By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
The euro appreciated sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3340 level and was supported around the $1.3225 level. Risk appetite returned today with traders speculating German politicians will approve a financial rescue package for Greece, a country that will need an estimated €120 billion over the next three years. Dealers also moved into higher-yielding assets following strong quarterly corporate earnings reports. Many data were released in the U.S. today. First, Q1 gross domestic product growth came in at an annualized +3.2%, down from the prior reading of +5.6%. Second, the April Chicago purchasing manager index improved to 63.8 from the prior reading of 58.8. Third, final April University of Michigan consumer sentiment printed at 72.2, up from the prior reading of 69.5. Notably, personal consumption expanded 3.6%, up from the prior reading of 1.6%. Economists are still talking about the Obama administration’s decision to nominate three apparent monetary doves to the Federal Reserve Board and its impact on policy and the U.S. dollar. In eurozone news, EMU-16 April consumer price inflation printed at 1.5% y/y while the March EMU-16 unemployment rate printed at 10.0%. Also, French March consumer prices were up 0.6% m/m and 2.0% y/y. Eurozone finance ministers are likely to convene on Sunday to discuss Greece’s situation. Euro bids are cited around the US$ 1.3175 level.
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥94.60 level and was supported around the ¥93.90 level. Bank of Japan kept monetary policy unchanged overnight and reported it will help lenders provide credit, possibly using methods from 1998-1999 when lenders gave cash to lenders to address the credit squeeze. The headline overnight unsecured call rate target remains at 0.1%. BoJ Governor Shirakawa directed the central bank to stimulate lending “with a view to strengthening the foundations for economic growth.” He added “The government is also trying to map out an economic growth strategy, and the Bank of Japan hopes to give a boost to such efforts with new policy measures.” Many data were released in Japan overnight. First, April manufacturing PMI improved to 53.5 from 52.4. Second, March overall household spending grew 4.4% y/y, up from the prior reading of 0.5% y/y. Third, the March jobless rate ticked higher to 5.0% from the prior reading of 4.9%. Fourth, April Tokyo-area consumer price inflation was off 1.5% y/y at the headline level, up from the revised prior reading of -1.7%. The April ex-food and energy component was off 1.4%, lower than the prior reading of -1.2%. Fifth, March national consumer price inflation was off 1.1% y/y at the headline and ex-food and energy levels. Sixth, March industrial production was up 0.3% m/m and 30.7% y/y. Seventh, March labour cash earnings were up 0.8% y/y, up from the prior reading of -0.7% y/y. Eighth, March housing starts improved to -2.4% y/y with annualized housing starts printing at 854,000. Ninth, March construction orders were up 42.3% y/y. Collectively, today’s data evidence an improving economy that is mired in a deflationary spiral and the central bank’s enhanced rhetoric today reflects that dichotomy. The new forecast for inflation suggests deflation will end during the next fiscal year with CPI at +0.1%. The Nikkei 225 stock index climbed 1.21% to close at ¥11,057.40. U.S. dollar offers are cited around the ¥96.85 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥125.95 level and was supported around the ¥124.30 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥145.20 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.85 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8253 in the over-the-counter market, down from CNY 6.8260. China yesterday reduced its quota for short-term overseas borrowing this year to US$ 32.4 billion, 1.5% less than last year’s pace on account of yuan appreciation. People’s Bank of China is expected to revalue its yuan currency at any time. Data to be released in China tonight include April PMI manufacturing.
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5280 level and was capped around the $1.5390 level. Data released in the U.K. today saw April GfK consumer confidence worsen to -16 from the prior reading of -15. The Tories’ candidate, David Cameron, won yesterday’s final debate against Liberal Democratic candidate Clegg and Labour’s Prime Minister Brown. The General Election will take place on 6 May and Cameron is expected to win but Parliament may be hung. Cable bids are cited around the US$ 1.5030 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8625 level and was capped around the £0.8725 level.
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0745 level and was capped around the CHF 1.0845 level. Data released in Switzerland today saw the April KOF Swiss leading indicator improve to 1.99 from the prior revised reading of 1.96. Swiss National Bank President Hildebrand said the SNB will continue to counter any “excessive” gains of the franc, noting there would be a “negative impact” if the franc appreciates “sharply due to its role as a safe haven currency.” Hildebrand noted the SNB “will not allow such a development to turn into a new deflation hazard” and is “acting decisively to prevent an excessive appreciation.” Hildebrand also called on European leaders to conclude negotiations over Greece’s aid package “rapidly.” U.S. dollar offers are cited around the CHF 1.0930 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4335 level while the British pound depreciated vis-à-vis the Swiss franc and tested bids around the CHF 1.6435 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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