Forex Market Commentary and Analysis (10 May 2010)
The euro appreciated sharply vis-√†-vis the U.S. dollar
today as the single currency tested offers
around the US$ 1.3095 level and was supported around the $1.2805 level. European policymakers convened emergency
meetings over the weekend and agreed on a ‚ā¨500 billion ‚ÄúEuropean Financial
Stabilisation Mechanism.‚ÄĚ This policy announcement was coupled by a statement
from the ECB that it will begin quantitative easing policies that will include
the purchase of government debt in the secondary markets.ECB officials reported they would ‚Äútake all
measures needed to meet (countries‚Äô) fiscal targets this year and the years ahead
in line with excessive deficit procedures.‚ÄĚECB also reported it will sterilize its asset purchases by withdrawing
liquidity elsewhere.Even though the
markets have responded positively to today‚Äôs news, questions will emerge
regarding the independence of the ECB.ECB President Trichet reported the central bank will remain ‚Äúfiercely and
totally independent.‚ÄĚGreece has
approximately ‚ā¨8.5 billion in bonds maturing on 19 May and Spain and Portugal
need to refinance an aggregate ‚ā¨100 billion by the end of the year.The ECB also announced it will restart some
U.S. dollar lending operations to prevent shortages in local markets.Germany is said to have pushed for a loan
limit of ‚ā¨500 billion for the new Stabilisation Mechanism.Data released in the eurozone todays saw May
Sentix investor confidence decline to -6.4 from the prior reading of +2.5.The German March trade balance increased to ‚ā¨17.2
billion and the March current account increased to ‚ā¨18.0 billion.Also, Bank of France April business sentiment
fell back to +102 while March manufacturing production expanded 0.8% m/m and
6.7% y/y.Moreover, March industrial
production grew 1.0% m/m and 6.2% y/y.In U.S. news, the Fed restarted some
emergency currency-swap programs to provide a ‚Äúfull alottment‚ÄĚ of U.S. dollars to
European central banks.The Fed‚Äôs move
reversed a recent decision to withdraw some of its emergency liquidity provision
policies and the Fed is clearly concerned with managing systemic risk.Euro bids are cited around the US$ 1.2585
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•93.55 level and was supported around
the ¬•91.65 level. Bank of Japan Deputy
Governor Yamaguchi said the central bank has ‚Äúno need to alter the outlook in our
semi-annual economic report‚ÄĚ following recent market volatility.Finance minister Kan reported equity and
currency markets will ‚Äústart to stabilize.‚ÄĚMinutes from last month‚Äôs BoJ Policy Board meeting were released and
policymakers observed ‚Äúbalance sheet adjustments in the banking sector and the
fiscal deficit problem in some European countries might further slow the pace
of economic recovery‚ÄĚ in the region.BoJ
injected ¬•2 trillion into the financial system for a second day, the first
back-to-back same-day operations since October 2008.Also, BoJ reestablished a U.S. dollar
currency swap agreement with the Fed and other central banks to help stabilize
global financial markets. The Nikkei 225 stock index climbed 1.60% to close at ¬•10,530.70.U.S. dollar offers are cited around the ¬•96.85
level.The euro moved higher vis-√†-vis the yen as the single currency
tested offers around the ¬•122.30 level and was supported around the ¬•118.05
level.The British pound moved higher vis-√†-vis the yen as sterling tested
offers around the ¬•140.55 level while the
Swiss franc moved higher vis-√†-vis the yen and tested offers around the ¬•85.40
level. In Chinese news, the U.S.
dollar depreciated vis-√†-vis the Chinese yuan as the greenback closed at CNY
6.8266 in the over-the-counter market, up from CNY 6.8258. People‚Äôs Bank of China warned ‚ÄúThe European
sovereign debt crisis directly affects economic growth in the eurozone and adds
a lot of uncertainty to the global economic recovery.‚ÄĚPBoC added the ‚Äúpotential threat to price
stability is increasing.‚ÄĚThe central
bank also yielded some clues regarding the possibility of ending its U.S.
dollar peg, reporting it will manage the yuan ‚Äúwith reference to a basket of
currencies‚ÄĚ ‚Äď language that was absent from the central bank‚Äôs previous
quarterly summary. Market chatter continues and indicates that People‚Äôs Bank of
China may lifts its interest rate by 27bps no later than June following its
announcement recently that it is raising its reserve requirement ratio for the
third time this year.Many dealers
believe China will revalue the yuan before the end of the second quarter.
British pound appreciated sharply vis-√†-vis the U.S. dollar today as cable
tested offers around the US$ 1.5055 level and was supported around the $1.4760
level.As expected, Bank of England kept
its main Bank Rate unchanged at 0.50% today and kept its asset purchase program
unchanged at ¬£200 billion.The rare
Monday MPC meeting was on account of the General Election on Thursday in the U.K.While the Tories won the General Election,
neither the Tories nor Labour has been able to agree a deal with the Liberal
Democratic Party or smaller parties to form a majority coalition
government.Data to be released in the
U.K. tonight include the BRC April retail sales monitor and RICS house price
balance.Cable bids are cited around the
US$ 1.4335 level.The euro depreciated vis-√†-vis the British pound as the single
currency tested bids around the ¬£0.8545 level and was capped around the ¬£0.8750
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.0925 level and was capped around the CHF 1.1085 level. Swiss National Bank President Hildebrand said
eurozone stability programs are a ‚Äúconcern for all‚ÄĚ and added it will not allow
franc gains to trigger deflation.U.S.
dollar offers are cited around the CHF 1.1270 level.The
euro moved higher vis-√†-vis the Swiss franc as the single currency tested offers
around the CHF 1.4330 level while the
British pound appreciated vis-√†-vis the Swiss franc and tested offers
around the CHF 1.6595 level.
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