Forex Market Commentary and Analysis (6 July 2010)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2655
level and was supported around the $1.2480 level. The common currency reached its highest level
since 21 May as dealers were less risk-averse on the heels of stronger global
equity markets.Liquidity was normalized
following the U.S. Independence Day holiday weekend.Yields on German and French government bonds
are hovering near record lows and Austria successfully sold ‚ā¨1.32 billion in
bonds today.Germany plans to auction as
much as ‚ā¨5 billion in ten-year debt tomorrow. Most traders expect European Central Bank will
keep monetary policy unchanged on Thursday.ECB President Trichet will speak after the ECB‚Äôs decision is announced
and he is expected to discuss liquidity provisions by the ECB and the stress tests that will be conducted on
eurozone banks.An anonymous ECB
official today reported the central bank is pleased with the manner in which
the euro has stabilized and suggested the ECB may continue with its
extraordinary monetary policy measures until 2011.There is also talk that German ECB officials
want to end the ECB‚Äôs asset purchase program this year.ECB official Noyer said economic growth needs
to be ‚Äúbalanced and sustainable.‚ÄĚData
to be released in the eurozone tomorrow include EMU-16 Q1 gross domestic
product, German May factory orders, and the French May trade balance.In
U.S. news, data released today saw the June ISM non-manufacturing index
decline more-than-expected to 53.8, lower than the May print of 55.4.Data to be released tomorrow include MBA
mortgage applications.Richmond Fed
President Lacker was quoted in the Japanese media as saying consumer spending
is ‚Äúmoderately strong‚ÄĚ while Dallas Fed President Fisher reported households
are ‚Äúcautious.‚ÄĚEconomists are closely
scrutinizing U.S. economic data to see if the recent moderation in economic
growth worsens and the U.S. encounters a double dip recession.The U.S. economy is also experiencing
disinflationary pressures.Euro offers
are cited around the US$ 1.2720 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•87.95 level and was supported around
the ¬•87.40 level. U.S. dollar sentiment
eroded further and the pair stopped just short of testing key technical support
around the ¬•87.20 level.The yen
reversed course and was given across the board as dealers cited better
risk-taking that followed the release of stronger-than-expected Australian May
trade surplus data. Data released in
Japan overnight saw the May leading index fall to 98.7 while the May coincident
index ticked lower to 101.2.Bank of Japan official Toyama yesterday said
the Tokyo interbank offered rate is ‚Äúsubstantially‚ÄĚ deviating from appropriate
levels.Tibor fell yesterday for a fourth
consecutive day to 0.380%, its lowest level since July 2006.The yen will likely remain strong provided
growth estimates for the U.S. and Europe remain muted, absent any intervention
from the Japanese government.The
Japanese media continues to report Bank of Japan may lift its 2010 economic
growth forecast to around 2.5% from the current forecast of 1.8%.Dealers are paying close attention to
Japanese politics where Prime Minister Kan‚Äôs Democratic Party of Japan party
could lose its upper-house majority on 11 July.Kan and the DPJ are seeking to increase taxes.Data to be released in Japan this week
include May machine orders and current account data on Wednesday.The Nikkei 225 stock index climbed 0.77% to
close at ¬•9,338.04.U.S. dollar bids are
cited around the ¬•86.29 level.The euro
moved higher vis-√†-vis the yen as the single currency tested offers around
the ¬•110.85 level and was supported around the ¬•109.15 level.The
British pound moved higher vis-√†-vis the yen as sterling tested offers
around the ¬•133.65 level while the Swiss
franc moved higher vis-√†-vis the yen and tested offers around the ¬•83.05 level.
In Chinese news, the U.S. dollar appreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.7805 in the
over-the-counter market, up from CNY 6.7758. The State Administration of Foreign Exchange
noted a depreciation in the U.S. dollar will not cause ‚Äúreal‚ÄĚ losses from foreign
reserve investments.Agricultural Bank
plans to raise as much as US$ 20.1 billion by selling equity in Shanghai and
Hong Kong.Dealers are reporting People‚Äôs
Bank of China has purchased significant amount of Japanese government bonds,
approximately US$ 6 billion between January and April.The big news in China yesterday was a slide
in the HSBC June services index to 55.6 from 56.4 and these data follow recent
weaker data in the manufacturing sector.Some economists are scaling back their Chinese GDP growth forecasts for
the fourth quarter to an annualized 8%.Notably, the Chinese economy expanded 11.9% y/y in the first three
quarters of 2010.Premier Wen this
weekend reported the Chinese government will remain flexible on account of
‚Äúvery complicated‚ÄĚ economic situations in China and abroad.
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.5225 level and was supported around the US$ 1.5080 level.Bank of England is expected to keep its
headline Bank rate target unchanged this week at 0.50% and keep its asset
purchase program unchanged at ¬£200 billion.BCC today reported the BoE is unlikely to change its Bank Rate before
May 2011.It was announced yesterday
that economic forecaster Martin Weale will join the BoE Monetary Policy
Committee as an external member.Traders
will pay very close attention to Thursday‚Äôs MPC vote to see if there are
additional calls for higher rates.Traders
await the release of the BRC June shop price index.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 ¬£0.8325 level and was supported around the
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.0560 level and was capped around the CHF 1.0665 level. Data released in Switzerland today saw June
consumer price inflation off 0.4% m/m and up 0.5% y/y, a moderation of price
pressures.The June unemployment rate
will be released on Thursday and is expected to come in around 3.7%.Swiss National Bank‚Äôs foreign currency
holdings declined last month to CHF 225.8 billion from CHF 232.1 billion in May
as SNB officials stopped selling francs for euro or U.S. dollars.Swiss National Bank President Hildebrand yesterday
said he is ‚Äúclosely monitoring‚ÄĚ the franc, adding its fluctuation has ‚Äúclearly
increased.‚ÄĚU.S. dollar offers are cited
around the CHF 1.0980 level.The euro appreciated vis-√†-vis the
Swiss franc as the single currency tested offers around the CHF 1.3410 level
while the British pound moved lower
vis-√†-vis the Swiss franc and tested bids around the CHF 1.6035 level.
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