Forex Market Commentary and Analysis (3 June 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2225
level and was capped around the $1.2325 level. The common currency continues to suffer from a
crisis of confidence and this negative sentiment is impacting financial
institutions as well.Eurozone banks
deposited ‚ā¨320.4 billion in the European Central Bank‚Äôs 0.25% overnight deposit
facility, up marginally from the previous day‚Äôs total and the highest level
since the euro started trading in 1999.Deposits have totaled more than ‚ā¨300 billion over the past five trading
days.Three-month U.S. Dollar Libor rose
to 0.53781% today from 0.5375% yesterday and is near multi-month highs.Eurozone banks are likely holding too much
debt from highly-indebted and troubled eurozone countries and the price of
capital is moving higher on the premise that some banks may be unable to pay borrowed
capital back.Ecofin head Juncker said
Europe reacted too late to the Greek debt crisis but said the policies enacted
are ‚Äúgood ones.‚ÄĚ Talks remain ongoing about the creation of a single European
ratings agency.Data released in the
eurozone today saw May PMI services improve to 56.2 while the May PMI composite
survey improved to 56.4.Also, EMU-16
April retail sales were off 1.2% m/m and 1.5% y/y.Data to be released tomorrow include Q1 gross
domestic product.German data released
today saw May PMI services rally to 54.8 while French May PMI services fell to
61.4.Other French data saw the Q1
unemployment rate increase 4,000 while the Q1 ILO unemployment rate fell to
9.9.In U.S. news, Kansas City Fed President Hoenig called for the
federal funds target rate to increase to 1% ‚Äúby the end of summer‚ÄĚ and cited
improvements in market conditions and the economic outlook.Other Fed officials including Philadelphia
Fed President Plosser, St. Louis Fed Presidents Bullard, and Dallas Fed
President Fisher have also been on the bullish side in recent remarks that
expressed concern about the Fed‚Äôs ongoing ‚Äúextended period‚ÄĚ language in its
policy statement.Data released in the
U.S. today saw May ADP employment growth of 55,000 while Q1 non-farm
productivity fell to +2.8% from the prior reading of +3.6% with unit labour
costs higher at -1.3%.Also, weekly
initial jobless claims fell 10,000 to 453,000 while continuing jobless claims
moved higher to 4.666 million.April
factory orders growth decelerated to +1.2% and the May ISM services index was
unchanged at 55.4.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 ¬•92.80 level and was supported around
the ¬•92.05 level. Bank of Japan Policy
Board member Suda warned ‚ÄúStock and currency markets are very unstable, and as
a result not only Europe but also Japan may see a negative impact on
consumption and capital spending via a worsening of household and business
sentiment.‚ÄĚThe ruling Democratic Party
of Japan will select a new leader tomorrow following this week‚Äôs resignation of
Prime Minister Hatoyama.Japan will hold
upper house elections in June.Finance
minister Kan is expected to win the top position.BoJ Governor Shirakawa will visit Spit Korea
from 4-6 June to attend the Group of Twenty meeting.Data released in Japan overnight saw Q1
capital spending off 11.5%.The Nikkei
225 stock gained 3.24% to close at ¬•9,914.19.The euro moved higher vis-√†-vis
the yen as the single currency tested offers around the ¬•114.15 level and was supported
around the ¬•112.65 level.The British pound moved higher vis-√†-vis
the yen as sterling tested offers around the ¬•136.40 level while the Swiss franc moved higher vis-√†-vis
the yen and tested offers around the ¬•80.60 level. In Chinese news, the U.S. dollar depreciated vis-√†-vis the Chinese
yuan as the greenback closed at CNY 6.8283 in the over-the-counter market, down
from CNY 6.8298. There are revised views that People‚Äôs Bank of China may lift
its interest rate hikes this year to around 27bps.
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.4620 level and was capped around the $1.4740 level. Data released in the U.K. today saw May
Nationwide house prices up 0.5% m/m and 9.8% y/y while May PMI services ticked
higher to 55.4.Bank of England Monetary
Policy Committee member Posen warned the eurozone financial crisis could spread
to the U.K. and U.S.Bank of England
Governor King this week said the system must seize the opportunity for reform
and banks should not be permitted to be ‚Äútoo big to fail.‚ÄĚKing reiterated support for the BoE‚Äôs policy
framework, reporting ‚ÄúDespite its volatility, inflation remains low by historic
standards, and on track to meet the target in the medium term. The framework
has proved resilient to the stress of the financial crisis.It guided our monetary decisions going out
into the crisis, and it will guide them coming out of it.‚ÄĚCable bids are cited around the US$ 1.4220
level.The euro appreciated vis-√†-vis the British pound as the single
currency tested offers around the ¬£0.8375 level and was supported around the ¬£0.8335
franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers
around the CHF 1.1565 level and was supported around the CHF 1.1495 level. There is increasing speculation again that
Swiss National Bank may reduce its franc-selling intervention on account of the
massive amount of market operations it has undertaken already this year.SNB member Leuthard verbally intervened
against the strong franc today.U.S.
dollar bids are cited around the US$ 1.1420 level.The
euro lost ground vis-√†-vis the Swiss franc as the single currency tested
bids around the CHF 1.4130 level while the
British pound lost ground vis-√†-vis the Swiss franc and tested bids around
the CHF 1.6875 level.
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