By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3355 level and was capped around the $1.3495 level. The common currency fell significantly on new concerns about Greece’s fiscal condition. A report suggested Greece may try to bypass the International Monetary Fund’s involvement in financial assistance to the country because the conditions may be too tight. Greek finance minister Papaconstantinou denied the report and said the country has never sought to exclude the IMF from the rescue package. Greece needs to borrow about €42 billion in 2010 and this may include as much as US$ 10 billion in U.S. dollar bonds. IMF officials are expected to meet with Greek officials again this week. In another report, there is talk that Greek investors and corporations are moving assets outside of Greece for asset protection purposes. This is the latest chapter in the Greek saga and it is likely not the last. Some dealers have suggested Greece’s woes are analogous to AIG’s and have compared the situations involving Portugal and Spain to Lehman’s troubles, in reference to the U.S. investment banking giant that was not bailed out. Data released in the eurozone today saw the April Sentix investor confidence index print at +2.5, up from the prior reading of -7.2. EMU-16 March PMI data will be released tomorrow. In U.S. news, minutes from the Federal Open Market Committee’s March meeting were released today and they reported “While recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth.” The minutes also revealed “Participants saw recent inflation readings as suggesting a slightly greater deceleration in consumer prices than had been expected. A number of participants observed that moderation in price changes was widespread across many categories of spending.” Most dealers believe the Fed will wait to raise its benchmark federal funds target rate for several months because they want to see if consumer prices are more inflationary or deflationary and they will want to see ongoing improvements in the U.S. labour market. It was reported on Friday that March non-farm payrolls expanded at their highest rate in three years. Minneapolis Fed President Kocherlakota today said he supports the gradual sale of mortgage-backed securities. The Fed last week ended a massive US$ 1.25 trillion MBS-buying program that provided liquidity to the financial system. Euro bids are cited around the US$ 1.3175 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥93.65 level and was capped around the ¥94.35 level. Finance Minister Kan reported Bank of Japan Governor Shirakawa is “doing a very good job.” Financial services minister Kamei reported the government will need to enact additional fiscal measures to stop the strong deflationary pressures that are evident. Japan’s ability to implement additional budgetary stimuli is rather limited given the massive amount of outstanding Japanese government bonds. Data released in Japan today saw the February coincident index improve to 100.7 from 100.3 while the February leading economic index improved to 97.9 from 96.7. The central bank may increase its assessment of the Japanese economy on account of an improvement in the export sector and the recent improvement in the Tankan survey of corporate sentiment. The Nikkei 225 stock index lost 0.50% to close at ¥11,282.32. U.S. dollar offers are cited around the ¥96.85 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥125.35 level and was capped around the ¥127.35 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥142.05 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.50 level. In Chinese news, the U.S. dollar was unchanged vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8257 in the over-the-counter market. The big news involving China continues to be that the Obama administration is delaying the release of a report due 15 April that could have potentially labeled China a currency manipulator. The move to delay the release of the report could signal negotiations are ongoing between the two countries or could signal China may let the yuan appreciate further in the coming days. Chinese leadership will visit Washington, D.C. on 12-13 April. It was reported today that China’s net foreign debt totaled US$ 428.6 billion at the end of 2009, up 14% y/y.
₤
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5125 level and was supported around the $1.5305 level. Cable spun lower after Prime Minister Brown called for a general election on 6 May and Parliament was dissolved. The consensus is that the election could end in a hung Parliament even if challenger Cameron of the Tory party unseats the unpopular Brown. Data released in the U.K. today saw March construction PMI improve to 53.1 from 48.5 in February. Cable bids are cited around the US$ 1.4455 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.8765 level and was capped around the £0.8860 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0720 level and was supported around the CHF 1.0610 level. Data released in Switzerland today saw March consumer price inflation up 0.1% m/m and 1.4% y/y. Swiss National Bank is said to have intervened in the market last week by selling Swiss francs in what is estimated to have been a massive operation. Swiss monetary, financial, and government officials have been warning that they will not tolerate a further increase in the franc in recent weeks but many traders speculated the central bank would not intervene to weaken the franc on account of growth in the Swiss economy. While forecasts for economic growth and inflation have both been upwardly revised in recent weeks, SNB’s latest probable intervention underscores their commitment to preserving an export-driven recovery. U.S. dollar offers are cited around the CHF 1.0920 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4315 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6335 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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