Forex Market Commentary and Analysis (7 July 2010)
The euro depreciated vis-Ă -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2555
level and was capped around the $1.2640 level. Concerns continue to mount that the global
economy is headed toward a double dip recession and higher-yielding currencies
like the common currency are at risk.Traders
also pared long euro exposure after it was reported that German May factory
orders slid 0.5% following Aprilâ€™s revised print of +3.2%.Economists had expected a May result of
around +0.3% and factory orders were up 24.8% y/y.Most
traders believe the European Central Bank will keep monetary policy unchanged
on Thursday. Remarks from President Trichet will likely focus on liquidity
provisions by the ECB and stress tests on eurozone banks.There is increasing chatter the ECB may be
forced to adopt a quantitative credit expansion to deal with problems in the
eurozone.Data released in the eurozone
today saw EMU-16 Q1 final gross domestic product up 0.2% q/q and 0.6% y/y,
unchanged from previous estimates or forecasts.Also, the French May trade balance worsened to -â‚¬5.5 billion from a
revised -â‚¬4.3 billion.In U.S. news, Dallas Fed President
Fisher said the Fed has â€śdone enoughâ€ť to stimulate economic growth. He added â€śInterest rates are zero.Itâ€™s not the cost of money that the issueâ€¦Companies
are hoarding cash, theyâ€™re holding back, theyâ€™re not hiring people, theyâ€™re not
building plant and equipment at the pace weâ€™d like to see.This has nothing to do with monetary
policy.We have been as accommodative as
possible.â€ťFisher also noted â€śDeflation,
as is inflation, are tail risks.â€ť Kansas City Fed President Hoenig reported a 1%
federal funds target rate â€śwouldnâ€™t hurt the economyâ€ť and said 3% economic growth
is â€świthin the realm of possibility.â€ť Data released in the U.S. today saw MBA
mortgage applications move lower to +6.7%.Euro offers are cited around the US$ 1.2720 level.
The yen appreciated vis-Ă -vis the U.S. dollar today as the
greenback tested bids around the ÂĄ87.00 figure and was capped around
the ÂĄ87.65 level. Traders continue to
buy yen on concerns the global economic recovery will be difficult to sustain
and weak equity markets also fueled yen gains.An intensification in risk aversion will likely benefit the yen
further.Data released in Japan
overnight saw June official reserve assets increase to US$ 1.050 trillion.Data to be released in Japan tonight include
June bank lending, May factory orders, May current account data, and the May
trade balance.Dealers are paying close
attention to Japanese politics where Prime Minister Kanâ€™s Democratic Party of
Japan party could lose its upper-house majority on 11 July.Kan and the DPJ are seeking to increase
taxes.The Nikkei 225 stock index climbed
0.77% to close at ÂĄ9,338.04.U.S. dollar
bids are cited around the ÂĄ86.29 level.The euro
moved lower vis-Ă -vis the yen as the single currency tested bids around the
ÂĄ109.30 level and was capped around the ÂĄ110.70 level.The
British pound moved higher vis-Ă -vis the yen as sterling tested offers
around the ÂĄ132.85 level while the Swiss
franc moved higher vis-Ă -vis the yen and tested offers around the ÂĄ82.95 level.
In Chinese news, the U.S. dollar depreciated
vis-Ă -vis the Chinese yuan as the greenback closed at CNY 6.7771 in the
over-the-counter market, down from CNY 6.7805. Peopleâ€™s Bank of China official Zhang reported
PBoC â€śmust deal withâ€ť excess liquidityâ€ť even as evidence emerges of slowing
domestic growth.Chinese officials seem
intent on countering inflation and containing liquidity. Agricultural Bank of
China appears poised to raise US$ 19.2 billion in its initial public
offering.The State Administration of
Foreign Exchange reported Chinaâ€™s holdings of U.S. Treasuries â€śshouldnâ€™t be
politicized.â€ťSAFE added the â€śnuclearâ€ť
option of liquidating its U.S. Treasury holdings is â€ścompletely unnecessary.â€ťPBoC official Yi indicated China does not
want to fight trade wars.
British pound appreciated vis-Ă -vis the U.S. dollar today as cable tested offers
around the US$ 1.5215 level and was supported around the US$ 1.5080 level.Data to be released in the U.K. tomorrow
include June Halifax house prices, May industrial production, May manufacturing
production, and the June NIESR GDP estimate.Bank of England is expected to keep its headline Bank rate target
unchanged tomorrow at 0.50% and to keep its asset purchase program unchanged at
ÂŁ200 billion.Traders will pay very
close attention to tomorrowâ€™s MPC vote to see if there are additional calls for
higher rates.Cable bids are cited around the US$ 1.4620
level.The euro depreciated vis-Ă -vis the British pound as the single
currency tested bids around the ÂŁ0.8300 level and was capped around the ÂŁ0.8335
franc appreciated vis-Ă -vis the U.S. dollar today as the greenback tested bids
around the CHF 1.0525 level and was capped around the CHF 1.0635 level. Data to be released in Switzerland tomorrow
include the June unemployment rate.Data
released in Switzerland this week saw June consumer price inflation off 0.4%
m/m and up 0.5% y/y, a moderation of price pressures.Swiss National Bankâ€™s 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 this
week said he is â€śclosely monitoringâ€ť the franc, adding its fluctuation has
â€śclearly increased.â€ťU.S. dollar offers
are cited around the CHF 1.0980 level.The euro depreciated vis-Ă -vis the
Swiss franc as the single currency tested bids around the CHF 1.3265 level
while the British pound moved lower
vis-Ă -vis the Swiss franc and tested bids around the CHF 1.5965 level.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
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09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
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POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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