Forex Market Commentary and Analysis (28 May 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2275
level and was capped around the $1.2450 level. Liquidity was reduced today as some U.S.
trading desks emptied early on account of the holiday weekend in the U.S.Data released in the U.S. today saw April
personal income move higher to 0.4% while April personal spending fell to
0.0%.Also, the April PCE deflator was
up 2.0% y/y while PCE core readings came in at 0.1% m/m and 1.2% y/y.Other data saw the Macy Chicago Purchasing
Managers Index decline to 59.7 from the prior reading of 63.8.Finally, the final May University of Michigan
consumer sentiment indicator ticked higher to 73.6 from the prior 73.3
level.The Federal Reserve will offer
US$ 1 billion of 14-day deposits in an auction scheduled for 14 June, a tool
the Fed will attempt to use to tighten credit by mopping up excess liquidity
from the banking system.Some traders
expressed optimism after it was reported consumer delinquency rates are
declining at U.S. banks and retailers.In European news, sentiment continued
to weaken in the eurozone after ratings agency Fitch downgraded Spain‚Äôs credit
rating to AA+ from AAA.Spain had held
Fitch‚Äôs top rating since 2003 and Standard & Poor‚Äôs reduced its rating of
Spain to AA on 28 April.Earlier this
week, a Spanish regional savings bank failed and four others applied for
regulatory permission to tie-up.European Central Bank member Weber said a bank tax would be an ‚Äúinferior
instrument.‚ÄĚ ECB member Bini Smaghi said the European Union will do ‚Äúall that
is needed‚ÄĚ to defend the European Union and said there are ‚Äúno alternatives‚ÄĚ to
fiscal consolidation.German data saw
the April import price index up 2.0% m/m and 7.9% y/y.Also, French April total jobseekers increased
to 2.677 million.Euro offers are
cited around the US$ 1.2620 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•90.60 level and was capped around
the ¬•91.40 level. Bank of Japan earned a
profit for the first time in three years in fiscal year 2009, with income
coming in at ¬•367.1 billion.Finance minister
Kan reported he will try to stimulate employment that is ‚Äúcrucial‚ÄĚ to
overcoming price declines.Data released
in Japan overnight saw April household spending off 0.7% y/y while the April
jobless rate ticked higher to 5.1%.April retail trade was up 0.5% m/m and 4.9% y/y while May Tokyo-area
consumer price inflation was off 1.4% y/y with the ex-food and energy component
off 1.4% y/y.Also, April national
consumer price inflation was off 1.2% y/y with the ex-food and energy measure
off 1.6% y/y.Collectively, these data
evidence a Japanese economy that is weakening and a national consumer price
index that is becoming more deflationary.BoJ will continue to be pressured by the government to ease policy
further.The Nikkei 225 stock index climbed
1.28% to close at ¬•9,762.98.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 ¬•111.35 level and was capped
around the ¬•113.65 level.The British pound moved lower vis-√†-vis
the yen as sterling tested bids around the ¬•130.85 level while the Swiss franc moved lower vis-√†-vis
the yen and tested bids around the ¬•78.20 level. In Chinese news, the U.S. dollar appreciated vis-√†-vis the Chinese
yuan as the greenback closed at CNY 6.8315 in the over-the-counter market, up
from CNY 6.8312. People‚Äôs Bank of China
said China should develop more products denominated in gold to help
internationalize the yuan.The State
Administration of Foreign Exchange this week reported Europe will remain a
major investment market for China, countering speculation China would reduce
its euro-denominated holdings.People‚Äôs
Bank of China this week 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.
pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids around
the US$ 1.4435 level and was capped around the $1.4610 level. Data to be released on Sunday evening include
the May Hometrack housing survey. Bank of England Monetary Policy Committee
member Posen called for ratings agencies to have less influence and said U.K.
economic growth prospects are weak now.Bank
of England will expand its long-term funding mechanism next month and will
incorporate a two-tier auction system that accepts a wider array of collateral
to address stresses in the financial system. Chancellor of the Exchequer Osborne this week reported
the new Cameron government hopes to decrease fiscal spending by at least ¬£6
billion in what would be an abrupt shift from the policies of former Prime
Minister Brown.Cable bids are cited
around the US$ 1.4110 level.The euro appreciated vis-√†-vis the
British pound as the single currency tested offers around the ¬£0.8545 level and
was supported around the ¬£0.8445 level.
franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers
around the CHF 1.1595 level and was supported around the CHF 1.1480 level.Data released in Switzerland today saw the
April trade balance increase to CHF 2.02 billion from the revised prior reading
of CHF 1.69 billion while the May KOF Swiss leading indicator improved to 2.16
from the prior reading of 2.05.Swiss
National Bank member Leuthard said Switzerland wants a stable euro.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 1.4305 level while the British pound lost ground vis-√†-vis the Swiss franc and tested bids
around the CHF 1.6685 level.
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