Forex Market Commentary and Analysis (27 May 2010)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2340
level and was supported around the $1.2155 level. The common currency pushed higher after China
indicated it will continue to be a long-term investor in euro-denominated
assets, contrasting with market chatter that suggested China would reduce
exposure to longer-term euro assets.On
the other hand, Kuwait Investment Authority noted it may reduce its investments
in the eurozone.European Central Bank
member Nowotny said he does ‚Äúnot see any risks that are endangering‚ÄĚ the ECB‚Äôs ‚Äúnear
2%‚ÄĚ inflation target.ECB member
Gonzalez-Paramo said the ECB‚Äôs ‚Äúarsenal has not been exhausted‚Ä¶our capacity to
act‚Ä¶is unlimited.‚ÄĚThe ECB reported
eurozone banks deposited ‚ā¨294.5 billion with it overnight.Formber Bundesbank President Schlesinger said
the euro is ‚Äúnot in danger‚ÄĚ and it‚Äôs level ‚Äúis not catastrophically low.‚ÄĚSpain‚Äôs parliament today approved a ‚ā¨15
billion austerity package.Data released
in Germany today saw provisional May consumer price inflation data for German
states come in at or above expectations.National CPI was up 0.1% m/m and 1.2% y/y with the harmonized level up
the same amounts.Also, the French May
consumer confidence indicator ticked lower to -38 from -37.In
U.S. news, Richmond Fed President Lacker said the U.S. economy will
continue to expand.Lacker also said he
is ‚Äúdecreasingly comfortable‚ÄĚ with the Fed‚Äôs commitment to keep rates low for
an ‚Äúextended period.‚ÄĚ St. Louis Fed President Bullard reported he does ‚Äúnot see‚ÄĚ
how European contagion could occur in the U.S‚ÄĚ and said ‚Äúconsumers are
generally feeling better about the U.S. economy.‚ÄĚ Data released in the U.S.
today saw Q1 gross domestic product up an annualized 3.0% q/q rate, down from
the prior reading of 3.2% q/q as consumption was reduced lower.Also, the Q1 GDP price index improved to 1.0%
and core PCE was up 0.6% q/q.Additionally,
weekly initial jobless claims fell to +460,000 while continuing jobless claims
fell back to 4.607 million.Euro offers
are cited around the US$ 1.2620 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•90.60 level and was supported around
the ¬•89.80 level. Some risk appetite
returned to the market today after China indicated it is not reducing its
diversification into euro-denominated assets and this led to a weaker yen.Fed Chairman Bernanke spoke in Tokyo
yesterday and said ‚ÄúPolitical interference in monetary policy can generate
undesirable boom-bust cycles that ultimately lead to both a less-stable economy
and higher inflation.‚ÄĚ Bank of Japan Governor Shirakawa reported ‚ÄúPrice
stability is certainly one important element in achieving a stable financial
environment. That is, however, not the sole factor.‚ÄĚMinutes of the 30 April BoJ Policy Board
meeting yesterday revealed the BoJ should ‚Äúdevise ways to avoid its excessive
involvement in resource allocation among individual firms.‚ÄĚData released in Japan overnight saw the
April merchandise trade balance fall to ¬•742.3 billion.Data to be released tonight include household
spending, employment numbers, and consumer price inflation.The Nikkei 225 stock index climbed 1.23% to
close at ¬•9,639.72.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 ¬•111.50 level and was supported
around the ¬•109.20 level.The British pound moved higher vis-√†-vis
the yen as sterling tested offers around the ¬•131.95 level while the Swiss franc moved higher vis-√†-vis
the yen and tested offers around the ¬•78.70 level. In Chinese news, the U.S. dollar appreciated vis-√†-vis the Chinese
yuan as the greenback closed at CNY 6.8312 in the over-the-counter market, up
from CNY 6.8290. The State
Administration of Foreign Exchange reported Europe will remain a major
investment market for China, countering speculation China would reduce its
euro-denominated holdings.People‚Äôs Bank
of China increased interest rates on three-month bills for a second consecutive
auction, the latest evidence the central bank is absorbing excess liquidity at
higher interest rates.Yuan forwards
continued to rebound after an eight-month low earlier in the week as traders speculated
China will revalue its yuan.U.S.
Treasury Secretary Geithner this week said revaluating the yuan is ‚Äúabsolutely‚ÄĚ
in China‚Äôs best interest.
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.4585 level and was supported around the $1.4365 level. Data
released in the U.K. today saw the May distributive trades survey print at -18,
an unexpected drop.Data to be released
in the U.K. tonight include the May GfK consumer confidence survey.Bank of England will expand its long-term
funding mechanism next month and will incorporate a two-tier auction system
that accepts a wider array of collateral to address stresses in the financial
system. Chancellor of the Exchequer
Osborne this week reported the new Cameron government hopes to decrease fiscal
spending by at least ¬£6 billion in what would be an abrupt shift from the
policies of former Prime Minister Brown.Cable bids are cited around the US$ 1.4110 level.The
euro appreciated vis-√†-vis the British pound as the single currency tested offers
around the ¬£0.8510 level and was supported around the ¬£0.8420 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1500 figure and was capped around the CHF 1.1615 level.Data released in Switzerland today saw the Q1
employment level remain steady at 3.961 million with the employment level up
0.1% y/y.April trade balance data will
be released tomorrow followed by the May KOF Swiss leading indicator.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 1.4220 level while the British pound gained ground vis-√†-vis the Swiss franc and
tested offers around the CHF 1.6830 level.
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