By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3365 level and was supported around the $1.3280 level. As expected, the European Central Bank did not announce a change to its monetary policy today and European Central Bank President Trichet reiterated views he has made in recent policy statements. The big news in the eurozone remains the worsening situation in Greece. There are reports that western banks have pulled their repo lines with Greek banks, reducing the ability of Greek banks to secure funding in the international capital markets. Trichet today said the Greek situation is not even an “issue” but added responsbilities must be undertaken to contend with the problem. The capital markets might disagree with Trichet’s assessment of Greece’s worsening problems, however, as Greek assets depreciated significantly today. Spreads on five-year Greek credit default swap spreads blew out by 55bps during the European session and Greek cash bonds also moved lower with yields on 10-year Greek bonds reaching 7.5% today – their highest level since the advent of the euro. European Union finance ministers will convene in Madrid on 16-18 April and G20 officials convene 22 April ahead of the annual IMF and World Bank meetings on 24-25 April. The most pressing test for Greece will come on 19 May when some €8.1 billion in debt comes due. It is estimated that at least two syndications would be required to refinance the maturing debt and there is growing concern that investors may have insufficient appetite for more Greek paper, even at higher yields. Credit default swap spreads on other heavily-indebted countries including Spain and Portugal also widened. The ECB also announced a more liberal collateral eligibility policy that is partially designed to assure that Greek debt can be utilized in repo transactions into 2011. Data released in the eurozone today saw February retail sales off 0.6% m/m and off 1.1% y/y. In U.S. news, Minneapolis Fed President Kocherlakota reported the Fed needs to retain supervisory powers and said “banks with large amounts of commercial real estate risk-exposure face a correspondingly elevated risk of failure. This threat could well lead to continued declines in bank lending, which could curtail the recovery.” Federal Reserve Governor Tarullo said the need to low rates will not “diminish soon,” reiterating dovish comments made by Fed Chairman Bernanke yesterday. Data released in the U.S. today saw weekly initial jobless claims climb to 460,000 from a revised 442,000 while continuing jobless claims fell to 4.550 million from 4.681 million. Also, March ISCS chain store sales were up a significant 9.0% y/y. February wholesale inventories data will be released tomorrow. Euro bids are cited around the US$ 1.3175 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥92.85 level and was capped around the ¥93.40 level. Bank of Japan maintained its assessment of the economy overnight, reporting “Japan’s economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures.” BoJ reiterated the economy still lacks “momentum to support a self-sustained recovery in domestic private demand.” Nikkei reported BoJ Governor Shirakawa and Prime Minister Hatoyama will meet regularly to discuss the economy. The central bank also reported corporate sentiment is improving, capital spending is leveling out, and the deceleration in consumer prices will moderate. Data released in Japan overnight saw the February current account total print at ¥ 1.47 trillion while February machine orders were off 5.4% m/m and 7.1% y/y. Also, March bankruptcies were off 14.5% y/y and March machine tool orders were up 262.1% y/y. Additionally, the March economy watchers’ survey improved at the both the current and outlook levels. The Nikkei 225 stock index lost 1.10% to close at ¥11,168.20. 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 ¥123.40 level and was capped around the ¥124.60 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥140.95 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.15 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8243 in the over-the-counter market, down from CNY 6.8255. The move higher in the yuan was expected by most dealers as simmering tensions between the U.S. and China have thawed a little bit in the run-up to next week’s meeting in Washington, D.C. between leadership from the two countries. Treasury Secretary Geithner met with Chinese leadership in Beijing today to stress the importance of bilateral relations. People’s Bank of China sold about CNY 15 billion in three-year bills today, its first sale since June 2008 and the central bank’s latest attempt to drain liquidity and manage money supply growth. There is a growing sense that China is close to announcing an important shift in its currency policy, possibly including a further liberalization of the yuan’s exchange rate.
₤
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5275 level and was supported around the $1.5140 level. Many data were released in the U.K. today. First, March Halifax house prices were up 1.1% m/m and 5.2% y/y for the most recent three-month period. Second, February industrial production was up 1.0% m/m and off 0.1% y/y. Third, February manufacturing production was up 1.3% m/m and 1.4% y/y. Fourth, the March NIESR GDP estimate came in at +0.4%, unchanged from the revised prior reading. As expected, Bank of England’s Monetary Policy Committee kept its main Bank rate unchanged at 0.50% and kept its asset purchase program unchanged at £200 billion. Bank for International Settlements today issued a stern warning about the size of U.K. sovereign debt. Cable bids are cited around the US$ 1.4455 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.8735 level and was capped around the £0.8780 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0715 level and was capped around the CHF 1.0785 level. Data released in Switzerland today saw the March unemployment rate decline to 4.2% from 4.4% in February. Swiss National Bank’s 2009 Annual Report was released today in which the central bank indicated it expects GDP growth around 1% this year, down from the prior forecast of 1.5%. Swiss National Bank is thought to have intervened again yesterday by selling the franc but this will remain unconfirmed and is far from certain because while the pair appreciated quickly, it did not appreciate by more than 35 pips. U.S. dollar offers are cited around the CHF 1.0920 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4320 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6395 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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