Forex Market Commentary and Analysis (9 July 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2610
level and was capped around the $1.2720 level. The common currency reached its highest level
since 12 May before late-week profit-taking knocked the pair lower.Data released in Germany today saw the June headline
consumer price index come in as expected at 0.1% m/m and 0.9% y/y while the
harmonized component came on at 0.0% m/m and 0.8% y/y.Other data saw French May manufacturing
production up 0.5% m/m and 7.5% y/y while May industrial production was up 1.7%
m/m and 8.2% y/y.Yesterday, the
European Central Bank kept its benchmark refinancing rate unchanged at 1.0%, an
all-time low.ECB President Trichet
optimistically noted ‚Äúindicators suggest that a strengthening in economic
activity took place during the spring.‚ÄĚ He described the current 1.0% rate as
‚Äúappropriate‚ÄĚ and added inflation expectations ‚Äúremain firmly anchored.‚ÄĚTraders also moved this week into the common
currency on a report that eurozone banks‚Äô stress tests may assume smaller
losses on Greek bonds that previously anticipated.Currently, the credit markets are pricing in
losses of 60% on Greek bonds in the event of a government default while
reglatory guidance is now reportedly focusing on a loss around 17% on Greek
debt and 3% on Spanish bonds.The ECB is
expected to discuss stress tests with banks on 21 July.In
U.S. news, data released today saw May wholesale inventories grow 0.5%, up
from the revised prior result of 0.2%.The big question with the U.S. economy is whether or not the U.S. will
avert a double-dip recession.Additionally,
some traders believe price pressures may sink further in the U.S. and that the
U.S. economy may flirt with a deflation.The Federal Reserve plans to sell
US$ 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 this week called
on the U.S. to reduce its bloated debt position.This week, 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 ¬•88.70 level and was supported around
the ¬•88.30 level. Bank of Japan is
expected to raise its fiscal year 2010 economic growth forecast to at least
2.5% from the current estimate of 1.8%.The
central bank will release its semiannual outlook on economic activity and
prices at its two-day Policy Board meeting next week.As expected, Bank of Japan this week 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.‚ÄĚData to be
released in Japan next week include the June domestic corporate good price
index, June consumer confidence, and May industrial production.The Nikkei 225 stock index climbed 0.52% to
close at ¬•9,585.32.U.S. dollar bids are
cited around the ¬•86.29 level.The euro
moved lower vis-√†-vis the yen as the single currency tested bids around the
¬•111.50 level and was capped around the ¬•112.65 level.The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•133.40 level while the Swiss franc moved
lower vis-√†-vis the yen and tested bids around the ¬•83.50 level. In Chinese news, the U.S. dollar depreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.7730 in the
over-the-counter market, down from CNY 6.7763. Data to be released in China next week include
the June trade balance.
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.5080 level and was capped around the US$ 1.5200 figure. Many data were released in the U.K.
today.First, the May total trade
balance widened to -¬£3.817 billion from the prior result of -¬£3.502
billion.Other data released today saw
June PPI input costs off 0.2% m/m and up 10.7% y/y while June output was off
0.3% m/m and up 5.1% y/y at the headline level and off 0.3% m/m and up 4.8% y/y
at the core level.As expected, Bank of
England yesterday 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
Cable bids are cited around the US$ 1.4620 level.The
euro depreciated vis-√†-vis the British pound as the single currency tested bids
around the ¬£0.8330 level and was capped around the ¬£0.8385 level.
franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers
around the CHF 1.0590 level and was supported around the CHF 1.0485 level. Data released in Switzerland this week 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.Other 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 1.3395 level while the
British pound moved higher vis-√†-vis the Swiss franc and tested offers
around the CHF 1.6055 level.
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