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$ 1.2360 level and was capped around the $1.2560 level. Sentiment crumbled further in the eurozone this weekend as Bank of Spain seized Spanish savings bank CajasSur. Finance minister Salgado today reported Spain will auction the bank off “in a relatively short period” and she added other savings bank are likely to complete mergers in the coming weeks. Salgado also noted Spain’s financial system is “absolutely solvent.” There will likely be many more bank failures across the eurozone in the coming weeks and months and these will also contribute to negative sentiment for the common currency. Eurosystem banks deposited €253.5 billion with the central bank overnight. The three-month U.S. Dollar Libor rate climbed to 0.51% today, the highest level since 16 July 2009. The eurozone debt crisis has raised concerns that many banks’ assets may be weaker-than-expected and led to higher borrowing costs in the market. Notably, three-month U.S. Libor is a benchmark for approximately US$ 360 trillion in financial instruments worldwide. Data to be released in the eurozone tomorrow include March industrial new orders. In U.S. news, Treasury Secretary Geithner met with European counterparts late last week before meeting with counterparts in Beijing. Data released in the U.S. today saw the April Chicago Fed national activity index print at +0.29, up from the revised print of +0.13. April existing home sales data will be released later in the North American session and are expected to expand about 5.6% to an annualized rate of 5.65 million units. Federal Reserve Chairman Bernanke also continues his meeting in Beijing with Chinese officials. Euro offers are cited around the US$ 1.2620 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.45 level and was supported around the ¥89.75 level. The yen pared early gains at the dollar’s expense but remained bid on the crosses, reflecting the perceived safe haven trade that continues to rule the market. Bank of Japan released its monthly economic report today, noting “the economy is starting to recover moderately, induced by improvement in overseas economic conditions. This is at least marginally more optimistic than its April report in which it noted “Japan’s economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.” The May report also noted “Attention should be paid to potential risks to Japan’s economy, such as a possible slowdown in overseas economies, particularly in Europe, fluctuations in financial markets and the influence of deflation.” Vice finance minister Minezaki said it is “questionable” that Bank of Japan’s new lending programs announced last week will be sufficient to stimulate growth, adding “chances are low for banks to aggressively lend.” Data released in Japan today saw April supermarket sales improve to -4.9% y/y while the March all-industry activity index was off 0.8% m/m, up from the prior reading of -2.3% m/m. The Nikkei 225 stock index lost 0.27% to close at ¥9,758.40. 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 ¥111.20 level and was capped around the ¥113.35 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.80 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥77.55 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8287 in the over-the-counter market, up from CNY 6.8278. There is speculation that People’s Bank of China may offer higher yields on one-year bills later this week to absorb more cash from the money market. People’s Bank of China adviser Li Daokui today said “Politically it is worthwhile, it makes sense, for the two sides – China and the U.S. – to see some progress in renminbi reform in the near future.” PBoC Governor Zhou spoke about policymaking today, reporting “China is a large country with a large population so most of the important factors that need to be considered are domestic ones. International factors will influence monetary policy decisions such as exchange-rate policies, but such influence is usually smaller than that from domestic factors.” Prime Minister Hu said China will continue talks on reform of the yuan and liberalize its economy with yuan reforms. At U.S.-Chinese discussions that started this weekend, U.S. Treasury Secretary Geithner is said to have adopted a softer tone with China. Data to be released in China over the next week include the April leading index, May PMI manufacturing, an May HSBC manufacturing PMI.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4350 level and was capped around the $1.4525 level. Chancellor of the Exchequer Osborne reported the new Cameron government hopes to decrease fiscal spending by at least £6 billion in what would be an abrupt shift from the policies of former Prime Minister Brown. Outgoing Bank of England Monetary Policy Committee member Barker reported more difficult times are ahead for the U.K. economy. U.K. GDP data will be released tomorrow and are expected to expand about 0.3% m/m and decline 0.2% y/y. Cable bids are cited around the US$ 1.4110 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8585 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 1.1605 level and was supported around the CHF 1.1490 level. The April UBS consumption indicator will be released tomorrow. Data released in Switzerland last week saw the April M3 money supply expand 5.4% y/y. Swiss National Bank Vice Chairman Jordan last week 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. It was reported last week that the Swiss National Bank’s foreign currency holdings rose to CHF 153.6 billion in April from CHF 125.1 billion in March, the latest evidence of SNB intervention. U.S. dollar bids are cited around the US$ 1.1110 level. The euro lost ground vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4330 level while the British pound gained ground vis-à-vis the Swiss franc and tested offers around the CHF 1.6770 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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