Forex Market Commentary and Analysis (26 May 2010)
The euro depreciated sharply vis-√†-vis the U.S. dollar
today as the single currency tested bids
around the US$ 1.2200 figure and was capped around the $1.2385 level. The common currency came off early in the
North American session on a report that Spanish bank BBVA was unable to renew
approximately US$ 1 billion in commercial paper funding this month.While the amount would only represent about
0.2% of the assets on BBVA‚Äôs balance sheet, it could portend short-term funding
difficulties for other Spanish banks.Funding
strains became evident in the Spanish banking market earlier this week and that
precipitated the tie-up of some regional Spanish savings banks.Many traders believe it is only a matter of
time before the single currency tests major technical support at US$ 1.2010 and
there are said to be significant options-related orders and stops around the psychologically-important
US$ 1.2000 figure.PIMCO chief Gross
reported default may be an option for some highly-indebted countries.German Chancellor Merkel verbally intervened
in favour of a strong euro.The amount
of excess liquidity in the money markets reached a record high today as the
European Central Bank continued to keep the system awash with euro.Money markets are now oversupplied by
approximately ‚ā¨440 billion.ECB member
Noyer called on central banks to limit market interventions and avert ‚Äúmoral
hazard,‚ÄĚ adding they should be ‚Äúexceptional.‚ÄĚData released in Germany today saw June GfK consumer confidence decline
to +3.5 from +3.7 in May.Also, French April
consumer spending was off 1.2% m/m and up 1.1% y/y and May business confidence
ticked higher to 97.In U.S. news, data released today saw
MBA mortgage applications climb 11.3% while April headline durable goods orders
were up 2.9% and the ex-transportation component was off 1.0%.Additionally, April new home sales were up
14.8% m/m to an annualized rate of 504,000.GDP numbers and jobless claims data will be released tomorrow.Euro offers are cited around the US$
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•90.65 level and was supported around
the ¬•90.00 figure. Bank of Japan
Governor Shirakawa and Federal Reserve Chairman Bernanke reported the currency
swap operations between the central banks ‚Äúplayed a very important role in
stabilizing global dollar funding markets during the crisis.‚ÄĚBernanke said he does not want to make the
facility permanent and Shirakawa said it is important for the markets to know
the facility exists as needed.Minutes
of the 30 April BoJ Policy Board meeting revealed the BoJ should ‚Äúdevise ways
to avoid its excessive involvement in resource allocation among individual
firms.‚ÄĚBernanke and Shirakawa both
indicated it would be best if their central banks worked to keep inflation
right around the 2% level.Data released
in Japan overnight saw the April corporate service price index decline 1.1% y/y
while May small business confidence ticked lower to 46.7.Data to be released tonight include April
foreign trade data.The Nikkei 225 stock
index climbed 0.66% to close at ¬•9,522.66.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 ¬•110.50 level and was capped around the ¬•111.95 level.The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•129.05 level while the Swiss franc moved
higher vis-√†-vis the yen and tested offers around the ¬•78.45 level. In Chinese news, the U.S. dollar depreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8290 in the
over-the-counter market, down from CNY 6.8315. Yuan forwards are pricing in virtually no
appreciation in the yuan vis-√†-vis the U.S. dollar over the next three
months.This follows the conclusion of
talks between the U.S. and Chinese governments that offered little indication
that a revaluation of the yuan had been solidified.U.S. Treasury Secretary Geithner said
revaluating the yuan is ‚Äúabsolutely‚ÄĚ in China‚Äôs best interest.There is now renewed focus on opening China‚Äôs
bond market to international investors to improve the yuan‚Äôs standing as a
global reserve currency.
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.4450 level and was supported around the $1.4330 level. Bank of England will expand its long-term
funding mechanism next month and will incorporate a two-tier auction system
that accepts a wider array of collateral to address stresses in the financial system.Data released in the U.K. today saw April BBA
loans for house purchases improve.Bank
of England Monetary Policy Committee member Posen this week said he cannot rule
out deflationary pressures in the U.S. and U.K. economies.Chancellor of the Exchequer Osborne this week
reported the new Cameron government hopes to decrease fiscal spending by at
least ¬£6 billion in what would be an abrupt shift from the policies of former
Prime Minister Brown.Cable bids are
cited around the US$ 1.4110 level.The euro depreciated vis-√†-vis the
British pound as the single currency tested bids around the ¬£0.8530 level and
was capped around the ¬£0.8580 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1515 level and was capped around the CHF 1.1625 level.Data to be released in Switzerland tomorrow
include Q1 employment numbers.There remains
a sense among traders that Swiss National Bank may be unable to keep up with
market speculation and may be forced at some point to abandon its franc-selling
intervention operations on account of the major global bearish sentiment that
overhangs the common currency.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 1.4175 level while the
British pound lost ground vis-√†-vis the Swiss franc and tested bids around
the CHF 1.6585 level.
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