By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
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The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3325 level and was capped around the $1.3410 level. There is growing talk that Greece will default on its debt and this was exacerbated by a market rumour today that Germany is withdrawing its support for financial assistance to Greece. The yield on 10-year Greek bonds reached 407bps over benchmark German bunds today, the highest level since the euro’s introduction in 1999. Continued pressure on Greek assets is also rendering it more difficult for other highly-indebted eurozone countries including Portugal and Spain to address their fiscal imbalances. The common currency also came off on a report that the eurozone registered zero growth in the fourth quarter, a downgrade from the earlier report of 0.1% growth and down from the third quarter’s 0.3% growth rate. On an annualized basis, Q4 growth was off 2.2% y/y from the previous reading of -2.1% y/y. Other EMU-16 data released today saw March PMI services improve to 54.1 from the prior reading of 53.7 while the EMU-16 March PMI composite improved to 55.9 from the prior reading of 55.5. Also, EMU-16 February producer price inflation printed at 0.1% m/m and -0.5% y/y. February retail sales data will be released tomorrow. The European Central Bank is expected to keep monetary policy unchanged tomorrow and for the foreseeable future given the sluggish economic recovery and ongoing problems with eurozone sovereign debt. In U.S. news, data released today saw MBA mortgage applications decline 11.0% in the latest week while February consumer credit fell to –US$ 11.5 billion from the prior reading of +US$ 10.6 billion. Data to be released tomorrow include weekly initial jobless claims, continuing jobless claims, and March ICSC chain store sales. Former Federal Reserve Chairman Greenspan defended his tenure at the Fed in Congressional testimony today, adding enhanced regulation of financial institutions may have averted some of the credit crises over the past couple of years. Additionally, Greenspan reported the securitization of sub-prime mortgages also contributed to the crises as global investors scrambed for yield. Fed Chairman Bernanke today reported the U.S. is “far from out of the woods,” citing a “troubled” commercal real estate sector and “very weak” hiring. Bernanke did not today reiterate that rates will remain low for an “extended period” but noted “stimulative” rates will aid growth. 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 ¥93.40 level and was capped around the ¥94.25 level. As expected, Bank of Japan voted to keep interest rates unchanged overnight with its main unsecured overnight call rate unchanged at 0.1%. BoJ Governor Shirakawa reported “We have confirmed that the economy is currently picking up steadily and on top of that, we are seeing some signs of future progress.” Government pressure on the central bank to ease policy further will likely continue and some BoJ-watchers expect the central bank will loosen policy further again before the end of the quarter. The central bank last month doubled a lending program to ¥20 trillion. Some dealers believe the BoJ will increase its growth forecasts later this month on account of the recent improvement in the export sector. Data to be released in Japan tonight include the February current account total, February trade balance, and February machine orders. The Nikkei 225 stock index climbed 0.09% to close at ¥11,292.83. 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 ¥124.60 level and was capped around the ¥126.15 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥141.75 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.00 figure. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8255 in the over-the-counter market, down from CNY 6.8257. People’s Bank of China announced it will sell three-year bills tomorrow for the first time since June 2008 to drain cash from the economy. PBoC-watchers believe this tightening step will precede eventual increases in benchmark rates and will probably coincide with increases in the yuan’s value. China overnight reported the U.S. and China agree to “respect each other’s core concerns and major values” and added China wants positive ties with the U.S. 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. Chinese and U.S. officials will convene in Washington, D.C. next week and will discuss China’s exchange rate policy and other key issues. People’s Bank of China adviser Li Daokui was on the tape overnight noting China may raise interest rates if the increase in inflation continues and pushes inflation above 3%.
₤
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5285 level and was supported around the $1.5135 level. Data released in the U.K. today saw the March BRC shop price index decline to 1.2% m/m while the March PMI services index fell to 56.5 in March from 58.4 in February. Bank of England is expected to keep interest rates unchanged tomorrow and to maintain its asset purchase program at £200 billion. Cable continues to move lower as Prime Minister Brown called for a general election on 6 May and Parliament was dissolved. The consensus is that the election could end in a hung Parliament even if challenger Cameron of the Tory party unseats the unpopular Brown. Cable bids are cited around the US$ 1.4455 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.8750 level and was capped around the £0.8820 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0745 level and was supported around the CHF 1.0680 level. Swiss National Bank is thought to have intervened again today by selling the franc but this will remain unconfirmed and is far from certain because while the pair appreciated quickly, it did not appreciate by more than 35 pips. Still, the SNB may have sold francs for euro in smaller size today to remind the market that it will not tolerate a stronger franc. Data released in Switzerland today saw February retail sales print weaker-than-expected at +3.1% y/y. U.S. dollar offers are cited around the CHF 1.0920 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4355 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6380 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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