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$ 1.2235 level and was capped around the $1.2370 level. The common currency remains severely on the defensive on account of heightened eurozone sovereign debt concerns. The common currency has not traded at these depressed levels since April 2006. European Central Bank member Nowotny said the euro is trading “in an absolutely normal range” and characterized the eurozone’s fiscal deficits and ability to finance them as “very serious.” Borrowings at the ECB discount window have surged recently and are now above €4 billion. The London interbank offered rate (Libor) for three-month loans in U.S. dollars reached its highest level in more than nine months at 0.46% today. The U.S. dollar Libor-OIS spread, a barometers of banks’ reluctance to lend, grew to 0.25%, the highest level since 17 August. Three-month Libor rates have expanded for eleven consecutive weeks and this is important because approximately US$ 360 trillion of financial products worldwide are benchmarked to the rate. Credit default swap rates on several European countries continue to rise with Greece, Portugal, and Spain leading the way. In U.S. news, data released today saw the May Empire State manufacturing index decline to 19.11 from the prior reading of 31.86. March net long-term TIC flows expanded significantly to US$ 140.5 billion from the prior reading of US$ 47.1 billion while total net TIC flows grew to US$ 10.5 billion from the upwarly-revised prior reading of US$ 9.7 billion. The May NAHB housing market index will be released later in the day and data to be released tomorrow include April PPI, April housing starts, and April building permits. 240 banks have failed in the U.S. since 2007 and a bill in the Senate would leave the Federal Reserve at the center of U.S. oversight. European Commission Financial Services Commissioner Barnier reported he will seek a U.S. agreement that CDS trades must be registered. Euro bids are cited around the US$ 1.2140 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.70 level and was supported around the ¥91.75 level. Former Bank of Japan Policy Board member Taya today said “Three to four years from now I expect a sovereign debt crisis to hit Japan and long-term interest rates to surge.” Notably, Japan’s public debt is nearly twice the size of its gross domestic product – the highest level among major industrial countries. Data released in Japan overnight saw March machine orders up 5.4% m/m and 1.2% y/y while the April domestic corporate goods price index was up 0.4% m/m and off 0.2% y/y. Also, April Tokyo-area condominium sales were up 22.6% y/y. The March tertiary index will be released tonight followed by April consumer confidence, April machine tool orders, and April department store sales. The Nikkei 225 stock index lost 2.17% to close at ¥10,235.76. 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 ¥114.55 level and was supported around the ¥112.45 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥131.05 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥81.75 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8277 in the over-the-counter market, up from CNY 6.8266. Data released in China on Friday saw April foreign direct investment up an actual 24.69% y/y, up from the prior reading of 12.08%. Yuan forwards weakened on new speculation that China may delay the appreciation of its yuan currency on elevated fears about Europe’s debt crisis. Singapore, Japan, and France called for China to end its peg to the U.S. dollar. U.S. Treasury Secretary Geithner on Thursday said he is “confident” China is going to allow its currency to reflect market forces.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4250 level and was capped around the $1.4545 level. U.K. Chief Treasury Secretary Laws reported Treasury officials and Bank of England officials noted it “would be responsible and safe” to start reducing the fiscal deficit this year. Data released in the U.K. overnight saw May Rightmove house prices up 0.7% m/m and 4.3% y/y while the May CBI industrial trends total orders index improved to -18 from the prior reading of -36. April consumer price inflation data will be released tomorrow. Cable bids are cited around the US$ 1.4110 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8585 level and was supported around the £0.84950 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1445 level and was supported around the CHF 1.1320 level. There is renewed speculation among some traders that Swiss National Bank will slow its purchases of euro for francs via official interventions. Foreign currency investments comprise about 60% of the SNB’s balance sheet. The Credit Suisse ZEW survey will be released on Thursday followed by April money supply data on Friday. The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4015 level while the British pound lost ground vis-à-vis the Swiss franc and tested bids around the CHF 1.6300 figure.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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