By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3490 level and was supported around the $1.3340 level. The common currency rocketed higher on news that the European Union may be more supportive of a financial aid package for Greece than previously believed by the markets. Fitch downgraded Greece’s credit rating to the lowest investment grade possible but European officials announced plans to support Greece if needed, pushing the yield on 10-year Greek debt down by 29 bps from yesterday’s eleven-year highs. The financial package is said to include an arrangement between the International Monetary Fund, the eurozone, and other European Union institutions whereby Greece would have to apply to both the EU and the IMF jointly to avail of as much as €20 billion in funding. The European Union’s credits to Greece would incorporate bilateral loans at a rate higher than the IMF’s credit facility but would be more attractive than prevailing rates in the market. European Central Bank President Trichet called on governments to reduce spending soon and added Europe’s economic recovery may be a “bumpy road.” Data released in Germany today saw the February trade balance print at €12.6 billion while the February current account printed at €9.1 billion. In U.S. news, February wholesale inventories printed at +0.6%, up from the upwardly revised prior reading of +0.1%. Federal Reserve Chairman Bernanke last night reported “policymakers must respond forcefully, creatively, and decisively to severe financial crises.” Euro bids are cited around the US$ 1.3175 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥93.10 level and was capped around the ¥93.80 level. Bank of Japan Governor Shirakawa met Prime Minister Hatoyama today in the first of a series of quarterly meetings where the central bank will likely be pressured by the government to enact new easing measures. Shirakawa reported the central bank’s monthly purchase of ¥1.8 trillion in Japanese government bonds was not discussed during the meeting. Hatoyama reported both the government and central bank will take measures to counter deflation. Bank of Japan this week maintained its assessment of the economy, reporting “Japan’s economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures.” BoJ reiterated the economy still lacks “momentum to support a self-sustained recovery in domestic private demand.” The central bank also reported corporate sentiment is improving, capital spending is leveling out, and the deceleration in consumer prices will moderate. Data released in Japan yesterday saw the February current account total print at ¥1.47 trillion while February machine orders were off 5.4% m/m and 7.1% y/y. Also, March bankruptcies were off 14.5% y/y and March machine tool orders were up 262.1% y/y. Additionally, the March economy watchers’ survey improved at the both the current and outlook levels. The Nikkei 225 stock index climbed 0.32% to close at ¥11,204.34. U.S. dollar offers are cited around the ¥96.85 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥125.80 level and was supported around the ¥124.65 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥144.30 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.70 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8236 in the over-the-counter market, down from CNY 6.8243. The government plans to sell about CNY 200 billion of bonds on behalf of local governments this quarter. The move higher in the yuan was expected by most dealers as simmering tensions between the U.S. and China have thawed a little bit in the run-up to next week’s meeting in Washington, D.C. between leadership from the two countries. Treasury Secretary Geithner met with Chinese leadership in Beijing yesterday to stress the importance of bilateral relations. People’s Bank of China sold about CNY 15 billion in three-year bills this week, its first sale since June 2008 and the central bank’s latest attempt to drain liquidity and manage money supply growth. There is a growing sense that China is close to announcing an important shift in its currency policy, possibly including a further liberalization of the yuan’s exchange rate.
₤
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5390 level and was supported around the $1.5265 level. As expected, Bank of England’s Monetary Policy Committee kept its main Bank rate unchanged at 0.50% yesterday and kept its asset purchase program unchanged at £200 billion. Bank for International Settlements yesterday issued a stern warning about the size of U.K. sovereign debt. Many data were released in the U.K. this week. First, March Halifax house prices were up 1.1% m/m and 5.2% y/y for the most recent three-month period. Second, February industrial production was up 1.0% m/m and off 0.1% y/y. Third, February manufacturing production was up 1.3% m/m and 1.4% y/y. Fourth, the March NIESR GDP estimate came in at +0.4%, unchanged from the revised prior reading. Cable bids are cited around the US$ 1.4455 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.8775 level and was supported around the £0.8705 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0655 level and was capped around the CHF 1.0760 level. Swiss National Bank Governing Board member Danthine said “avoiding inflation” is a “medium-term” challenge. Data released in Switzerland this week saw the March unemployment rate decline to 4.2% from 4.4% in February. Swiss National Bank’s 2009 Annual Report was released this week in which the central bank indicated it expects GDP growth around 1% this year, down from the prior forecast of 1.5%. Swiss National Bank is thought to have intervened again this week 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. 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 1.4395 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6510 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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