Forex Market Commentary and Analysis (18 June 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2355
level and was capped around the $1.2415 level. The common currency notched a weekly gain for
the second consecutive week after declining from the US$ 1.51 handle late last
year.Traders cautiously added some long
euro exposure as they speculated the worst of the European sovereign debt
crisis may have passed while others believe more pain is ahead for the
eurozone.European banks will likely
face stress tests and those results could be made public and identify banks that
could potentially face larger-than-expected problems.Some technicians are still suggesting the
common currency may fall below parity.The
Federal Reserve released data that confirm foreign central banks have increased
their holdings of U.S. Treasuries, an indication that governments are slowing
the pace of diversification.Global
market turmoil ‚Äď particularly with the euro ‚Äď is the major reason why foreign
investors are holding more U.S. government securities.The Fed‚Äôs custodial holdings of U.S.
Treasuries for foreign accounts including central banks peaked at an all-time
high of US$ 2.28 trillion last month.European
Central Bank member Gonzalez-Paramo reiterated the ECB will not maintain
non-standard measures longer-than-needed.ECB member Tumpel-Gugerell said the improvement in European foreign
trade has been a substantial aid to the eurozone economy.ECB member Bini-Smaghi suggested no country
will be expelled from the eurozone.Group of Twenty officials are likely to discuss a global bank tax when
they convene in Toronto next week.ECB
President Trichet called for greater regulation and said the ECB‚Äôs bond
purchases are ‚Äútime-bound in nature.‚ÄĚData released in Germany today saw May producer prices climb 0.3% m/m
and 0.9% y/y while French Q1 wages were up 0.7% q/q.In
U.S. news, no major economic data were released today.May existing home sales data will be released
on Tuesday.Congress agreed on measures
to increase accountability over transactions at the Fed‚Äôs discount window and
open market operations but Congress will not have review over the Fed‚Äôs monetary
policy decisions.The U.S. Treasury is
also gaining additional powers to counter financial stability.Fed Vice Chairman Kohn noted European
economic problems will remain a risk for the U.S. while former Fed Chairman
Greenspan called for a ‚Äútectonic shift‚ÄĚ in fiscal policy to avert higher
borrowing costs.Euro offers are
cited around the US$ 1.2460 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•90.45 level and was capped around
the ¬•91.05 level. Bank of Japan Governor
Shirakawa warned China‚Äôs improving economy could result in an economic
bubble.The yen moved higher across the
board as Japanese officials pledged to reduce national debt and as traders
expressed concern that European austerity measures would reduce global economic
expansion.Prime Minister Kan vowed to
reduce Japan‚Äôs debt and indicated he may consider a proposal to raise the
consumption tax that currently stands at 5%.Minutes from Bank of Japan Policy Board‚Äôs May meeting revealed the
central bank will maintain its easy monetary policy for now and cited a ‚Äúmajor
challenge in dealing with the decline in the potential growth rate‚Ä¶and that the
deflation was also a manifestation of the fundamental problem facing the
economy, namely, the decline in growth expectations.‚ÄĚThe government released its economic report
overnight and upgraded its assessment of capital spending.Some department store sales data will be
released on Monday.The Nikkei 225 stock
index lost 0.04% to close at ¬•9,995.02.The euro moved lower vis-√†-vis the yen
as the single currency tested bids around the ¬•111.90 level and was capped around
the ¬•112.80 level.The British pound moved lower vis-√†-vis the yen as sterling tested bids
around the ¬•134.00 figure while the
Swiss franc moved lower vis-√†-vis the yen and tested bids around the ¬•81.40
level. In Chinese news, the U.S.
dollar depreciated vis-√†-vis the Chinese yuan as the greenback closed at CNY
6.8261 in the over-the-counter market, down from CNY 6.8291. People‚Äôs Bank of China reiterated it will seek
to keep the yuan ‚Äúbasically stable‚ÄĚ at a ‚Äúreasonably balanced level‚ÄĚ and
maintain the ‚Äúcontinuity and stability‚ÄĚ of its monetary policy. Inflation remains
elevated in China and was most recently 3.1% in May.PBoC Governor Zhou said the worst of the
global financial crisis is over while PBoC official Li estimated China may
expand 10% in the next decade.
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.4770 level and was capped around the US$ 1.4885 level. Former Bank of England Deputy Governor Gieve
reported the euro is facing its ‚Äúmoment of truth‚ÄĚ and suggested countries like
Germany and France will likely try to improve the framework of the eurozone.Data released in the U.K. today saw May
mortgage approvals climb to 51,000 while the May M4 money supply was up 0.0%
m/m and 2.8% y/y.Also, May public
sector net borrowing increased to ¬£16.0 billion while the May public sector net
cash requirement improved to ¬£12.0 billion.
Chancellor of the Exchequer Osborne spoke this
week and said the U.K. government plans to abolish the Financial Services
Authority and provide most of its power to the Bank of England.Osborne plans to replace the regulator with
three entities over the next two years.Cable
bids are cited around the US$ 1.4620 level.The euro appreciated
vis-√†-vis the British pound as the single currency tested offers around the
¬£0.8370 level and was supported around the ¬£0.8325 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested
bids around the CHF 1.1080 level and was capped around the CHF 1.1130 level. The
franc established a new record high on the euro/ Swiss franc cross rate as
traders speculate Swiss National Bank is less likely to intervene in the
future.KOF today reported its sees the
2010 Swiss jobless rate declining to 3.8% from its previous 4.1% forecast and
sees the rate falling further to 3.3% next year.On the inflation front, KOF sees the consumer
price inflation rate increasing to 1.0% this year from its previous 0.9%
forecast.As expected, Swiss National
Bank kept its three-month Swiss franc Libor target rate unchanged at 0.25% this
week. Swiss National Bank Chairman Hildebrand effectively eased its stance on
the Swiss franc, saying the risks of deflation have ‚Äúlargely disappeared.‚ÄĚSNB also warned it cannot keep interest rates
at a record low in the medium term without engendering inflation.U.S. dollar offers are cited around the CHF
1.1470 level.The euro came off vis-√†-vis the Swiss franc as the single currency
tested bids around the CHF 1.3720 level while the British pound moved lower vis-√†-vis the Swiss franc and tested
bids around the CHF 1.6395 level
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