10:00 GMT- June 10 (global-view.com) The focus initially today is on the outcome of the BOE and ECB policy board meetings in the next few hours. No changes in rates or repos are seen from the Bank of England. In the case of the ECB, no rate changes are expected, but the markets will be paying close attention to what President Trichet might have to say about the Euro and about liquidity in Europe. Internally, the Eurozone banking system continues to face funding challenges. Nevertheless, the Euro is trading firmer today as the risk trade seems to be back on as of this hour, led by the NZD after the RBNZ hiked its Cash Rate target by 25bps to 2.75% and hinted at future increases.
Wednesday saw testimony by Fed Chairman Bernanke before Congress on the budget deficit. Bernanke sent the message that the Fed is in no rush to hike interest rates, but that a tightening should be expected before the economy reaches full employment. The prospect of an easy Fed policy well into the future was seen as constructive for equities and therefore the EURUSD. We don't know what to make of the BP spill in the Gulf of Mexico from a market point of view, but it appears that political frustrations with this fiasco are mounting.
The EURUSD is up on the day and the GBPUSD is higher. The EURGBP is up. Traders have been keeping a close eye on European sovereign debt situation and on the threat of forex intervention in the EUR.
In the GBP, the U.K. new government is weak. A second election may not be far away. Our bias for the EURUSD and GBPUSD remains negative.
The EURCHF is higher. SNB intervention tactics have changed, as recently the SNB has taken a strong stand. Flows out of the EUR into the CHF remain an issue for the SNB.
The USDJPY is steady and the EURJPY cross is up. Japanese public finances are a worry, however JGB bonds are mostly owned by Japanese. The government wants a lower exchange rate and has warned the markets about the JPY. It also has been pressing the BOJ to promote growth.
Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade has been on and off in commodities and commodity currencies (CAD, AUD and NZD). The commodity currencies are higher. RBA monetary policy is now steady, but the RBNZ is in a tightening mode. The Bank of Canada raised rates by 25bps but sent dovish signals. A strong CAD eases the pressure on the Bank of Canada to tighten. Oil and gold are mixed. Gold is still favored as as refuge from paper money. We had been favoring AUD, CAD, gold and oil fundamentally, but some doubts are creeping in.
Far East equities closed mostly higher, with the exception of Japan. European bourses ended higher. The Shanghai Composite eased. U.S. equities are up. The U.S. 10-yr was last 3.22%, +3 bps. Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls.
UPCOMING DATA HIGHLIGHTS: In Europe , the Bank of England (BOE) policy decision is due. No rate change is seen. The European Central Bank (ECB) decision is expected as well. No policy change is expected. In North America, U.S.and Canadian trade data are expected. The U.S.will also see the critical weekly jobless data. U.S.natural gas inventories are slated as well. The U.S.will see a 30-yr bond auction.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author and co-founder and partner of Global-View.com. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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