By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
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The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3275 level and was capped around the $1.3415 level. The common currency reached its lowest level since May 2009 as the Greece’s debt was downgraded to junk status by Standard & Poor’s – the first time a member of the eurozone lost its investment-grade status since the euro started trading in 1999. Greece was reduced to BB+ from BBB+ and S&P warned Greek bondholders may lose as much as 70% of their investments as Greece restructures its debt. S&P also reduced Portugal’s ratings by two notches to A- from A+. European Union leaders will likely convene in the coming days to deliberate Greece’s decision to activate a €45 billion emergency aid package. German Chancellor Merkel’s government delayed a decision this week on whether to release bailout funds for Greece. Merkel faces an election in the German state of North-Rhine Westphalia on 9 May and many Germany voters are said to oppose assistance for Greece without further fiscal cuts by Greece. The Greek downgrade renders it possible that the European Central Bank may be unable to utilize Greek bonds as eligible collateral in repo and other financing activities. There is chatter that the ECB may be forced to resort to the so-called nuclear option that could see monetary authorities purchase European government bonds. Data released in Germany today saw the May GfK consumer confidence survey improve to 3.8 from a revised reading of 3.4. Also, the March import price index moved higher 1.7% m/m and 5.0% y/y. Data released in France today saw April consumer confidence print at -37, down from the revised prior reading of -34, and March total jobseekers fell by 6,600. In U.S. news, the February S&P/CaseShiller house price index was up 0.64% y/y, up from a downwardly revised -0.73%, and was off 0.10% m/m. Additionally, April consumer confidence improved to +57.9 from the prior reading of +52.3 and the April Richmond Fed manufacturing rallied to +30 from the prior reading of +6. Euro bids are cited around the US$ 1.3175 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥93.35 level and was capped around the ¥94.05 level. Traders moved into yen during a flight to quality as global financial markets came off significantly on account of exacerbated credit problems in the eurozone. There are indications that Japan’s economy continues to improve and there is a sense that some Bank of Japan Policy Board officials may be unwilling to expand the central bank’s emergency loan program any further. Many dealers believe the central bank may upgrade its twice-yearly outlook for gross domestic product and prices when policymakers convene on Friday. Data released in Japan overnight saw the April small business confidence index print at 46.8, up from the prior reading of 45.8. Data to be released tonight include March retail trade. The Nikkei 225 stock index climbed 0.42% to close at ¥11,212.66. 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 ¥124.05 level and was capped around the ¥125.95 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥143.10 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.50 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8257 in the over-the-counter market, down from CNY 6.8266. Data to be released in China this week include April PMI manufacturing. People’s Bank of China Governor Zhou this weekend reiterated China will pursue a “proactive fiscal policy and a relatively easy monetary policy.” There were not many official comments about China’s foreign exchange rate policy this weekend at the G-7 and G-20 meetings. China is expected to widen its yuan trading band at any time.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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