Forex Market Commentary and Analysis (8 June 2010)
The euro appreciated vis-Ă -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2010
level and was supported around the $1.1900 figure.The common currency failed to gain any
sustainable traction today as dealers cited few compelling reasons to be long
euro with the European sovereign debt crisis overhanging the pair.Fitchâ€™s warning today about U.K. debt
reminded investors that large economies on the periphery of the eurozone face
their own problems and traders will look for any similariaties between each
troubled country and Greece, which experienced its own implosion.Three-month Euro Libor reached 0.65% today,
its highest since early January and an indication of the stresses in European
money markets.Another measure of market
stress â€“ the Euro Libor/ Overnight index swap spread- increased and is near the 2010 high.Three-month U.S. Dollar Libor remains
elevated at 0.53688%.At the same time,
the European Central Bank lent financial institutions more than â‚¬122 billion in
seven day-funds at its main refinancing rate, up from last weekâ€™s total of â‚¬117.7
billion.These data suggest more banks
are facing liquidity problems.The ECB
will announce its policy decision on Thursday and these funding stresses may
cause the ECB to issue a new six-month refinancing operation so that banks can
borrow funds for longer terms.Furthermore, the ECB could expand its covered bond buying program to
inject more liquidity into the market.Approximately
â‚¬500 billion in one-year funds expires on 1 July and the ECB will have to
address this maturity in the context of existing financial constraints.It was also reported that eurozone banks
deposited a record â‚¬361.692 billion with the ECB overnight instead of lending
them to other banks.Germanyâ€™s Finance
Agency reported it will expand its operation and sell debt on behalf of the
newly-created European Financial Stabilization Fund.Data released in Germany today saw the April
trade balance slow to â‚¬13.4 billion while the current account balance slowed to
â‚¬11.8 billion.Also, April industrial
production expanded 0.9% m/m and 13.3% y/y.French data saw May Bank of France business sentiment tick lower to
101.In U.S. news, data released in the U.S. today saw May NFIB small
business optimism improve to 92.2.Data
to be released tomorrow include MBA mortgage applications and April wholesale
inventories along with the Fedâ€™s Beige Book.Fed Chairman Bernanke reiterated the U.S. unemployment rate is likely to
stay â€śhigh for a whileâ€ť and said the economic recovery remains â€śmoderate paced.â€ťEuro offers are cited around the US$
The yen appreciated vis-Ă -vis the U.S. dollar today as the
greenback tested bids around the ÂĄ90.85 level and was capped around
the ÂĄ91.90 level. Traders were reluctant to take on too much
risk and the yen remained bid as a result.Many data were released in Japan overnight. First, the April current
account total fell to ÂĄ1.242 trillion, down from the prior reading of ÂĄ2.534
trillion, while the trade balance fell to ÂĄ859.1 billion from the prior reading
of ÂĄ1.074 trillion.Second, May bank
lending was off 2.0% y/y.Third, the
April leading index fell to 101.7 and the coincident index improved to
101.6.Fourth, the May economy watchersâ€™
survey fell to 47.7 at the current level and 48.7 at the outlook level.Data to be released during the Australasian
session include April machine orders followed by Q1 gross domestic product on
Thursday.New Economy minister Arai
reported the â€śbiggest theme of Japanâ€™s economy policy is how to overcome
deflation.For that purpose, cooperation
with the BoJ is very important.â€ťThe central
bank today warned its Japanese government bond holdings may reach its
self-imposed limit â€świthin a few years.â€ťBoJ Governor Shirakawa noted the BoJâ€™s ability to increase purchases is â€śpretty
limited.â€ťNew finance minister Noda
verbally intervened today, saying he will â€ścarefully monitor markets with the
understanding that excessive and disorderly movements can have a negative
impact on the stability of the economy.â€ť New Prime Minister Kan yesterday said
a weak yen is â€śgenerally said to beâ€ť positive for the Japanese economy.Former MoF official â€śMr Yenâ€ť Sakakibara
warned the euro may decline below ÂĄ100 â€świthin the next couple of months.â€ťThe Nikkei 225 stock index gained 0.18% to
close at ÂĄ9,537.94.The euro moved higher vis-Ă -vis the yen as the single currency
tested offers around the ÂĄ110.05 level and was supported around the ÂĄ108.70
level.The British pound moved higher vis-Ă -vis the yen as sterling tested
offers around the ÂĄ133.35 level while the
Swiss franc moved higher vis-Ă -vis the yen and tested offers around the ÂĄ79.30
level. In Chinese news, the U.S.
dollar depreciated vis-Ă -vis the Chinese yuan as the greenback closed at CNY
6.8296 in the over-the-counter market, down from CNY 6.8324. Data released in China overnight saw the Q3
manpower survey increase to 27% from 17%.Data to be released this week include May money supply numbers, May new
yuan loans, May trade, May retail sales, May industrial production, May PPI,
and May CPI.Peopleâ€™s Bank of China
warned Chinese economic growth will continue to be impacted by global problems
and said final domestic private demand is still not â€śsolid.â€ť PBoC noted an â€śappropriately
looseâ€ť monetary policy and a proactive fiscal policy will continue. The State
Administration of Foreign Exchange warned China is considering controls on yuan
forward transactions to slow investors from speculating when the central bank
will end its peg to the U.S. dollar.
British pound depreciated vis-Ă -vis the U.S. dollar today as cable tested bids
around the US$ 1.4345 level and was capped around the $1.4530 level. Cable was knocked lower after ratings agency
Fitch warned the U.K. is facing a â€śformidableâ€ť challenge with its escalating
debts.Prime Minister Cameron warned
that forthcoming fiscal realignments will hurt everyone.Bank of Englandâ€™s Monetary Policy Committee
is expected to keep rates unchanged on Thursday and to keep its asset purchase
target unchanged at ÂŁ200 billion.Data
released in the U.K. today saw BRC May retail sales growth of 0.8% y/y.Data to be released tomorrow include April
trade data.Cable bids are cited around
the US$ 1.4220 level.The euro appreciated vis-Ă -vis the
British pound as the single currency tested offers around the ÂŁ0.8290 level and
was capped around the ÂŁ0.8230 level.
franc appreciated vis-Ă -vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1550 level and was capped around the CHF 1.1640 level. Data
released in Switzerland today saw the May unemployment rate remain unchanged at
4.0% while May consumer price inflation was off 0.1% m/m and up 1.1% y/y.There is speculation today the Swiss National
Bank bought euro for francs in an intervention after the London close.Swiss National Bank President Hildebrand last
week said â€śThereâ€™s a consensus that the financial system needs to become more
resilient.Itâ€™s absolutely decisive that
the regulatory focus remains on capital, liquidity, and a diffusion of the
too-big-to-fail problem.â€ťU.S. dollar
bids are cited around the US$ 1.1420 level.The euro lost ground
vis-Ă -vis the Swiss franc as the single currency tested bids around the CHF 1.3780
level while the British pound lost
ground vis-Ă -vis the Swiss franc and tested bids around the CHF 1.6640
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