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Tuesday May 18, 2010 - 20:26:32 GMT
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Daily GVI Forex Forex View- EUR Tumbles

 

The Daily Forex View

GVI Forex Analysis 


EUR Tumbles

20:00 GMT- May 18 (global-view.com) The EUR had stabilized vs. the USD at around the 1.2400 level late Monday, but over the day it has started to slide again. The slide gained momentum after the Merkel government in Germany announced a series of measures to restrain speculative activities in the financial markets. Sadly, what the politicians don't seem to understand is that such steps are likely to backfire on them. 

Earlier in the day, the German ZEW survey sent mixed signals with the Current Conditions Index much stronger than expected but the Expectations Index much weaker. E-Z inflation data were tame and in line with expectations, but U.K. prices gained more than expected and highlighted the risks of a falling currency.  There were reports that SNB intervention in the EURCHF cross amounted to $5.3bln Monday. We had suspected that the SNB had been in heavy recently and this report confirmed our suspicions. This was significant support for the common currency. The SNB had taken a stand in the EURCHF at the 1.4000 line. The U.S. Senate expressed its opposition to IMF loans to countries unlikely to pay them back. Presumably the IMF uses the same standard for loans it makes. Nevertheless this statement by the Senate has the markets worried. 

We have no doubt that the EU wants to see the common currency weaken vs. the USD. There is a lot of chatter about the 1.10 line. Keep in mind, what the economies on the periphery of the EU need most is weaker currencies and the markets are delivering that weakness. What is impossible to deliver for them under current circumstances is currency weakness against Germany.

CHARTS: Forex pairs vs 2-yr note spreads

  

Forex   EUR vs.     GBP vs. 20:14
EUR 1.2212 -179 JPY 112.77 -179 JPY 132.42 -151
GBP 1.4341 -146 GBP 85.15 -38 CHF 164.46 61
CHF 1.1468 158 CHF 1.4005 -9 CHF vs.    
JPY 92.34 -11       JPY 80.52 -122

The EURUSD is sharply lower and the GBPUSD is down. The EURGBP is better. Traders have been keeping an eye on the short squeeze in European sovereign debt and on the threat of forex intervention in the EUR.

In the GBP,  the U.K. new government is weak. Already news surfaced  that the outgoing Labour government left a much larger budget deficit than earlier estimated. A second election may not be far away. Our bias for the EURUSD and GBPUSD remains negative.

The EURCHF is steady. SNB intervention tactics have changed, but flows from the EUR into the CHF remain an issue for the SNB. The EURCHF cross is reportedly being held steady at 1.4000.

The USDJPY pair is stable and the EURJPY cross is up. Japanese public finances are a worry. however JGB bonds are mostly owned by Japanese. The government wants a lower exchange rate and has pressed the BOJ to promote growth. Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).

COMMODITIES and Commodity Currencies


Click on Chart to Enlarge

  

Commodity         20:14
CAD 1.0371 41 AUD 0.8645 -122 Gold 1220 -0.88
CNY 6.8283 -1 NZD 0.6937 -36 WTI 69.50 -0.79

The risk trade has been on and off in commodities and commodity currencies (CAD, AUD and NZD). The commodity currencies are down as the risk trade is off. After the RBA recently raised its cash rate target, it also signaled a policy pause. Bank of Canada interest rates are expected to be hiked June 1. Monetary officials are unconcerned about CAD strength. A strong currency eases the pressure on the central bank to tighten. Oil and gold are lower. Gold is still favored as as refuge from paper money. We favor AUD, CAD, gold and oil fundamentally.

Far East equities closed higher. European bourses were up. U.S. equities are down. The U.S. 10-yr was last 3.41%, -8 bps. Flight to safety demand is intact. Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls. 

EQUITIES & INTEREST RATES

  

Equities           20:14
NIK 10243 7 DAX 6156 89 DJIA 10517 -112
HSI 19945 230 FTSE 5307 45 S&P 1121 -15
SSEC 2595 35 SMI 6471 0 NAS 2318 -34
ASX 4471 4       TSE 11775 -240

CALENDAR

UPCOMING DATA HIGHLIGHTS: Wednesday will see revised Industrial Output data from Japan . In Europe , the latest Bank of England policy minutes will be released. In North America, the U.S. weekly mortgage statistics, CPI, weekly energy data and the latest Fed Minutes will be released.

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. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.


 

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Amazing Trader EVENT RISK Calendar:

Mon 18 Dec
10:00 EZ- final HICP
Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account
Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude
Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP
Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes
Mon 25 Dec
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John M. Bland, MBA
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