Forex Market Commentary and Analysis (31 May 2010)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2330
level and was supported around the $1.2260 level. Liquidity was light on account of the Bank
holiday in the U.K. and Memorial Day holiday in the U.S.The common currency this month reached its
lowest level since April 2006 and tested the 50% retracement of its lifetime
range.The pair has not lost much ground
since Fitch‚Äôs downgrade of Spain‚Äôs credit rating late last week.European Central Bank member Honohan said he
welcomes the ECB‚Äôs bond purchases as an ‚Äúimportant‚ÄĚ new tool and said money
markets have evidenced a ‚Äúdegree of normalization.‚ÄĚIn contrast, ECB member Weber said he remains
critical of ECB bond purchases and said they must not exceed ‚Äútight
limits.‚ÄĚECB member Makuch said ‚Äúthe
euro is very close to fundamentals. That‚Äôs good. It supports our exports.I‚Äôm happy with it.‚ÄĚMakuch also called for the creation of a
European ratings agency.‚ÄĚECB member
Draghi said there is ‚Äúno turning back from the euro.‚ÄĚ Three-month Euribor
lending rates rose to 0.701% today, its highest level since late December as
fears about regional banks continued to dent confidence.ECB President Trichet called the euro a
‚Äúcredible currency‚ÄĚ and said it is keeping value in ‚Äúremarkable fashion.‚ÄĚData released in the eurozone today saw the
EMU-16 May business climate indicator improve to 0.34 from the prior reading of
0.28 while May industrial confidence improved to -6.May consumer confidence was unchanged at -18
and May economic confidence dropped to 98.4.May services confidence fell to +3 from +6 and the May consumer price
inflation estimate was up 1.6% y/y.Also,
the EMU-16 M3 money supply was off 0.1% y/y.In U.S. news, Chicago Fed
President Evans reported he ‚Äúwouldn‚Äôt be surprised‚ÄĚ if the Fed‚Äôs policy
normalization ‚Äúgets extended a little bit‚ÄĚ on account of the European debt
crisis.Evans also said inflation is
‚Äúseriously under-running‚ÄĚ price stability and added unemployment ‚Äúis very
high.‚ÄĚFed Chairman Bernanke reiterated
recent comments and Philadelphia Fed President Plosser said the U.S. will
continue to see employment and economic growth.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 ¬•91.60 level and was supported around
the ¬•90.90 level. The pair was bid
higher and the yen was given across the board following some political drama in
Japan where Prime Minister Hatoyama‚Äôs popularity reached a new low, less than
two months before parliamentary elections.The Social Democratic Party left Hatoyama‚Äôs coalition government this
weekend in opposition to Japanese approval to relocate a U.S. base within
Okinawa.Bank of Japan Governor
Shirakawa reported ‚Äú‚Ä¶the greatest challenge Japan‚Äôs economy is facing now is
the decline in the potential growth rate as well as the shrinking of the
population and sluggish productivity growth underlying this.‚ÄĚSpeaking about the global increase in fiscal
spending, Shirakawa added ‚ÄúFiscal policies are not a cornucopia.Policymakers should work to appropriately
conduct policies so as to maintain sufficient market confidence.In this regard, current events seem to have
served as a ‚Äėwakeup call‚Äô to many countries.‚ÄĚRegarding inflation, Shirakawa added ‚ÄúConcerning inflation-targeting,
there are expectations that expanding the central bank‚Äôs balance sheets would
help Japan escape deflation and cause inflation rates to rise.But the central banks of Japan, the U.S., and
Europe have expanded balance sheets only to see drops in inflation rates.Expanding central bank balance sheets does
not immediately cause prices to rise.‚ÄĚRegarding economic growth, Shirakawa noted ‚ÄúJapan‚Äôs economy is making
firm progress toward sustainable growth.We need to be mindful of upside and downside risks.‚ÄĚData released in Japan overnight saw May
manufacturing PMI improve to 54.7 while April industrial production was up 1.3%
m/m and 25.9% y/y.April labour cash
earnings were up 1.5% y/y and April housing starts were up an annualized 0.6%
y/y to 793,000 units. Also, April construction orders were off 25.0% y/y.Notably, manufacturing PMI reached its
highest level in nearly four years.The
Nikkei 225 stock index climbed 0.06% to close at ¬•9,768.70.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 ¬•112.90 level and was supported around the ¬•111.55
level.The British pound moved higher vis-√†-vis the yen as sterling tested
offers around the ¬•132.85 level while the
Swiss franc moved higher vis-√†-vis the yen and tested offers around the ¬•79.30
level. In Chinese news, the U.S.
dollar depreciated vis-√†-vis the Chinese yuan as the greenback closed at CNY
6.8278 in the over-the-counter market, down from CNY 6.8315. Data to be released in China overnight
including May manufacturing PMI.Yuan
forwards were little changed on renewed speculation the Chinese government will
not permit the yuan to appreciate in the short term before Europe‚Äôs sovereign
credit crisis eases.
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.4530 level and was supported around the $1.4400 figure. U.K. markets were closed today for the Bank
holiday.Data released in the U.K.
overnight saw May Hometrack house prices up 0.2% m/m and 2.0% y/y.Data to be released this week include May
Halifax house prices, May PMI manufacturing, April net consumer credit, April
mortgage approvals, May Nationwide house prices, and May PMI services.Cable bids are cited around the US$ 1.4110
level.The euro depreciated vis-√†-vis the British pound as the single
currency tested bids around the ¬£0.8475 level and was capped around the ¬£0.8520
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1540 level and was capped around the CHF 1.1590 level.Swiss National Bank member Leuthard on Friday
said Switzerland is interested in a ‚Äústable euro,‚ÄĚ adding the central bank‚Äôs
euro reserves have risen to 52%.SNB has
undertaken significant franc-selling intervention this year to address the
depreciation of 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 1.4210 level while the
British pound gained ground vis-√†-vis the Swiss franc and tested offers
around the CHF 1.6810 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
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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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