20:00 GMT- Apr 15 (global-view.com) There were key developments in the ongoing Greek tragedy. There were reports from credible sources (later denied) that Greece would be cancelling its upcoming U.S. road show and bond issuance. This presumably was behind the widening of CDS Wednesday and Thursday and resulted in the weaker EUR. It is rather naive of their U.S. investment banking advisors to think there would be much interest in North America for their debt. By the end of the day, the odds were increasing that Greece would have to use its EU and IMF lending facilities.
The slew of Chinese data awaited Thursday were strong, as expected. GDP was up 11.9% y/y, and the CPI increase of 2.4% was a bit less than expected. CPI did not look that bad in absolute terms, but a fast increase in its underlying rate was 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.
The EURUSD is down sharply on the day while the EURGBP has eased. The GBPUSD is steady. Greek Credit Default Swaps (CDS
) were moving back out yesterday and today as the status of the national finances are back in play. One worrisome issue that has surfaced is now the solidness of the EU accord to backstop the Greek finances. IMF issues are being raised as well. As always, the devil is in the details.
The U.K. general election will be held on 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. This weekend will see a three-way U.S. presidential-style debate.
We maintain a 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 sharply 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 was mostly OFF in North America today. The commodity currencies (CAD, AUD and NZD) are weaker. 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. The Bank of Canada meets next Tuesday. Oil and gold are mixed. Gold is up and oil is weaker. We continue to favor the AUD and CAD from a fundamental perspective.
Far East equities closed higher. European bourses ended up. U.S. equities are mixed. U.S. Treasuries are still watching the psychological 4.00% level in the 10-yr note. The U.S. 10-yr was last 3.84%, -2 bps. Bonds used as 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: Far East markets Friday will see no major data releases. In Europe, Eurozone CPI and trade data will be released. In North America, the U.S. will see the release of Housing Starts, Building Permits and the University of Michigan Survey. Canada will release manufacturing sales.
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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