Forex Market Commentary and Analysis (19 May 2010)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2365
level and was supported around the $1.2140 level. One catalyst for the move higher was a rumour ‚Äď
later denied by the Greek government ‚Äď that Greece was considering leaving the
European Union and the eurozone.Even
though Greece only accounts for 2% to 3% of economic output in the European
Union, its bailout package represents a considerably higher and disproportionate
share of the total financial assistance package that has been announced by the
European Union and the International Monetary Fund.Most traders believe the expulsion or removal
of a eurozone country would precipitate a run on the euro as confidence and
sentiment would be badly damaged.Many
dealers are struggling to reconcile why the euro moved higher in the face of
the Greek rumour but technicians note that the common currency is significantly
oversold and with sentiment so poor, the slightest positive news or data can
engender a move higher by the common currency.Another reason being cited for the euro‚Äôs rise is a market rumour that
the European Central Bank may intervene and purchase euro whereas some traders
are indicating Swiss National Bank sold francs for euro today.Also,
the common currency gained ground on a plea from ECB member and Bundesbank
President Weber that Germany‚Äôs parliament approve Germany‚Äôs contribution to the
European Union rescue fund.ECB member
Bini-Smaghi said EMU-16 inflation expectations remain well-anchored and added
the ECB will ‚Äúnot bail out states.‚ÄĚ IMF official Lipsky reported the euro is ‚Äúnear
equilibrium‚ÄĚ and its level is not a problem.Data released in the eurozone today saw EMU-16 March construction output
up 7.6% m/m and off 5.2% y/y.In U.S. news, U.S. Treasury Secretary
Geithner was on the tape yesterday and reported the U.S.‚Äôs economic recovery is
‚Äúmuch stronger than expected‚ÄĚ and said the European Union has the capacity to
manage its challenges.Data released in
the U.S. today saw MBA mortgage applications off 1.5% with the April headline
consumer price index off 0.1% m/m and up 2.2% y/y. The ex-food and energy core
CPI rate was up 0.0% m/m and 0.9% y/y.U.S. equities reacted negatively to news that MBA mortgage foreclosures
reached their highest level in years at +10.06% in Q1.Dealers await the release of Federal Open
Market Committee meeting minutes later in the North American session.Former Fed Governor Mishkin called Europe‚Äôs
fiscal situation ‚Äúvery dangerous‚ÄĚ and said the European Union should have ‚Äúlet
Greece go and say we are going to ringfence the rest of the system. Ringfence
the banks, protect the other countries that have problems such as Portugal,
Italy, and Spain, which have not been fiscally irresponsible the way the Greeks
have been.‚ÄĚ Euro bids are cited around the US$ 1.2140 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•91.05 level and was capped around
the ¬•92.20 level. Former Bank of Japan
Policy Board member Mizuno was critical of the central bank‚Äôs plans to
stimulate lending in certain economic areas saying ‚ÄúThe bank is treading a
delicate line. The division between fiscal policy and monetary policy, as well
as industry-financing policy and monetary policy, should be maintained, even if
it‚Äôs a small one.‚ÄĚThe International
Monetary Fund reported it is ‚Äúcritical‚ÄĚ for Japan to adopt a credible debt
plan.First quarter gross domestic
product data will be released in Japan tomorrow and most estimates suggest the
economy expanded during that time.Japan
has approximately ¬•882.9 trillion in debt and a strong print would allow the
government some breadth to address this large fiscal imbalance.Prime Minister Hatoyama is likely to unveil a
strategy in June that addresses Japan‚Äôs mammoth debt position.Mizuno also warned that the yen could
appreciate further.Data released in
Japan overnight saw March industrial production up 1.2% m/m and 31.8% y/y while
March capacity utilization was up 0.6% m/m.The Nikkei 225 stock index lost 0.54% to close at ¬•10,186.84.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 ¬•110.85 level and was capped around the ¬•112.90 level.The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•129.70 level while the Swiss franc moved
lower vis-√†-vis the yen and tested bids around the ¬•79.15 level. In Chinese news, the U.S. dollar appreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8275 in the
over-the-counter market, up from CNY 6.8274. People‚Äôs Bank of China is said to be limiting
orders for tomorrow‚Äôs three-year bill sale to prevent money-market rates from
moving too high.PBoC also issued a
report that indicates they plan to tighten credit.The report dropped the indication that China
will ‚Äúguide money and credit supply to grow rationally‚ÄĚ and changed it to ‚Äúmaintain
moderate growth of money and credit supply.‚ÄĚPBoC adviser Li Daokui reported now is the optimal time to adjust the
value of the yuan.Some traders,
however, now believe China will delay its revaluation of the yuan on account of
growth concerns in Europe.
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.4235 level and was capped around the $1.4400 figure. Bank of England released the minutes from its
Monetary Policy Committee meeting in May in which policymakers unanimously
agreed to keep its main Bank Rate unchanged at 0.5% and kept its asset purchase
facility unchanged at ¬£200 billion.Data
released this week indicated that consumer price inflation has rocketed higher to
3.7% but the central bank sees this spike as temporary.The minutes, however, revealed a division
between some members who are concerned with higher inflation and some members
who are more concerned with European credit constraints.Data to be released in the U.K. tomorrow
include April retail sales.Cable bids
are cited around the US$ 1.4110 level.The euro appreciated vis-√†-vis the
British pound as the single currency tested offers around the ¬£0.8585 level and
was supported around the ¬£0.8495 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1415 level and was capped around the CHF 1.1530 level.Swiss
National Bank is said to have sold francs for euro today according to some
European banks.Swiss National Bank
President Hildebrand this week reported the central bank is ‚Äúready to act‚ÄĚ
against the current strengthening of the franc, noting it is jeopardizing the
economic recovery and Swiss price stability.Hildebrand warned that Europe‚Äôs ‚Äúdramatic‚ÄĚ situation is ‚Äúvery difficult‚ÄĚ
and might worsen, pledging action in a ‚Äúdecisive manner.‚ÄĚU.S. dollar bids are cited around the US$
1.1110 level.The euro gained ground vis-√†-vis the Swiss franc as the single
currency tested offers around the CHF 1.4050 level while the British pound lost ground vis-√†-vis the Swiss franc and tested
bids around the CHF 1.6340 level.
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