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$ 1.3370 level and was supported around the $1.3285 level. The common currency clawed back some of yesterday’s sizable losses with late Australasian activity lifting the pair from intraday lows. People’s Bank of China Vice Governor Zhu warned “I don’t think Greece will go bankrupt because it’s still relatively small, but we don’t see decisive action that tells the market, ‘We can solve it, we can close it.” Zhu added Spain and Italy are the “main concern today.” European Union officials are convening today at a summit to try and shore up support for financial assistance for Greece. Data released in the eurozone today saw the German GfK consumer confidence survey remain flat at 3.2 for April while the EMU-16 M3 money supply was off 0.4%, more-than-expected. German Chancellor Merkel reported she will recommend a combination of International Monetary Fund assistance and bilateral aid “as a last resort” for Greece. European Central Bank member Wellink said Portugal needs to do “additional things” to be credible while Ecofin Chairman Juncker said the markets will come to see Greece’s budget plans as “credible.” Bank of England Monetary Policy Committee member Posen said the inflation rate in the eurozone will “keep going down.” ECB President Trichet reported the central bank will maintain its emergency collateral rules “beyond the end of 2010.” Trichet reported Greece’s efforts to restore fiscal soundness are “convincing” and “courageous.” The ECB’s move to maintain an easy and flexible collateral eligibility into 2011 give the central bank room to accept the debt of fiscally-troubled eurozone states as collateral. ECB’s Nowotny reported the euro will remain an important international currency. In U.S. news, data released today saw weekly initial jobless claims decline to 442,000 from a revised 456,000 while continuing jobless claims fell to 4.648 million from a revised 4.702 million. Data to be released in the U.S. tomorrow include Q4 GDP and final March University of Michigan consumer sentiment. Fed Chairman Bernanke testified today and said the “economy continues to require the support of accommodative monetary policies…However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus…As the expansion matures, the Federal Reserve will need to begin to tighten monetary conditions to prevent the development of inflationary pressures. We have full confidence that, when the time comes, we will be ready to do so.” The Fed will end one of its emergency mortgaged-backed securities purchase programs at the end of this month and Bernanke said the Fed does not anticipate the Fed to sell the US$ 1.43 trillion in housing debt it picked up “in the near term,” noting the Fed will likely wait “at least until after policy tightening has gotten under way and the economy is clearly in a sustainable recovery.” The initial jobless claims data may be pointing to an improving labour sector and many economists expect the March non-farm payrolls report will evidence decent jobs growth for the first time in several months. Euro bids are cited around the US$ 1.3335 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥91.75 level and was capped around the ¥92.35 level. Bank of Japan Policy Board member Kamezaki dovishly reported “The central bank will implement policy proactively if necessary, and last week’s monetary easing was based on such a stance,” adding the BoJ will maintain an “extremely accommodative” policy. Many dealers believe the government will continue to pressure the central bank into easing policy further to counter significant deflationary pressures. Such moves are basically intended to boost consumer and investor sentiment and do not have an appreciable impact on the provision of liquidity. Data released in Japan overnight saw the February corporate service price index decline 1.3% y/y. The Nikkei 225 stock index climbed 0.13% to close at ¥10,828.85. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥123.20 level and was supported around the ¥122.25 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥138.00 figure while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.25 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8271 in the over-the-counter market, up from CNY 6.8267. People’s Bank of China Deputy Governor Zhu Min reported interest rates are a “heavy-duty weapon,” adding there are other tools the central bank can use to “manage liquidity.” Zhu also added China will wait to confirm economic growth is steady before raising rates. Additionally, Zhu reported the yuan’s real exchange rate “has actually appreciated.”
₤
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5005 level and was supported around the $1.4855 level. Cable briefly popped above the psychologically-important US$ 1.50 figure during European dealing but traders pushed the pair back below the $1.49 figure during the North American session. Data released in the U.K. today saw February retail sales record their largest jump since May 2008, up 2.1% m/m and 3.5% y/y. Chancellor of the Exchequer Darling reported his latest economic growth forecast is “in line with the Bank of England forecast.” Darling yesterday reported he plans to “reduce borrowing further.” Darling yesterday reduced his budget deficit forecast for the next five fiscal years by £44 billion. On the whole, Darling’s fiscal report was more proactive than expected about addressing the U.K.’s fiscal problems. The U.K.’s 2009-2010 budget deficit is expected to total around £167 billion and be slightly less in the 2010-2011 fiscal year. Cable bids are cited around the US$ 1.4455 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.8895 level and was capped around the £0.8955 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0675 level and was capped around the CHF 1.0740 level. The KOF Institute’s March economic forecast will be released tomorrow. Swiss President Leuthard said the franc is “at a quite crucial level” and said it is up to the Swiss National Bank to decide whether to intervene. Swiss National Bank Vice Chairman Jordan reiterated yesterday the central bank will work to prevent excessive franc appreciation. Swiss National Bank President Hildebrand yesterday reported the central bank will “decisively” act against “excessive” franc strength, noting the central bank can intervene to a “very large extent.” Swiss National Bank on Monday published its quarterly economic report today and noted it will continue to “act decisively” to prevent an “excessive” appreciation of the franc. U.S. dollar offers are cited around the CHF 1.1180 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4250 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6040 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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