Forex Market Commentary and Analysis (24 May 2010)
The euro depreciated sharply vis-√†-vis the U.S. dollar
today as the single currency tested bids
around the US$ 1.2360 level and was capped around the $1.2560 level. Sentiment crumbled further in the eurozone this
weekend as Bank of Spain seized Spanish savings bank CajasSur.Finance minister Salgado today reported Spain
will auction the bank off ‚Äúin a relatively short period‚ÄĚ and she added other
savings bank are likely to complete mergers in the coming weeks.Salgado also noted Spain‚Äôs financial system
is ‚Äúabsolutely solvent.‚ÄĚThere will
likely be many more bank failures across the eurozone in the coming weeks and
months and these will also contribute to negative sentiment for the common
currency.Eurosystem banks deposited ‚ā¨253.5
billion with the central bank overnight.The three-month U.S. Dollar Libor rate climbed to 0.51% today, the
highest level since 16 July 2009.The
eurozone debt crisis has raised concerns that many banks‚Äô assets may be
weaker-than-expected and led to higher borrowing costs in the market.Notably, three-month U.S. Libor is a
benchmark for approximately US$ 360 trillion in financial instruments
worldwide.Data to be released in the
eurozone tomorrow include March industrial new orders.In
U.S. news, Treasury Secretary Geithner met with European counterparts late
last week before meeting with counterparts in Beijing.Data released in the U.S. today saw the April
Chicago Fed national activity index print at +0.29, up from the revised print
of +0.13.April existing home sales data
will be released later in the North American session and are expected to expand
about 5.6% to an annualized rate of 5.65 million units. Federal Reserve
Chairman Bernanke also continues his meeting in Beijing with Chinese officials.
Euro offers are cited around the
US$ 1.2620 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 ¬•89.75 level. The yen pared early
gains at the dollar‚Äôs expense but remained bid on the crosses, reflecting the perceived
safe haven trade that continues to rule the market.Bank of Japan released its monthly economic
report today, noting ‚Äúthe economy is starting to recover moderately, induced by
improvement in overseas economic conditions.This is at least marginally more optimistic than its April report in
which it noted ‚ÄúJapan‚Äôs economy has been picking up mainly due to improvement
in overseas economic conditions and to various policy measures, although there
is not yet sufficient momentum to support a self-sustaining recovery in
domestic private demand.‚ÄĚThe May report
also noted ‚ÄúAttention should be paid to potential risks to Japan‚Äôs economy,
such as a possible slowdown in overseas economies, particularly in Europe,
fluctuations in financial markets and the influence of deflation.‚ÄĚ Vice finance
minister Minezaki said it is ‚Äúquestionable‚ÄĚ that Bank of Japan‚Äôs new lending
programs announced last week will be sufficient to stimulate growth, adding ‚Äúchances
are low for banks to aggressively lend.‚ÄĚData released in Japan today saw April supermarket sales improve to
-4.9% y/y while the March all-industry activity index was off 0.8% m/m, up from
the prior reading of -2.3% m/m. The Nikkei 225 stock index lost 0.27% to close
at ¬•9,758.40. 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
¬•111.20 level and was capped around the ¬•113.35 level.The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•129.80 level while the Swiss franc moved
lower vis-√†-vis the yen and tested bids around the ¬•77.55 level. In Chinese news, the U.S. dollar appreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8287 in the
over-the-counter market, up from CNY 6.8278. There is speculation that People‚Äôs Bank of
China may offer higher yields on one-year bills later this week to absorb more
cash from the money market.People‚Äôs
Bank of China adviser Li Daokui today said ‚ÄúPolitically it is worthwhile, it
makes sense, for the two sides ‚Äď China and the U.S. ‚Äď to see some progress in
renminbi reform in the near future.‚ÄĚ PBoC Governor Zhou spoke about
policymaking today, reporting ‚ÄúChina is a large country with a large population
so most of the important factors that need to be considered are domestic
ones.International factors will
influence monetary policy decisions such as exchange-rate policies, but such
influence is usually smaller than that from domestic factors.‚ÄĚPrime Minister Hu said China will continue
talks on reform of the yuan and liberalize its economy with yuan reforms.At U.S.-Chinese discussions that started this
weekend, U.S. Treasury Secretary Geithner is said to have adopted a softer tone
with China.Data to be released in
China over the next week include the April leading index, May PMI
manufacturing, an May HSBC manufacturing PMI.
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.4350 level and was capped around the $1.4525 level. Chancellor of the Exchequer Osborne reported
the new Cameron government hopes to decrease fiscal spending by at least ¬£6
billion in what would be an abrupt shift from the policies of former Prime
Minister Brown.Outgoing Bank of England
Monetary Policy Committee member Barker reported more difficult times are ahead
for the U.K. economy.U.K. GDP data will
be released tomorrow and are expected to expand about 0.3% m/m and decline 0.2%
y/y.Cable bids are cited around the US$
1.4110 level.The euro depreciated vis-√†-vis the British pound as the single
currency tested bids around the ¬£0.8585 level and was capped around the ¬£0.8670
franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers
around the CHF 1.1605 level and was supported around the CHF 1.1490 level.The April UBS consumption indicator will be
released tomorrow. Data released in Switzerland last week saw the April M3
money supply expand 5.4% y/y.Swiss
National Bank Vice Chairman Jordan last 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 last week 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 lost ground vis-√†-vis the Swiss franc as the single
currency tested bids around the CHF 1.4330 level while the British pound gained ground vis-√†-vis the Swiss franc and
tested offers around the CHF 1.6770 level.
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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
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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