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$ 1.2410 level and was supported around the $1.2240 level. The common currency continued its ascent and reached its highest level since 28 May as dealers reacted positively to a successful €3 billion Spanish bond auction and news that Bank of Spain will publish the details of the stress tests on its banks and banking system. European Union officials will convene in Brussels to discuss economic issues and the Stability and Growth Pact. There is an initiative among some European leaders to publish the stress tests on all European banks. The European Central Bank released its June monthly bulletin today and it was nearly identical to remarks made by ECB President Trichet last week after the ECB kept its main refinancing rate unchanged at 1.0%. The EU and the International Monetary Fund reported Greece is making good progress to reduce its deficit pursuant to its €110 billion rescue package. The EU will also seek a global transaction tax. Germany’s Kiel Institute today predicted the ECB will hike rates in Q4 2011. Data released in the eurozone today saw April construction output decline 0.3% m/m and fall 6.1% y/y. In U.S. news, data released today saw May headline consumer price inflation off 0.2% m/m and up 2.0% y/y while the ex-food and energy component was up 0.1% m/m and 0.9% y/y. These data reflect the fact that core inflation remains very tame. Other data saw weekly initial jobless claims climb to 472,000 from 460,000 while continuing jobless claims increased to 4.571 million. Other data saw the June Philadelphia Fed index decline to 8.0 from 21.4 and May leading indicators improved to 0.4% from 0.0%. Finally, the Q1 current account balance worsened to –US$ 109.0 billion from the revised previous level of –US$ 100.9 billion. U.S. legislators are seeking to force the Fed to make greater disclosures. 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 ¥90.95 level and was capped around the ¥91.45 level. A Reuters survey is noting Japanese manufacturers are the most optimistic they have been in a couple of years and this could preface an improvement in next month’s Bank of Japan Tankan survey. Japanese household assets are now at their highest level in nearly two years and Japanese companies are sitting on a record amount of cash totaling about ¥202.7 trillion. Households’ financial assets surged 3.1% y/y to ¥1.453 trillion and these data evidence the degree to which companies and consumer are hoarding cash. Moreover, the household data reflect the significant deflation problem in Japan where final private demand remains anemic. Yesterday, Bank of Japan kept its economic assessment unchanged after improving its assessment in May following better capital spending and foreign trade. Other data released overnight saw the April leading index remain steady at 101.7 while the April coincident index fell to 101.3. Minutes from the BoJ May Policy Board meeting will be released tonight. The Nikkei 225 stock index lost 0.67% to close at ¥9,999.40. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥113.15 level and was supported around the ¥111.65 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥135.45 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥82.05 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8291 in the over-the-counter market, down from CNY 6.8334. People’s Bank of China sold one-year bills at an unchanged yield overnight for the first time in nearly three weeks and this is a signal from the central bank they are not contemplating raising rates now. A PBoC survey released overnight indicated a record number of Chinese households have called home prices “unacceptable” on account of dissatisfaction with the level of inflation. PBoC promoted Du Jinfu to be a Vice Governor.
£
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.4835 level and was supported around the US$ 1.4645 level. Data released in the U.K. today saw May headline retail sales climb 0.6% m/m and 2.2% y/y while the ex-auto fuel component was up 0.5% m/m and 3.4% y/y. Also, June CBI trends total orders worsened to -23 from the previous -18 reading. Chancellor of the Exchequer Osborne spoke last night and said the U.K. government plans to abolish the Financial Services Authority and provide most of its power to the Bank of England. Osborne plans to replace the regulator with three entities over the next two years. Critics have suggested Brussels will still call the shorts and this amounts to little more than re-branding of regulatory duties. Hector Sants is becoming a new Deputy Governor at Bank of England. BoE Governor King indicated he welcomes the central bank’s new responsibilities and indicated policy will be tightened at an appropriate time, noting rates may be lifted before bonds are sold. The April ILO unemployment rate ticked lower to 7.9%. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8380 level and was supported 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 1.1110 level and was capped around the CHF 1.1330 level. As expected, Swiss National Bank kept its three-month Swiss franc Libor target rate unchanged at 0.25%. Swiss National Bank Chairman Hildebrand effectively eased its stance on the Swiss franc today, saying the risks of deflation have “largely disappeared.” SNB also warned it cannot keep interest rates at a record low in the medium term without engendering inflation. Traders interpreted these comments as an indication SNB will be less likely to intervene by buying euro for francs. SNB also raised its 2010 economic growth forecast to 2.0% from about 1.5% in March. SNB also sees CPI around 2.2% in 2012 and accelerating to 3.1% in early 2013. Data released in Switzerland today saw Q1 industrial production off 7.8% q/q and up 5.3% y/y. 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 1.3755 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6430 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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