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$ 1.3155 level and was capped around the $1.3340 level. Eurozone finance ministers convened over the weekend and German legislators voted to provide Greece with €29.6 billion over three years. German Chancellor Merkel reported “It doesn’t only mean that we help Greece, but that we stabilize the euro as a whole, which helps people in Germany.” Merkel will face challenging regional elections next week and will probably cede some power. In total, European governments and the International Monetary Fund voted to provide €110 billion in loans to Greece over three years. The European Central Bank voted to suspend its rating limits on Greek debt, meaning the ECB will still accept sovereign Greek bonds and other instruments as repo-eligible collateral. While the deal announced over the weekend removes some uncertainty from the market regarding Greece, it remains to be seen if this aid package will be large enough to help Greece restructure. Another major unknown is whether or not Greece will be able to effect the necessary public spending cuts required to comply with the terms of its financial bailout package. Additionally, there is ongoing attention on Spain, Portugal, and other highly-indebted countries that may require similar financial assistance packages. ECB member Ordonez called on Spain to enact much-needed labour reform. Eurozone data released today saw April PMI manufacturing improve to 57.6 from 57.5 and EMU-16 producer price inflation will be released tomorrow. German April PMI improved to 61.5 and French April PMI ticked lower to 56.6. In U.S. news, data released today saw March personal income and personal spending increase 0.3% and 0.6%, respectively. The March PCE deflator was up 2.0% y/y while core PCE were up 0.1% m/m and 1.3% y/y. Also, April ISM manufacturing improved to 60.4 while the April ISM prices paid index climbed to 78.0. Moreover, March construction spending was up 0.2% m/m. Euro bids are cited around the US$ 1.3175 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥94.45 level and was supported around the ¥93.85 level. Japanese financial markets were closed overnight on account of the Golden Week holiday and will be closed through the middle of the week. Last week, Bank of Japan kept monetary policy unchanged overnight and reported it will help lenders provide credit, possibly using methods from 1998-1999 when lenders gave cash to lenders to address the credit squeeze. The headline overnight unsecured call rate target was maintained at 0.1%. BoJ Governor Shirakawa directed the central bank to stimulate lending “with a view to strengthening the foundations for economic growth.” He added “The government is also trying to map out an economic growth strategy, and the Bank of Japan hopes to give a boost to such efforts with new policy measures.” Last week’s data released in Japan evidence an improving economy that is mired in a deflationary spiral and the central bank’s enhanced rhetoric last week reflects that dichotomy. The new forecast for inflation suggests deflation will end during the next fiscal year with CPI at +0.1%. The Nikkei 225 stock index climbed 1.21% on Friday to close at ¥11,057.40. 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 ¥125.40 level and was supported around the ¥123.95 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥144.10 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.45 level. In Chinese news, the U.S. dollar was unchanged vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8253 in the over-the-counter market. People’s Bank of China lifted its bank reserve ratios for the third time this year, taking the ratio for big banks higher by 50bps to 17.0% and smaller banks higher to 15.0%, effective 10 May. There is market chatter that China may lift its reserve ratio as high as 18% in a bid to manage economic growth. People’s Bank of China is expected to revalue its yuan currency at any time. Data to be released in China tonight include April PMI manufacturing.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5210 level and was capped around the $1.5315 level. Bank of England Governor King reported late last week that the next U.K. political leader will need to oversee tough fiscal reductions, suggesting it will be difficult for the new Prime Minister to escape “lame duck” status. The U.K. has a £163.4 billion budget deficit, equivalent to around 11.6% of the country’s gross domestic product. The Tories’ candidate, David Cameron, won last week’s final debate against Liberal Democratic candidate Clegg and Labour’s Prime Minister Brown. The General Election will take place on 6 May and Cameron is expected to win but Parliament may be hung. Data to be released in the U.K. next week include March consumer credit, March net lending secured on dwellings, March mortgage approvals, the March M4 money supply, April PMI manufacturing, the April BRC shop price index, and April Nationwide consumer confidence. Cable bids are cited around the US$ 1.5030 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8665 level and was capped around the £0.8705 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0845 level and was supported around the CHF 1.0745 level. Data released in Switzerland saw the April purchasing managers index print at 65.9, up from the prior reading of 65.5. April consumer price inflation data will be released on Thursday along with April unemployment data and March retail sales data on Friday. Data released this weekend confirmed the Swiss National Bank has spent more than CHF 40 billion to buy euro this year with CHF 30.2 billion in franc sales in the first quarter alone. Data Swiss National Bank President Hildebrand last week said the SNB will continue to counter any “excessive” gains of the franc, noting there would be a “negative impact” if the franc appreciates “sharply due to its role as a safe haven currency.” Hildebrand noted the SNB “will not allow such a development to turn into a new deflation hazard” and is “acting decisively to prevent an excessive appreciation.” Hildebrand also called on European leaders to conclude negotiations over Greece’s aid package “rapidly.” U.S. dollar offers are cited around the CHF 1.0930 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4340 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 1.6530 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
GCI Financial Ltd (”GCI”) is a regulated securities and commodities trading firm, specializing in online Foreign Exchange (”Forex”) brokerage. GCI executes billions of dollars per month in foreign exchange transactions alone. In addition to Forex, GCI is a primary market maker in Contracts for Difference (”CFDs”) on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.
DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.
