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 offers around the US$ 1.2275 level and was capped around the $1.2450 level. Liquidity was reduced today as some U.S. trading desks emptied early on account of the holiday weekend in the U.S. Data released in the U.S. today saw April personal income move higher to 0.4% while April personal spending fell to 0.0%. Also, the April PCE deflator was up 2.0% y/y while PCE core readings came in at 0.1% m/m and 1.2% y/y. Other data saw the Macy Chicago Purchasing Managers Index decline to 59.7 from the prior reading of 63.8. Finally, the final May University of Michigan consumer sentiment indicator ticked higher to 73.6 from the prior 73.3 level. The Federal Reserve will offer US$ 1 billion of 14-day deposits in an auction scheduled for 14 June, a tool the Fed will attempt to use to tighten credit by mopping up excess liquidity from the banking system. Some traders expressed optimism after it was reported consumer delinquency rates are declining at U.S. banks and retailers. In European news, sentiment continued to weaken in the eurozone after ratings agency Fitch downgraded Spain’s credit rating to AA+ from AAA. Spain had held Fitch’s top rating since 2003 and Standard & Poor’s reduced its rating of Spain to AA on 28 April. Earlier this week, a Spanish regional savings bank failed and four others applied for regulatory permission to tie-up. European Central Bank member Weber said a bank tax would be an “inferior instrument.” ECB member Bini Smaghi said the European Union will do “all that is needed” to defend the European Union and said there are “no alternatives” to fiscal consolidation. German data saw the April import price index up 2.0% m/m and 7.9% y/y. Also, French April total jobseekers increased to 2.677 million. Euro offers are cited around the US$ 1.2620 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥90.60 level and was capped around the ¥91.40 level. Bank of Japan earned a profit for the first time in three years in fiscal year 2009, with income coming in at ¥367.1 billion. Finance minister Kan reported he will try to stimulate employment that is “crucial” to overcoming price declines. Data released in Japan overnight saw April household spending off 0.7% y/y while the April jobless rate ticked higher to 5.1%. April retail trade was up 0.5% m/m and 4.9% y/y while May Tokyo-area consumer price inflation was off 1.4% y/y with the ex-food and energy component off 1.4% y/y. Also, April national consumer price inflation was off 1.2% y/y with the ex-food and energy measure off 1.6% y/y. Collectively, these data evidence a Japanese economy that is weakening and a national consumer price index that is becoming more deflationary. BoJ will continue to be pressured by the government to ease policy further. The Nikkei 225 stock index climbed 1.28% to close at ¥9,762.98. 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 ¥111.35 level and was capped around the ¥113.65 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥130.85 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥78.20 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8315 in the over-the-counter market, up from CNY 6.8312. People’s Bank of China said China should develop more products denominated in gold to help internationalize the yuan. The State Administration of Foreign Exchange this week reported Europe will remain a major investment market for China, countering speculation China would reduce its euro-denominated holdings. People’s Bank of China this week increased interest rates on three-month bills for a second consecutive auction, the latest evidence the central bank is absorbing excess liquidity at higher interest rates.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4435 level and was capped around the $1.4610 level. Data to be released on Sunday evening include the May Hometrack housing survey. Bank of England Monetary Policy Committee member Posen called for ratings agencies to have less influence and said U.K. economic growth prospects are weak now. Bank of England will expand its long-term funding mechanism next month and will incorporate a two-tier auction system that accepts a wider array of collateral to address stresses in the financial system. Chancellor of the Exchequer Osborne this week reported the new Cameron government hopes to decrease fiscal spending by at least £6 billion in what would be an abrupt shift from the policies of former Prime Minister Brown. Cable bids are cited around the US$ 1.4110 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8545 level and was supported around the £0.8445 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1595 level and was supported around the CHF 1.1480 level. Data released in Switzerland today saw the April trade balance increase to CHF 2.02 billion from the revised prior reading of CHF 1.69 billion while the May KOF Swiss leading indicator improved to 2.16 from the prior reading of 2.05. Swiss National Bank member Leuthard said Switzerland wants a stable euro. U.S. dollar bids are cited around the US$ 1.1110 level. The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4305 level while the British pound lost ground vis-à-vis the Swiss franc and tested bids around the CHF 1.6685 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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