Tuesday June 22, 2004 - 20:11:26 GMT
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DailyFX Forex Report 06-22-04
DailyFX Forex Report 06-22-04
· Euro Weaker As ZEW Expresses Disappointment in Smaller Rise
· Swiss Trade Surplus Increases for 16th Consecutive Month
· Pound Suffers As High Yielding Currencies Sell off
The German ZEW survey of analyst expectations improved from 46.4 to 47.5 in the month of June, which was right in line with expectations. However, despite the increase, the euro is weaker, as the press release expressed the ZEW’s disappointment that the results were not even stronger, given that fundamental indicators had pointed to the possibility of a stronger recovery. Increasing exports, higher imports and a “calmer oil market” has reversed the indicator’s 5-month downward trend. The expectations component is also less pessimistic, increasing from –75.9 to –69.8. Economic sentiment for the Eurozone deteriorated, as the indicator fell from 59.2 to 56.8. The outlook improved modestly. French consumer spending fell a less than expected 0.2% m/m in May, which follows an upwardly revised 1.8% gain in April. Weakness came from demand for retail goods and textiles, while demand for autos remained strong.
Switzerland’s trade surplus increased for the sixteenth consecutive month from CHF0.49bln to CHF1.34bln. Rising export demand has helped to drive demand for Swiss watches, machinery and metals. Exports account for close to half of GDP, which makes this data particularly important. Tomorrow we are expecting Swiss producer and import prices. Prices for the month of April incurred its largest increase since September 2000, as a result of higher metal costs. Prior to last month’s release, annual producer and import price growth has been negative since April 2003. Meanwhile in the US, there are no economic releases until Thursday. Amidst the official “quiet period,” none of the Fed officials speaking today touched on monetary policy. We expect more range trading ahead of the FOMC rate decision on June 30th, which is also an important day in other countries. The decision coincides with the handover of Iraq, the Swiss KoF leading indicator release, first quarter GDP reports for the UK and Canada and the Japanese Tankan Report.
The only significant economic release scheduled for tomorrow is the UK’s MPC minutes from the June 9/10 meeting, where they raised rates by 25bp to 4.50%. As we mentioned yesterday, in the past week, we saw CPI rising strongly, another robust retail sales report, impressive unemployment data, and strong wage growth. These releases will provide a strong justification for the MPC’s decision to raise rates for the third time this year earlier last month. What to watch for is whether the BoE seriously discussed the possibility of hiking rates by 50bp. A more hawkish tone could help the pound break out of its recent range, while indication of a more gradualist policy going forward will weigh on the currency. According to a Bloomberg survey conducted on Friday, 36 out of 41 economists polled expect the BoE to leave rates unchanged on July 8th.
The yen has lost some of its recent gains against the dollar. A number of different factors have contributed to today’s rally in the USDJPY including rumors that the MoF may have been checking prices or adjustments in positioning ahead of the FOMC meeting to rising political tensions in the Middle East prompting bears to take profit in fear of higher oil prices. However, as we have previously stressed, gains should be limited, given strong Japanese fundamentals. A rally towards 112 should only attract more sellers. News from China today supports this belief. Premier Wen Jiabao said today that China, the second largest destination for Japanese exports, can achieve a “soft landing.” Wen predicts growth to slow from 9.1% in 2003 to 7% by the end of the year. The government has taken active measures to slow an investment boom that is sparking inflation concerns.
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