By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3540 level and was supported around the $1.3385 level. The common currency tested a key short-term retracement level today, representing 50% of the March range. The pair gained ground even though there are significant doubts concerning the viability of Greece’s plans to improve its massive fiscal deficits. The Greek government today indicated its May debt servicing needs will be around €11.6 billion. Greece’s new bond issue this week was not entirely well-received by investors and dealers are concerned that a significant amount of more supply of sovereign eurozone debt with deteriorating credit quality could imperil the euro further. The yield on Greek ten-year debt has increased about 25bps since European leaders agreed to a financial aid package for Greece on 25 March and this evidences the market’s discomfort with the country’s severe problems. Data released in the eurozone today saw the EMU-16 February unemployment rate tick higher to 10.0% from 9.9%, as expected, while the March flash consumer price inflation estimate was up 1.5% y/y – its highest level in ten months. Germany posted its largest decline in jobless claims since August 2008 and the March unemployment rate fell to 8.0%. German February retail sales will be released tomorrow. French data released today saw February producer prices climb 0.1% m/m and 1.0% y/y. Despite today’s increase in headline eurozone inflation, the rate is still below the European Central Bank’s perceived comfort zone of 2.0% and given the backdrop of the sovereign credit crunch, a move higher in official interest rates is very unlikely for quite some time. ECB President Trichet said it is “extremely important to anchor inflation expectations.” In U.S. news, data released today saw MBA mortgage applications climb 4.3% in the latest week while February factory orders fell to +0.6% from a revised +2.5% in January. Also, March Chicago PMI fell back to 58.8 from the prior reading of 62.6. The most important data released today saw March ADP employment off 23,000, a slight improvement from the revised prior reading of -24,000. These data represent private sector job losses and some economists may scale back their forecasts for Friday’s non-farm payrolls report with many forecasts currently focusing on job gains around 185,000. Atlanta Fed President Lockhart said he is watching for “durable” job gains while Dallas Fed President Fisher said the U.S. cannot ignore the impact of its massive deficit of yields. Fed Governor Duke reported U.S. banks remain weak and noted the decrease in bank lending is very troubling. Euro bids are cited around the US$ 1.3335 level.
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥93.60 level and was supported around the ¥92.75 level. Traders await the release of the all-important Bank of Japan Tankan survey of corporate sentiment tonight with most forecasts focusing on an improvement in the main large manufacturers’ confidence index to -14 from the prior reading of -24. Other components include the large manufacturing outlook, large non-manufacturing outlook, and capex numbers with large all-industry capex expected to improve to -0.4% in Q1 from -13.8% in Q4. Even though the Tankan is expected to evidence improvement across the board, the survey does little to address the weak final private demand in the country and the deflationary problems evident in the economy. Data released in Japan overnight saw March small business confidence improve to 45.8 from the prior reading of 42.3while February housing starts were off 9.3% y/y to an annualized 794,000. Additionally, February construction orders were off 20.3% y/y and February total cash earnings data were off 0.6% y/y. Today is the final day of Japan’s fiscal year-end and most dealers believe the yen will continue to depreciate early in the new fiscal year. The government will boost Japanese government bond issuance to a record ¥144.3 trillion in the fiscal year beginning tomorrow. The Nikkei 225 stock index lost 0.06% to close at ¥11,089.94. 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 ¥126.45 level and was supported around the ¥124.40 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥141.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.80 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8259 in the over-the-counter market, up from CNY 6.8257. It was reported that Chinese banks purchased US$ 978 billion in foreign currency for their clients in 2009, selling yuan in the process. People’s Bank of China reported the economic recovery has been “further cemented” and added the management of liquidity following the record credit expansion has become “arduous.” PBoC called on China to urgently adjust its economic model and said it must utilize multiple monetary tools “flexibly.” Some traders believe China may widen the yuan’s trading band in the second quarter.
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5185 level and was supported around the $1.5040 level. Data released in the U.K. today saw GfK March consumer confidence tick lower to -15 from -14 in February. March PMI manufacturing data will be released tomorrow and liquidity will be light early next week on account of the U.K. Easter Monday market holiday. Cable bids are cited around the US$ 1.4455 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.8945 level and was supported around the £0.8870 level.
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0520 level and was capped around the CHF 1.0685 level. SNB Board member Danthine said the central bank will prevent “any excessive appreciation of the Swiss franc” and added it has “the means to achieve that objective, without dispute.” Data released in Switzerland today saw the March KOF indicator rise to 1.93 from an upwardly-revised 1.70 in February. Swiss National Bank Vice Chairman Jordan reiterated last week that the central bank will work to prevent excessive franc appreciation. Swiss National Bank President Hildebrand last week reported the central bank will “decisively” act against “excessive” franc strength, noting the central bank can intervene to a “very large extent.” U.S. dollar offers are cited around the CHF 1.1180 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4240 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5925 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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