By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2795 level and was supported around the $1.2585 level. The common currency retraced some of yesterday’s losses and traders were surprised by the sharp increase in U.S. April non-farm payrolls data that saw a gain of +290,000, about +100,000 stronger than expectations. The April unemployment rate ticked higher to 9.9% from 9.7% and April private payrolls printed at +231,000, up from the upwardly revised print of +174,000 in March. Overall March non-farm payrolls were upwardly revised to +230,000 from +162,000 and even when temporary census workers are factored in, today’s print was relatively strong. Other data saw April average hourly earnings climb 0.0% m/m and 1.6% y/y while April average weekly hours worked remained steady at 34.1. The household survey reported the U.S. economy has now added about 1.6 million jobs year-to-date. Notably, manufacturering jobs increased at their strongest pace since August 1998 and service sector jobs grew the most since November 2006. Traders will struggle to reconcile continued improvements in the U.S. economy against the backdrop of the weaker aggregate economic climate in Europe and other global risk factors. There is talk that yesterday’s precipitous decline in U.S. equity prices was caused by human error or program trading. In eurozone news, German March industrial production was up 4.0% m/m and 8.6%. Many dealers continue to express disappointment that the European Central Bank did not send more acute signals yesterday regarding its commitment to shoring up confidence in the eurozone. ECB President Trichet indicated policymakers did not discuss purchasing eurozone bonds in the secondary market but most ECB-watchers believe the central bank will be forced to adopt extensive quantitative easing policies. Eurozone finance ministers are convening an emergency meeting in Brussels this evening. Euro bids are cited around the US$ 1.2295 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.85 level and was supported around the ¥90.00 figure. Bank of Japan reported it is going to inject ¥2 trillion into the financial system to assist in stabilizing the markets following yesterday’s volatile global trading activity. BoJ’s actions represent its first same-day repurchase operations since December when the central bank reacted to the Dubai World crisis and BoJ’s actions were the largest since December 2008. Finance minister Kan reported Group of Seven officials will hold a conference call to discuss the Greek debt crisis later today. Albeit the intraday low was exactly ¥90.00, there was no talk the government intervened overnight and a Ministry of Finance official reported joint currency intervention is “unlikely.” April monetary base data released overnight saw growth of 2.9% y/y. The Nikkei 225 stock index lost 3.10% to close at ¥10,364.59. 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 ¥118.35 level and was supported around the ¥113.60 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥138.15 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.75 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8258 in the over-the-counter market, down from CNY 6.8266. Market chatter surfaced today that People’s Bank of China may lifts its interest rate by 27bps no later than June following its announcement last Sunday that it is raising its reserve requirement ratio for the third time this year. A Chinese think-tank overnight said China should revalue the yuan trading band. Many dealers believe China will revalue the yuan before the end of the second quarter.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4475 level and was capped around the $1.4935 level. Cable continues to move lower on account of political kabuki in the U.K. Even though the Tories’ Cameron won the most votes in yesterday’s General Election, his party does not have a majority government and there is a lot of horse-trading going on between the Tories, Labour, Liberal Democrats, and other minor parties to determine who will be able to form a coalition. The lack of an outright political majority in the U.K. will hang heavily on the U.K. as that country’s fiscal deficit is among the worst in the industrialized world. Many data were released in the U.K. today. First, April Halifax house prices were off 0.1% m/m. Second, April PPI input prices were up 0.6% m/m and 13.1% y/y while April PPI output was up 1.4% m/m and 5.7% y/y. Also, PPI core output was up 1.1% m/m and 4.4% y/y. Cable bids are cited around the US$ 1.4335 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8805 level and was supported around the £0.8440 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1055 level and was capped around the CHF 1.1175 level. Data released in Switzerland today saw the April unemployment rate decline to 4.0% from 4.2% in March while March retail sales printed at 4.5%, up from the prior reading of 3.1%. Swiss Economy minister Leuthard verbally intervened, saying the franc’s strength vis-à-vis the euro must stay within a “certain limit.” The franc went on a rampage yesterday as the Swiss National Bank was deemed to have been absent from the market. The central bank may have deemed that euro sentiment is so negative that it would have been futile to buy euro for francs. The CHF 1.4320 level on the cross has been talked about a lot as a key level the SNB has supported before yesterday. U.S. dollar offers are cited around the CHF 1.1270 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4185 level while the British pound depreciated vis-à-vis the Swiss franc and tested bids around the CHF 1.6090 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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