Forex Market Commentary and Analysis (4 June 2010)
The euro depreciated sharply vis-√†-vis the U.S. dollar
today as the single currency tested bids
around the US$ 1.1960 level and was capped around the $1.2215 level.The common currency dove below the
psychologically-important US$ 1.2000 figure during the North American trading
session and has not traded at these levels since March 2006.Technicans are now eyeing the 1.1640/ 1.1210
levels as key downside areas of possible support.One major catalyst for the weaker euro today
was a worsening of the financial situation in Hungary where the government
admitted it is in a ‚Äúgrave situation.‚ÄĚThe situation in Hungary poses an interesting problem for European
policymakers because Hungary is a member of the European Union but is not a
member of the eurozone.The European
Union cobbled together a bailout package for Greece along with the
International Monetary Fund and the European Central Bank reduced their credit
rating requirements for eligible collateral for repo purposes to make sure
banks could post Greek bonds as collateral to receive cash.Many European banks ‚Äď inside and outside of
the eurozone ‚Äď are likely sitting with Hungarian sovereign, corporate, and
other debt on their books and a worsening of the crisis in Hungary could test
Europe‚Äôs resolve once again.French
Prime Minister Fillon today said good things would result if the common
currency traded as low as parity.French
government debt may be downgraded on account of its massive fiscal debt
position and high debt-to-GDP level.There
is ongoing talk that Germany wants to leave the common currency altogether, a
strong rumour that would rock the financial markets if it ever materialized.Group of Twenty officials will convene in
Busan, South Korea this weekend and their top priority will be deficit
reduction.Finance officials may also
agree on some semblance of a global bank tax.Data released in the eurozone today saw Q1 GDP up 0.2% q/q and 0.6%
y/y.In U.S. news, data released today saw May non-farm payrolls up
431,000, about 100,000 below consensus and up from 290,000 last month.The number was quite bad because around
411,000 of the jobs that were counted included temporary census workers.Absent those, today‚Äôs number would have been
quite weak.The unemployment rate moved
lower to 9.7% from 9.9%.Average hourly
earnings growth accelerated 0.3% m/m and 1.9% y/y and average weekly hours
worked ticked higher to 34.2 from 34.1.Atlanta Fed President Lockhart reported job creation remains too
weak.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 ¬•91.50 level and was capped around
the ¬•92.85 level. Traders reduced
exposure to higher-yielding currencies and moved back into yen in a risk
aversion trade.Hungary‚Äôs problems are
the latest excuse to sell higher-yielders and get long lower-yielders like the
yen.Nikkei reported Bank of
Japan may spend as much as ¬•2 trillion for a new lending program to stimulate
economic growth.Finance minister Kan
was named the new Prime Minister of Japan overnight following this week‚Äôs
resignation of Hatoyama.Vice finance
minister Minezaki will represent Japan in Busan, South Korea this weekend at
the Group of Twenty meeting and may become the new finance minister.Kan may apply more pressure on the central
bank to ease monetary policy further.The yield on the five-year Japanese government bond reached a multi-year
low overnight below 0.395%.This
reflects increasing deflationary pressures and a perception the central bank
may be forced to buy more Japanese government bonds.BoJ currently purchases about ¬•1.8 trillion
in debt every month.The Nikkei 225 stock
lost 0.13% to close at ¬•9,901.19.The euro moved lower vis-√†-vis the yen
as the single currency tested bids around the ¬•109.75 level and was capped around
the ¬•113.35 level.The British pound moved lower vis-√†-vis the yen as sterling tested bids
around the ¬•132.45 level while the Swiss
franc moved lower vis-√†-vis the yen and tested bids around the ¬•78.75 level.
In Chinese news, the U.S. dollar appreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8288 in the
over-the-counter market, up from CNY 6.8283. People‚Äôs Bank of China Governor Zhou said ‚Äúthere
are many factors‚ÄĚ that may have contributed to the decline in May manufacturing
and said the European crisis may not be attributable.China‚Äôs economy is expected to expand about
9% to 10% this year following a strong performance in the first quarter.
British pound depreciated sharply vis-√†-vis the U.S. dollar today as cable
tested bids around the US$ 1.4455 level and was capped around the $1.4680 level.
Data released in the U.K. today saw May
Halifax house prices off 0.4% m/m.The
BRC retail sales monitor will be released on Monday.Bank of England Monetary Policy Committee
member Posen this week warned the eurozone financial crisis could spread to the
U.K. and U.S. BoE Deputy Governor Bean
warned against using inflation to reduce debt, adding ‚Äúa bit of inflation‚ÄĚ can
turn into ‚Äúa lot of inflation.‚ÄĚBank of
England Governor King this week said the system must seize the opportunity for
reform and banks should not be permitted to be ‚Äútoo big to fail.‚ÄĚKing reiterated support for the BoE‚Äôs policy
framework, reporting ‚ÄúDespite its volatility, inflation remains low by historic
standards, and on track to meet the target in the medium term. The framework
has proved resilient to the stress of the financial crisis.It guided our monetary decisions going out
into the crisis, and it will guide them coming out of it.‚ÄĚCable bids are cited around the US$ 1.4220
level.The euro depreciated vis-√†-vis the British pound as the single
currency tested bids around the ¬£0.8250 level and was capped around the ¬£0.8335
franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers
around the CHF 1.1625 level and was supported around the CHF 1.1420 level. Swiss National Bank President Hildebrand today
said ‚ÄúThere‚Äôs a consensus that the financial system needs to become more
resilient.It‚Äôs absolutely decisive that
the regulatory focus remains on capital, liquidity, and a diffusion of the
too-big-to-fail problem.‚ÄĚThere 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 this
week..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 1.3865 level while the British pound lost ground vis-√†-vis
the Swiss franc and tested bids around the CHF 1.6725 level.
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