMI on the open, Later the monthly TIC data are due, followed by industrial Production and capacity utilization. Subsequently the Philly Fed index weekly natural gas inventories and the NAHB index are slated.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author, and co-founder and partner of Global-View.com in 1996. Before that, he was a Vice-President and senior dealer in the fx inter-bank and futures trading arm of the Continental Grain Company in NYC. Previous to that, he was an early member of the Chemical Bank (NYC) corporate advisory service. He also worked in international liability management. John has an MBA from the Hass School at the University of California at Berkeley and a bachelors degree in International Economics from Berkeley.
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