By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
€
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2595 level and was supported around the $1.2295 level. The common currency escalated sharply during the North American session on market rumours the European Central Bank was intervening. The rumour precipitated an acute move, propelling the common currency higher by more than 150 pips in short order. There was no official indication as to whether or not the ECB was on the bid but the euro is so oversold that major short-covering can occur anytime rumours like this emerge. There was also a rumour that the ECB held an emergency meeting to discuss the debt crisis in the eurozone and this also led to short-covering. Most technicians believe the euro will test key long-term technical support levels around the US$ 1.2020 level and eventually absorb the psychologically-important US$ 1.2000 figure. The pair also continues to spiral downward in reaction to Germany’s ban on naked short selling this week. ECB President Trichet today reiterated the central bank’s policies do not represent quantitative easing and said the ECB is “inflexibly attached to price stability, our primary mandate.” Data released in the eurozone today saw EMU-16 May consumer condidence worsen to -18 from -15 and many data will be released tomorrow including PMI surveys and current account numbers. German data released today saw April producer prices up 0.8% m/m and 0.6% y/y. In U.S. news, data released today saw weekly initial jobless claims grow to 471,000 from last week’s revised 446,000 level and continuing jobless claims fell to 4.625 million. Also, April leading indicators were off 0.1% and the May Philadelphia Fed index ticked higher to 21.4. Fed Governor Tarullo warned the crisis in Europe may slow the global economic recovery and the U.S. economy. The Fed’s balance sheet reached a record US$ 2.35 trillion on recent mortgage purchases. A new financial regulatory bill is sailing through the U.S. Senate and the Fed may find its powers broadened. Outgoing Fed Vice Chairman Kohn called for the U.S. of regulatory tools to prevent asset bubbles. Euro bids are cited around the US$ 1.2140 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.95 level and was capped around the ¥91.85 level. Traders expanded their long yen positions as global market sentiment crumbled further over European credit woes. Dealers shook off news that Japan’s economy grew less-than-expected in the first quarter on weak consumption. GDP expanded an annualized 4.9% and nominal GDP was up 1.2% q/q, the largest climb in a decade. Finance minister Kan again called on Bank of Japan to support the economy further. Consumer spending accounted for only about 17% of the quarterly growth rate, the latest indication that final private demand remains moribund. The domestic demand deflator was off 1.9%, a moderation in price declines and the smallest decline in a year. BoJ’s Policy Board will announce its interest rate decision overnight and is expected to keep its benchmark overnight call rate target unchanged at 0.10%. The government will continue to pressure the central bank to do more to counter deflationary pressures. The central bank will likely announce plans to assist lenders in providing credit to certain segments of the Japanese economy. Data released in Japan overnight saw Q1 housing loans were up 1.0% y/y. The Nikkei 225 stock index lost 1.54% to close at ¥10,030.31. 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 ¥109.45 level and was capped around the ¥114.10 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥126.70 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥77.05 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 6.8275. Market talk suggests the U.S. and China will deemphasize a revaluation of the yuan when officials meet soon.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4230 level and was capped around the $1.4465 level. Bank of England Monetary Policy Committee member Posen reported eurozone problems will reduce the U.K.’s consumer price inflation despite “upside risks to inflation.” MPC member Tucker warned the sharp monetary easing may lead to exuberance. Data released in the U.K. today saw April retail sales up 0.3% m/m and 1.8% y/y. Cable bids are cited around the US$ 1.4110 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8715 level and was supported around the £0.8560 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1450 level and was capped around the CHF 1.1575 level. The May ZEW survey’s expectations index tumbled to 40.5 from the prior reading of 53.4. Swiss National Bank Vice Chairman Jordan reported the central bank is “decisively” averting an appreciation of the franc, leading to speculation the SNB’s actions prompted today’s massive short covering in the euro. U.S. dollar bids are cited around the US$ 1.1110 level. The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4455 level while the British pound lost ground vis-à-vis the Swiss franc and tested bids around the CHF 1.6380 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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