By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
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The euro depreciated sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3035 level and was capped around the $1.3215 level. The common currency tumbled again on renewed Greek and European woes. A €110 billion bailout package for Greece including a sizable contribution from Germany was announced over the weekend and some traders are speculating the package may not be large enough to meet all of Greece’s needs over the next three years. The Greek bailout puts the spotlight on other highly-indebted eurozone countries. At the end of 2009, Greece had a total debt equivalent to US$ 236 billion with US$ 45 billion owed to Germany, US$ 75 billion owed to France, and US$ 15 billion owed to the U.K. At the end of 2009, Italy’s total debt was US$ 1.4 trillion, including US$ 511 billion owed to France, US$ 190 billion owed to Germany, and US$ 77 billion owed to the U.K. At the end of 2009, Spain had US$ 1.1 trillion in debt including US$ 238 billion owed to Germany, US$ 220 billion owed to France, and US 114 billion owed to the U.K. At the end of 2009, Ireland had a total debt of US$ 867 billion including US$ 184 billion owed to Germany, US$ 188 billion owed to the U.K., and US$ 60 billion owed to France. At the end of 2009, Portugal’s total debt totaled US$ 286 billion with US$ 86 billion owed to Spain, US$ 47 billion owed to Germany, US$ 45 billion owed to France, and US$ 24 billion owed to the U.K. Collectively, these data evidence a massive amount of money owed to Germany, a country that will likely continue to play the lead role in regional bailouts. Furthermore, last week’s credit downgrades to Spain and Portugal might render it less likely those countries will be able to fulfill all of their debt obligations. Data released in the eurozone today saw EMU-16 producer price inflation up 0.6% m/m and 0.9% y/y. Also, German March retail sales were off 2.4% m/m and up 2.7% y/y. Chartists are eyeing reported stops below the US$ 1.2990 and US$ 1.2900 levels with some bears talking about a downside target around the US$ 1.2740 level. There is talk that the European Central Bank may need to enact stronger plans to deal with the eurozone’s problems with some whispers about a quantitative easing policy that could see the ECB purchase bonds in the secondary market. In U.S. news, data released today saw March factory orders climb 1.3%, unchanged from the upwardly revised 1.3% print. Also, March pending home sales were up 5.3% m/m and 23.5% y/y. Data to be released on Friday include April non-farm payrolls and unemployment data. Estimates indicate non-farm payrolls may have increased 189,000 last month with the unemployment rate hanging steady around 9.7%. Former Federal Reserve Chairman Volcker reported U.S. unemployment will be “too high for too long.” Euro bids are cited around the US$ 1.2990 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥94.40 level and was capped around the ¥94.95 level. Japanese financial markets remained 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%. April monetary base data will be released on 6 May. 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 lower vis-à-vis the yen as the single currency tested bids around the ¥123.60 level and was capped around the ¥125.45 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 ¥86.30 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8268 in the over-the-counter market, up from CNY 6.8253. Data released in China overnight saw the April HSBC manufacturing PMI index decline to 55.4 from the prior reading of 57.0. The reported pullback in Chinese manufacturing data suggests import-dependent industrialized countries may have seen a deceleration in economic growth last month. Chinese banks are increasing their reserves after People’s Bank of China raised its bank reserves ratio for the third time this year this weekend and Chinese equities declined to a seven-month low today. 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$ 1.5125 level and was capped around the $1.5265 level. Political pundits are now forecasting the Tories may have edged ahead and may be closer to winning an outright victory at this Thursday’s General Election. Sterling could get a boost if the Tories win because the party has long been perceived as pro-sterling. Many data were released in the U.K. today. First, March net consumer credit printed at £300 million, down from the revised £600 million prior reading. Second, March net lending secured on dwellings fell sharply to £300 million from an upwardly revised £1.8 billion. Third, March mortgage approvals climbed to 48,900 from a downwardly revised 46,900. Fourth, the M4 money supply indicator grew 0.2% m/m and 3.6% y/y. Fifth, April PMI manufacturing printed at 58.0 improved to 58.0 from a revised 57.3. Cable bids are cited around the US$ 1.5030 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8630 level and was capped around the £0.8670 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0945 level and was supported around the CHF 1.0840 level. 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.” April consumer price inflation data will be released on Thursday. U.S. dollar offers are cited around the CHF 1.0930 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4320 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 1.6595 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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