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$ 1.2330 level and was capped around the $1.2395 level. The common currency moved lower as traders were unimpressed with the lack of commitment to reducing global deficits at the Group of Twenty meeting in Toronto this weekend. Spanish and Italian debt declined today on account of the lack of a global agreement on deleveraging global output from massive fiscal spending programs and new debt issuance. G-20 officials reported banks needs to raise capital “significantly” and added countries will need to phase in new rules by the end of 2012. German Chancellor Merkel said the G-20 announcement “is a success (because) industrialized countries as a group accepted this.” The G-20 noted their “goal” is to reduce deficits in half by 2013. Bank for International Settlements General Manager Caruana indicated banks’ stress tests may “point to the need to take action” and added it will then “be necessary to take action.” BIS Chairman Noyer noted “The main task of the public sector is to now design policies that minimize the risks of future financial crisis and promote sustainable growth. In this regard, international cooperation will continue to be essential.” Data released in the eurozone today saw May M3 money supply growth decline 0.2% y/y. Provisional June consumer price inflation data for several German states moderated while the national June CPI figures came in at +0.1% m/m and +0.9% y/y. On a harmonized basis, CPI was was up 0.0% m/m and 0.8% y/y. French June consumer confidence data will be released tomorrow. In U.S. news, data released today saw the May Chicago Fed national activity index move lower to 0.21. Also, May personal income ticked lower to +0.4% while May personal spending moved higher to +0.2%. Additionally, the May PCE deflator ticked lower to +1.9% and May core PCE was up 0.2% m/m and 1.3% y/y. Some traders believe the disinflationary pressures in the U.S. economy could worsen and lead to the Fed “print money.” The Obama administration’s plan to overhaul financial laws was set back today at least temporarily following the death of Senator Byrd. Euro offers are cited around the US$ 1.2570 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥89.45 level and was supported around the ¥89.25 level. Bank of Japan Deputy Governor Nishimura reported global financial regulations need to be overhauled but warned any “hasty implementation” may inhibit the “fragile” economic recovery. Nishimura also said the new global regulations need to take into account regional economic differences. Data released in Japan overnight saw May retail trade worsen to -2.0% m/m and +2.8% y/y while May large retailers’ sales worsened to 4.0%. Data to be released in Japan overnight include May household spending, the May jobless rate, and May industrial production. Bank of Japan is expected to keep monetary policy very accommodative and will continue to face pressure from the government to ease policy further, possibly through the purchase of additional Japanese government bonds. The Nikkei 225 stock index lost 0.45% to close at ¥9,693.94. U.S. dollar bids are cited around the ¥98.45 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥110.15 level and was capped around the ¥110.80 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥134.70 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥82.55 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7959 in the over-the-counter market, up from CNY 6.7921. Data released in China overnight saw the May leading index decline to 103.44 from the prior reading of 104.36. Chinese yuan forwards reversed a four-day decline after the U.S. government predicted the yuan would appreciate further. President Obama speculated the yuan is “going to go up significantly” at the Group of Twenty meeting this weekend. People’s Bank of China reported it will improve the efficiency and quality of financial information.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5015 level and was capped around the US$ 1.5070 level. Data released in the U.K. today saw the June Hometrack housing survey up 0.1% m/m and 2.1% y/y. Data to be released tomorrow include May net consumer credit, May net lending secured on dwellings, May mortgage approvals, and May money supply data. Former Bank of England Monetary Policy Committee member Blanchflower warned the U.K. economy could move into a double dip recession given its current budget. Chancellor of the Exchequer Osborne recently reported the government plans to reduce spending significantly, reduce welfare payments, and increase taxes on banks. Cable bids are cited around the US$ 1.4620 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8185 level and was capped around the £0.8235 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0825 level and was capped around the CHF 1.0940 level. The UBS consumption indicator will be released tomorrow followed by the June KOF leading indicator on Wednesday. SNB will publish balance of payments data for Q1 tomorrow. Swiss National Bank member Danthine reported deflationary pressures have “practically disappeared.” Danthine added “If the need (to raise interest rates) was felt, the SNB would be able to react very quickly. But currently, we can work without having to hurry.” Swiss National Bank is expected to intervene considerably less in the coming months after amassing a very large portfolio of euro reserves to prevent the franc from appreciating too much. U.S. dollar offers are cited around the CHF 1.1470 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.3355 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6295 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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