By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3260 level and was supported around the $1.3145 level. The common currency rocketed to its highest level since May of this year and tested a major resistance level at US$ 1.3265, representing the 76.4% retracement level of the move from $1.3690 to $1.1875. Improving global demand for riskier assets propelled the pair higher to multi-week highs. Data released in the U.S. today saw June personal income decline to +0.0% while personal spending also came in at +0.0%. The June PCE deflator shrank to +1.4% y/y from the prior reading of 2.1% and core PCE was up 0.0% m/m and 1.4% y/y. These data will stoke a discussion about the possibility of deflation in the U.S. economy but most economists are reporting this is simply a disinflationary period. Other data saw June factory orders off 1.2%, an improvement from the prior reading of -1.8%, while June pending home sales were off 2.6% m/m and down 20.1% y/y, underscoring ongoing problems in the U.S. housing sector. Data to be released tomorrow include MBA mortgage applications, July Challenger job cuts, July ADP employment data, and July ISM non-manufacturing data. There is ongoing speculation the Federal Reserve may be forced to resume its asset-purchase programs to provide additional liquidity and support to the U.S. economy at a time when the Fed is trying to reduce its balance sheet. Fed Chairman Bernanke yesterday reported that consumer spending “is likely to pick up” amid a “moderate” expansion. Last week, Philadelphia Fed President Plosser said additional calls for Fed stimulus “are premature.” Two-year U.S. Treasury yields fell to a record low today at 0.51%. Most dealers expect the Federal Open Market Committee will keep monetary policy unchanged next Tuesday. In eurozone news, eurozone June producer price inflation was up 0.3% m/m and 3.0% y/y. Many traders believe the Fed will be more proactive about stimulating the economy through monetary policy measures than the European Central Bank and this perception of declining U.S. yields is adding to the euro’s gains. Eurogroup Chairman Juncker said policymakers are “satisfied” with Greek financial reforms undertaken so far. Euro offers are cited around the US$ 1.3505 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥86.65 level and was supported around the ¥85.65 level. Central bank officials from Japan, China, and South Korea convened today to discuss the regional economy. Traders continue to test the Japanese government’s resolve by pushing the pair back to the ¥85 handle. There continues to be chatter that Japanese monetary authorities will conduct yen-selling intervention if the pair weakens much more. Ten-year Japanese government bonds yields declined further today to 1.03%, an indication that traders expect the continued downward pressure on markets borrowing costs. Bank of Japan Policy Board member Miyao warned the yen’s appreciation may damage the Japanese economy and impact the central bank’s economic outlook. Data released in Japan overnight saw the July monetary base climb 6.1% y/y. The Nikkei 225 stock index climbed 1.29% to close at ¥9,694.01. U.S. dollar bids are cited around the ¥86.29 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥113.10 level and was capped around the ¥114.15 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥136.30 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.45 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7734 in the over-the-counter market, down from CNY 6.7745. Data released in China overnight saw the July non-manufacturing PMI survey tick higher to 60.1 from the prior result of 57.4. HSBC July PMI services data will be released overnight. Former People’s Bank of China adviser Yu warned he “does not think U.S. Treasuries are safe in the medium-and-long run.”
£
The British pound appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5965 level and was supported around the US$ 1.5860 level. Sterling pushed higher after former Bank of England Deputy Governor Gieve reported the central bank should not loosen monetary policy further or increase its asset-purchase program. Also, dealers pushed sterling higher on news that government-owned mortgage lender Northern Rock registered its first profit. BoE’s Monetary Policy Committee convenes on Thursday and while it is not expected to raise rates, there may be more than one policymakers who votes for higher rates. Data released in the U.K. today saw July PMI construction decline to 54.1. The BRC July shop price index will be released tonight. Cable bids are cited around the US$ 1.5270 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8315 level and was supported around the £0.8270 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0415 level and was supported around the CHF 1.0345 level. Data released in Switzerland today saw July consumer price inflation off 0.7% m/m and up 0.4% y/y. Data released in Switzerland yesterday saw June retail sales decline to +0.9% y/y from the revised prior print of +3.9% y/y. The July PMI manufacturing survey improved to 66.9 from the prior reading of 65.7. July consumer price inflation data will be released tomorrow. Other data released yesterday saw the SNB July quarterly KOF employment indicator improve to 11.2 from a revised 3.8 in April. U.S. dollar offers are cited around the CHF 1.0980 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3750 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6580 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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