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$ 1.2255 level and was capped around the $1.2350 level. The common currency moved off of intraday lows during the North American session as U.S. equities reversed course and most of their intraday losses evaporated. European Central Bank member Quaden said the eurozone is unlikely to encounter a double-dip recession while Bank of Israel Governor Fischer suggested some countries may not remain in the eurozone. The Spanish government denied rumours that Spain requires assistance with external finance. ECB member Gonzalez-Paramo called for a revival of the securitization market in the eurozone and ECB member Ordonez said bank restructuring will be complete before summer. The ECB again failed to get any bids in a seven-day U.S. dollar term auction, the third consecutive time this has happened, and this underscores the comparative attractiveness of swap deals. The European Union today called on countries to reduce their deficits, adding a “cold shower” consolidation plan may be required in some instances. ECB member Noyer called for more exchange rate flexibility and Germany’s Bundesbank reported banks’ capital requirements are likely to increase significantly. Data released in the eurozone today saw May EMU-16 consumer price inflation increase 0.1% m/m and 1.6% y/y at the headline level and 0.8% y/y at the core level. The ECB will publish its June monthly report tomorrow. In U.S. news, data released today saw MBA mortgage applications climb 17.7% while May housing starts were off 10.0% to an annualized 593,000 units and building permits were off 5.9% m/m to an annualized 574,000 units. Also, May headline producer price inflation was off 0.3% m/m and 5.3% y/y and the ex-food-and-energy component was up 0.2% m/m and 1.3% y/y. Additonally, May industrial production was up 1.2% with capacity utilization stronger at 74.7%. May consumer price inflation data will be released tomorrow. There is speculation that Fed officials may reduce their forecasts for U.S. economic growth on account of European economic woes when policymakers convene next week. In April, Fed officials estimated the economy would expand between 3.2% and 3.7% in 2010. Euro offers are cited around the US$ 1.2460 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥91.10 level and was capped around the ¥91.80 level. Bank of Japan kept its economic assessment unchanged overnight after improving its assessment in May following better capital spending and foreign trade. The central bank reported Japan’s economy is evidencing a “moderate economy” and said the “degree of severity has eased somewhat” in employment and income conditions. The yen’s gains today were largely precipitated by renewed concerns over Europe’s sovereign debt struggles. Yesterday, BoJ unveiled details regarding a ¥3 trillion lending program to stimulate the economy and counter deflation. Data released in Japan overnight saw the April tertiary industry index improve to +2.1% from the revised prior reading of -2.7% while May machine tool orders were up 192.5% y/y. The Nikkei 225 stock index climbed 1.81% to close at ¥179.26. The euro moved lower vis-à-vis the yen as the single currency tested offers around the ¥111.70 level and was capped around the ¥113.30 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥134.50 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥81.30 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8334 in the over-the-counter market, up from CNY 6.8333. It is being reported that China’s holdings of U.S. assets may now be at or near all-time highs.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4745 level and was capped around the US$ 1.4830 level. New U.K. Chancellor of the Exchequer Osborne announced Bank of England will obtain new powers to prevent financial crisis and reduce credit risk. Osborne’s first “Mansion House” speech is scheduled for tonight and more information about the U.K. economy may be forthcoming. Osborne is expected to give the BoE more responsibility for macro prudential supervision. Former BoE Chief Economist Vickers will lead a new panel to review the U.K. banking sector. Data released in the U.K. today saw the May claimant count rate decline to 4.6% as the jobless claims were off 30,900. The April ILO unemployment rate ticked lower to 7.9%. The euro came off vis-à-vis the British pound as the single currency tested bids around the £0.8285 level and was capped around the £0.8335 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1275 level and was capped around the CHF 1.1340 level. Swiss national bank will released its interest rate decision tomorrow and is expected to keep its three-month Swiss franc Libor target rate at 0.25%. Data released today saw the June ZEW survey decline sharply to 17.5 from 40.5 and data to be released tomorrow include Q1 industrial production. U.S. dollar offers are cited around the CHF 1.1470 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.3870 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6685 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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