Forex Market Commentary and Analysis (8 July 2010)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2700
figure and was supported around the $1.2620 level. The common currency reached its highest level
since 12 May as dealers continued to cautiously add more euro risk to their
portfolios. As expected, the European Central Bank kept its benchmark
refinancing rate unchanged at 1.0%, an all-time low.ECB President Trichet optimistically noted ‚Äúindicators
suggest that a strengthening in economic activity took place during the spring.‚ÄĚ
He described the current 1.0% rate as ‚Äúappropriate‚ÄĚ and added inflation
expectations ‚Äúremain firmly anchored.‚ÄĚTraders also moved into the common currency on a report that eurozone
banks‚Äô stress tests may assume smaller losses on Greek bonds that previously
anticipated.Currently, the credit
markets are pricing in losses of 60% on Greek bonds in the event of a
government default while reglatory guidance is now reportedly focusing on a
loss around 17% on Greek debt and 3% on Spanish bonds.The ECB is expected to discuss stress tests
with banks on 21 July.Data released in
Germany today saw the May trade balance narrow to ‚ā¨9.7 billion while the May
current account fell to ‚ā¨2.2 billion.Also, German May industrial production expanded 2.6% m/m and 12.4%
y/y.Other data released today saw Bank
of France June business sentiment tick lower to +100.In
U.S. news, data released today saw weekly initial jobless claims declined
to +454,000 from a revised +475,000 while continuing jobless claims narrowed to
4.413 million from 4.637 million.Also,
ISCS June chain store sales were up 3.0% y/y and May consumer credit was off ‚ÄďUS$
9.1 billion.The Federal Reserve plans
to sell US$ 2 billion in term auction deposits on 12 July, its third test to
drain cash from the banking system via its Term Deposit Facility.The International Monetary Fund called on the
U.S. to reduce its bloated debt position.Yesterday, Kansas City Fed President Hoenig called for higher rates
while Dallas Fed President Fisher suggested lower rates would not necessarily
help the economy.Euro offers are
cited around the US$ 1.2830 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•88.65 level and was supported around
the ¬•87.65 level. As expected, Bank of
Japan upgraded its assessment of the Japanese economy, noting eight of nine
regions have improved from three months ago.The central bank noted ‚Äúbusiness fixed investment had either stopped
decreasing or had started picking up and the degree of severity in the
employment and income situation had eased.‚ÄĚBoJ Governor Shirakawa reiterated there are ‚Äúsome uncertain movements
due to concern over sovereign debt risk.‚ÄĚ Data released in Japan overnight saw
the May current account total fall to ¬•1.205 trillion while the May trade
balance narrowed to ¬•391 billion.Also,
June bank lending was off -2.0% y/y and the big news in Japan overnight was a
report that May machine orders were off 9.1% m/m and lower at +4.3% y/y.Additionally, June bankruptcies were off
19.3% y/y, June machine tool orders were up 138.8% y/y, and the economy
watchers‚Äô survey fell with the current and outlook indices weaker at 47.5 and
48.3, respectively.The Nikkei 225 stock
index climbed 2.76% to close at ¬•9,535.74.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 ¬•112.50 level and was supported
around the ¬•110.70 level.The British pound moved higher vis-√†-vis
the yen as sterling tested offers around the ¬•134.55 level while the Swiss franc moved higher vis-√†-vis
the yen and tested offers around the ¬•84.35 level. In Chinese news, the U.S. dollar appreciated vis-√†-vis the Chinese
yuan as the greenback closed at CNY 6.7763 in the over-the-counter market, up
from CNY 6.7771. Data to be released in
China overnight include the Q2 entrepreneur confidence index and the Q2
business climate index.People‚Äôs Bank of
China reported China‚Äôs current account surplus will fall for a second consecutive
year in 2010 as domestic demand grows.PBoC kept the yield on three-month bills unchanged today, adding to
speculation it will not seek to drain liquidity from the financial system.PBoC is expected to keep its ‚Äúmoderately
loose‚ÄĚ monetary policy unchanged for the next six months.
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.5100 figure and was capped around the US$ 1.5240 level. As expected, Bank of England kept its main
Bank Rate unchanged at 0.50% and kept its asset purchase program unchanged at ¬£200
billion.Sterling came off on
speculation the U.K. economic expansion may be moderating.Prime Minister Cameron has plans to reduce
government spending to help reduce the country‚Äôs budget deficit.Sterling also moved lower after it was
reported that Halifax June house prices were off 0.6% m/m.Additionally, May industrial production was
up 0.7% m/m and 2.6% y/y while May manufacturing production printed at +0.3%
m/m and 4.3% y/y.Other data saw the
NIESR June GDP estimate moderate to +0.7% from a revised +0.9% level.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 ¬£0.8380 level and was supported around the
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.0480 level and was capped around the CHF 1.0565 level. Data released in Switzerland today saw the
June unemployment rate tick lower to 3.8%. June producer and import prices data
and the July ZEW survey will be released next week.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 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 this week 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
1.3355 level while the British pound
moved lower vis-√†-vis the Swiss franc and tested bids around the CHF 1.5880
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