Forex Market Commentary and Analysis (21 May 2010)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2670
level and was supported around the $1.2455 level. Dealers continued to cover shorts ahead of the
weekend, fearful that the European Central Bank could intervene by buying euro
for dollars.Market rumours circulated
yesterday that the ECB was on the bid for euro to prevent further
depreciation.The common currency has
appreciated more than 330 pips over the past three trading days, underscoring
how technically oversold the pair has been for weeks.The common currency‚Äôs recent sell-off may
moderate until there is a market perception that the eurozone credit crisis has
intensified.A stabilization in global
financial markets may unwind elevated volatilities in the market but a
stabilization would not necessarily improve the crisis of confidence in the
eurozone or remedy its massive fiscal imbalances.ECB President Trichet reported ‚ÄúLet us be
clear: it is not the euro that is in danger, but the fiscal policy of some
countries that has to be, and is being, addressed.‚ÄĚ ECB member Nowotny said the
euro‚Äôs exchange rate ‚Äúis clearly within the historical range and gives no
reason for special concern.‚ÄĚ ECB member Stark said the ‚Äúeuro is secure and will
remain so.‚ÄĚData released in the
eurozone today saw the March current account improve to ‚ā¨1.7 billion while May EMU-16
PMI services improved to 56.0, EMU-16 PMI manufacturing fell to 55.9, and May
composite PMI moved lower to 56.2.German Q1 GDP was up 0.2% q/q and 1.7% y/y and the May Ifo business
climate index ticked lower to 101.5.Also, the Ifo current assessment fell to 99.4 and the May Ifo
expectations index fell to 103.7.Finally, French May PMI services improved to 61.9 and PMI manufacturing
fell to 56.2.In U.S. news, the U.S. Senate passed a financial services overhaul
bill overnight that maintains the Fed‚Äôs oversight over 5,000 banks but reduces
the influence of regional Federal Reserve directors.The bill also creates a new customer
protection agency, imposes restrictions on banks‚Äô proprietary trading, and
creates a new group of regulators to monitor economic threats.Outgoing Fed Vice Chairman Kohn today
reported the Fed ‚Äúwill be able to raise interest rates when it is appropriate
for macroeconomic stability.Exit tools
are very important.‚ÄĚEuro bids
are cited around the US$ 1.2140 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•90.45 level and was supported around
the ¬•89.00 figure. As expected, Bank of
Japan‚Äôs Policy Board kept its main overnight unsecured call rate target unchanged
at 0.10%.The central bank also outlined
plans to stimulate corporate loans and increase growth.BoJ Governor Shirakawa reported it will ‚Äútake
time‚ÄĚ for the European Central Bank‚Äôs efforts to improve the markets, and noted
the European crisis has had a ‚Äúlimited‚ÄĚ impact on Japan so far. Finance minister
Kan verbally intervened against the yen, saying he wants to prevent the yen‚Äôs
gains from becoming ‚Äúexcessive.‚ÄĚ BoJ injected ¬•1 trillion on same-day funds
into the banking system today to expand liquidity, the third such operation
since 7 May. Notably, the central bank upgraded its assessment of the economy,
noting it is ‚Äústarting to recover moderately.‚ÄĚ The Hatoyama government is likely to continue
pressuring the central bank to ease policy further. Data released in Japan overnight saw the March
leading index tick lower to 102.7 and the March coincident index improved to
101.5.The Nikkei 225 stock index lost
2.45% to close at ¬•9,784.54.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 ¬•114.40 level and was supported
around the ¬•111.00 figure.The British pound moved higher vis-√†-vis
the yen as sterling tested offers around the ¬•130.80 level while the Swiss franc moved higher vis-√†-vis
the yen and tested offers around the ¬•78.80 level. In Chinese news, the U.S. dollar appreciated vis-√†-vis the Chinese
yuan as the greenback closed at CNY 6.8278 in the over-the-counter market, up
from CNY 6.8277. Market talk suggests
the U.S. and China will deemphasize a revaluation of the yuan when officials
meet soon. Many dealers believe PBoC may
delay its yuan revaluation and further interest rate increases on account of
the global market turmoil.Former PBoC
adviser said the yuan‚Äôs revaluation should be ‚Äúgradual.‚ÄĚ
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.4495 level and was supported around the $1.4315 level. Yesterday, Bank of England Monetary Policy
Committee member Posen reported eurozone problems will reduce the U.K.‚Äôs
consumer price inflation despite ‚Äúupside risks to inflation.‚ÄĚMPC member Tucker warned the sharp monetary
easing may lead to exuberance.Data
released in the U.K. today saw Q1 total business investment grow 0.6% q/q and
decline 11.0% y/y. Also, the April public sector net cash requirement came in
at ¬£8.8 billion and April public sector net borrowing came in at ¬£10.0
billion.Also, April mortgage approvals
growth decelerated to 47,000 from the revised prior reading of 51,000.Cable bids are cited around the US$ 1.4110
level.The euro appreciated vis-√†-vis the British pound as the single
currency tested offers around the ¬£0.8770 level and was supported around the ¬£0.8650
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1450 level and was capped around the CHF 1.1580 level.Data released in Switzerland today saw the
April M3 money supply expand 5.4% y/y.Swiss
National Bank Vice Chairman Jordan this week reported the central bank is
‚Äúdecisively‚ÄĚ averting an appreciation of the franc, leading to speculation the
SNB‚Äôs actions prompted today‚Äôs massive short covering in the euro.It was reported today that the Swiss National
Bank‚Äôs foreign currency holdings rose to CHF 153.6 billion in April from CHF
125.1 billion in March, the latest evidence of SNB intervention.U.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 1.4585 level while the British pound gained ground vis-√†-vis the Swiss franc and
tested offers around the CHF 1.6660 level.
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