16:00 GMT- May 28 (global-view.com) As expected, forex trading on Friday was relatively restrained heading into three-day weekends in the U.S. and U.K. A further constraint on trade was the price correction in key markets in the latter half of the current week. This correction saw EUR gains pretty much across the board on many of its major crosses.
Some have started to suggest that we might be moving into a more normal period for the markets as European issues might have been pretty much postponed for the immediate future. This remains to be seen. The WSJ today ran a story suggesting that ultimately Greece will have to restructure its debt. They made the point that restructure is just a more gentle word for default. Our point is that the EU sovereign debt issue is still out there and central banks are doing all they can to keep their commercial banks (big EU sovereign debt holders) afloat. The festering immediate issue is still the potential for civil unrest in those nations where austerity measures will be hitting the hardest.
Markets are still are digesting talk that Chinese official fund managers (and other official entities elsewhere) are re-examining their risk exposure to European sovereign debt.
The EURUSD is up and the GBPUSD is down. The EURGBP is higher. Some Traders have been keeping an eye on the short squeeze in European sovereign debt and on the threat of forex intervention in the EUR.
In the GBP, the U.K. new government is weak. Already news surfaced that the outgoing Labour government left a much larger budget deficit than earlier estimated. A second election may not be far away. Our bias for the EURUSD and GBPUSD remains negative.
The EURCHF is up. SNB intervention tactics have changed, as recently the SNB has taken a strong stand. Flows out of the EUR into the CHF remain an issue for the SNB. The SNB has set a EURCHF floor of 1.4000.
The USDJPY pair is up and the EURJPY cross is higher. Japanese public finances are a worry. however JGB bonds are mostly owned by Japanese. The government wants a lower exchange rate and has warned the markets about the JPY. It also has been pressing the BOJ to promote growth. Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade has been on and off in commodities and commodity currencies (CAD, AUD and NZD). The commodity currencies are mixed. The RBA recently signaled a policy pause. Bank of Canada interest rates are now expected to be hiked either in June or July. A strong CAD eases the pressure on the Bank of Canada to tighten. Oil and gold are higher. Gold is still favored as as refuge from paper money. We had been favoring AUD, CAD, gold and oil fundamentally, but some doubts are creeping in.
Far East equities closed mostly higher. European bourses are up. U.S. equities are higher. The U.S. 10-yr was last 3.33%, -2 bps. Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls.
UPCOMING DATA HIGHLIGHTS:Activity will be restrainedMonday by U.K. and U.S.holidays. Far East markets will see Japanese PMI and Industrial Output data. Australiawill release Current Account data. In Europe , Eurozone money supply data are due. In North America, Canadian GDP and PPI data will be released.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author and co-founder and partner of Global-View.com. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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