By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3470 level and was capped around the $1.3585 level. The common currency failed to sustain early gains this week and was pushed lower on Friday after U.S. equities tumbled. The U.S. Securities and Exchange Commission filed fraud charges against Goldman Sachs for its involvement in the sub-prime mortgage crisis that rocked the financial world. Shares in Goldman Sachs finished the week down more than US$ 18 and today’s news is likely to accelerate the Obama administration’s calls for greater regulatory reform, particularly over derivatives. The U.S. financial sector was doing decently following some initial first quarter earnings reports from the likes of Bank of America and JPMorgan Chase. Kansas City Fed President Hoenig said the Fed should exit monetary policy as “delibertely as possible” and called on the Fed to “eventually” reduce its balance sheet below US$ 1 trillion. San Francisco Fed President Yellen warned the Fed has “stepped on the gas as much as it can.” Data released in the U.S. today saw March housing starts gain 1.6% m/m and building permits climbed 7.5% m/m. Also, mid-April University of Michigan consumer sentiment fell back to 69.5 from the prior reding of 73.6. In eurozone news, traders are closely monitoring the situation involving the Icelandic volcano that erupted this week for the first time in nearly two centuries. The volcano has prompted the cancellation of a significant number of flights across Europe and is having a negative impact on cross-border business. Eurozone finance ministers are said to have ordered Greece to prepare to tap its credit facility with the European Union and the International Monetary Fund. European Central Bank member Stark said he is skeptical about IMF loans to Greece and stressed Greece must repay any bilateral loans it obtains. Data released in the eurozone today saw March consumer price inflation up 0.9% m/m and 1.4% y/y with the core rate up 1.0% y/y. Additionally, the February trade balance came in at € 2.6 billion. 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 ¥91.90 level and was capped around the ¥93.15 level. A Democratic Party of Japan legislator officially called for a 2% inflation target as a way to lift Japan out of its long-standing deflationary spiral, a policy that has been advocated by DPJ legislators for weeks. Yesterday, Bank of Japan upgraded its economic assessment in seven of the country’s nine areas. The central bank reported the local economies “had picked up, although there remained differences in the pace and extent of the recovery.” The upgrade increases the likelihood the central bank will increase their estimates for economic growth and inflation when its semi-annual outlook is released on 30 April. Data to be released in Japan next week include consumer confidence and machine tool orders. The Nikkei 225 stock index lost 1.52% to close at ¥11,102.18. 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 ¥123.85 level and was capped around the ¥126.40 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥141.30 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.45 level. 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 6.8260. People’s Bank of China adviser Li Daokui said China has reached a “consensus” on adjusting its exchange rate gradually and is not bowing to U.S. pressure by allowing the yuan to appreciate. Many data were released in China this week. First, Q1 real GDP came in on the high end of expectations, printing at an annualized growth rate of 11.9% y/y. Also, the March producer price index was up 5.9% y/y and March consumer prices were up 2.4% y/y. Additionally, March retail sales were up 18.0% y/y and March industrial production was up 18.1% y/y. These data make it extremely likely the Chinese government will revalue its yuan currency or widen its trading band by an estimated 2-3%. Some traders believe this move could take place as early as next week while most China-watchers believe it will happen before the end of the second quarter.
₤
The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5365 level and was capped around the $1.5505 level. Prime Minister Brown and Tory leader Cameron debated this week ahead of the 6 May general election. Many political pundits believe the contest will result in a hung Parliament and some now say the general election is too close to call with Cameron perhaps still holding a slight lead over Brown. Data released in the U.K. this week saw March Nationwide consumer confidence print at 72, down from a revised +81. Cable bids are cited around the US$ 1.5140 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.8800 figure and was supported around the £0.8745 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0630 level and was supported around the CHF 1.0560 level. Data released in Switzerland today saw March producer and import prices climb 0.5% m/m and 0.0% y/y. Swiss National Bank Vice Chairman Jordan this week said regulators cannot allow governments to be “blackmailed” into protecting banks from collapse during future financial crises. There was talk yesterday that the Swiss National Bank may have sold francs for euro this week in an intervention to try and support the Swiss export sector. 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 1.4325 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6290 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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