Market Review – Fundamental Perspective

[PCMNewsdesk]

The EUR fell to a five-week low against the USD after European Central Bank President Mario Draghi made an unprecedented pledge to keep interest rates low for an extended period. The 17-nation currency dropped the most in almost three weeks versus the JPY as Draghi said the ECB’s monetary policy stance will “remain accommodative” for as long as needed to spur growth. The GBP slumped the most in almost two years against the USD after the Bank of England said rising bond yields around the world will weigh on the nation’s economic outlook.
The Dollar Index raised a four-week high before the Labor Department releases its monthly job report tomorrow. “For a central bank that has been reluctant to offer any kind of pre-committal, today’s characterization of forward guidance is about as much as we can expect from the ECB for now,” said Daragh Maher, a London-based currency strategist at HSBC Holdings Plc. “The euro is justifiably lower on this bias to ease.” The EUR weakened 0.7 percent to $1.2914 at 5 p.m. in New York after sliding to $1.2883, the lowest level since May 29. The shared currency dropped 0.6 percent to 129.18 JPY. The JPY added 0.1 percent to 100.04 per USD. “The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period,” Draghi said at a press conference in Frankfurt following the central bank’s monthly policy meeting. “Our monetary policy stance will remain accommodative for as long as necessary.” The ECB took the “unprecedented step” to give forward guidance in a more explicit way than it did in the past, he told reporters. The central bank kept its benchmark interest rate at a record-low 0.5 percent as forecast by all except one of 62 economists in a Bloomberg News survey. “The key statement from Draghi was that they would remain accommodative,” said Kathleen Brooks, research director in London at Forex.com, a unit of online currency-trading company Gain Capital Holdings Inc. (GCAP) “He’s stressed that the risks to growth remain on the downside. It opens the way now for a move back to $1.28.”

[PCMNewsdesk]

Last Friday a report showed that U.S. employers added 195,000 workers in June although economists had forecasted only an increase of 165,000. Data also showed that U.S. jobless rate held at 7.6 percent in the past month and was close to a four year low. Furthermore speculation came up that the world’s largest economy is improving enough so that the Federal Reserve might reduce stimulus measures with its program of asset purchases. In contrast to the Federal Reserve the Bank of England and the European Central Bank signaled that they will maintain record low borrowing costs. Today data might reveal that U.S. consumer credit rose. Because of that the USD appreciated versus nearly all of its most traded counterparts. The EUR dropped to
1.2820 USD and the USD/JPY climbed to 101.40. The EUR traded at 103.02 against the JPY.
Last Friday the Standard & poor’s Index appreciated 1 percent and the Dow Jones Index also rose 1 percent.
Based on speculations that the Reserve Bank of Australia might probably cut interest rates next month the AUD decreased and was close to a three year low versus the USD. In addition the market forecasted that this week data will show the Australian job market stagnated last month
following a 1,100 rose in May. The AUD/USD tumbled 0.3 percent to 0.9045. The NZD/USD traded close to a one year low and was at 0.7711. The MSCI Asia Pacific Index strengthened 0.1 percent.
Discussions between Greece and members of the troika of the European Commission, the IMF and the ECB might result in an agreement that would be presented to euro area finance ministers in the next days. Beyond that European Commissioner for Economic and Monetary Affairs Olli Rehn said in an interview that Portugal scored an own goal last week with ministerial resignations though Portugal’s leadership has now acted to provide political stability.

[PCMNewsdesk]

[PCMNewsdesk]

July 9th , 2013

Today Finance Ministers from the EU are going to meet in Brussels after their counterparts from the euro area agreed on the aid package for Greece. They were told from the euro zone and the IMF to keep its promises on cutting public sector jobs and selling state assets to get all the cash after they had failed last month to sell a natural gas company. The nation will get 2.5 billion euros this month and the rest will follow in October. It is expected that Greece might return to growth in the next year. Yesterday Germany’s Finance Minister Wolfgang Schaeuble said that Portugal’s government crisis has been overcome and that they will continue on a successful path. In consequence Portugal’s 10-year yield dropped after it has been announced that the leader if the conservative coalition will become vice president. Because of the easing financial and political turmoil the EUR was able to climb yesterday for the first time in three days. Tomorrow Chairman
Ben S. Bernanke is going to speak the same day when minutes of the central bank’s Junemeeting are due. The EUR was at 1.2865 USD after it rose yesterday 0.3 percent. The EUR/JPY declined 0.1 percent to 129.78. The USD/JPY declined from a five week high 0.1 percent to 100.95. Yesterday the Standard and Poor’s Index appreciated 0.1 percent and the Dow Jones Index increased 0.6 percent.
Investors assume that the AUD may have declined to fast therefore the AUD/USD held its biggest advance in a week after it rebounded from near its lowest in three years. Furthermore data in New Zealand showed that business confidence appreciated to the highest level in almost four years. The NZD/USD depreciated 0.2 percent to 0.7788 and the AUD/USD traded at 0.9121.

[PCMNewsdesk]

The European Union’s executive arm is heading for a showdown with Germany over its blueprint for shuttering or restructuring failing banks, a plan intended to complement the European Central Bank’s oversight of lenders. Today the EU’s financial-services chief is going to unveil in Brussels the European Commission’s proposal for a single bank resolution mechanism. An outline of the EU plan would make the commission responsible for deciding whether action is needed to stabilize or shut down a failing bank.
Investors estimate that the European Central Bank may add to stimulus while the Federal Reserve tightens. Today ECB Executive-Board Member Joerg Asmussen is going to speak. He already said yesterday that the central bank’s policy will remain accommodative for an extended period. Today also Fed Chairman Ben S. Bernanke is going to speak on economic policy. Today also minutes will be released of the Federal Open Market Committee’s last meeting.
Furthermore the market forecasted that data may show today that industrial production in France probably declined 0.8 percent in May from the previous month, when it rose 2.2 percent. Beyond that Standard & Poor’s cut Italy’s long term credit rating to BBB, two levels above junk, from BBB+ yesterday, and supports therefore expectations for a weakening in economic prospects in Italy which is Europe’s third biggest economy. As a result the EUR traded close to a three month low versus the USD and was at 1.2780. The EUR/JPY was at 129.32 and the USD touched 101.17 JPY.
The market expects that data in China will show a pickup in imports. The AUD remained higher and was at 0.9162 USD and the AUD/JPY touched 92.66. The NZD/USD depreciated 0.3 percent to 0.7827.

[PCMNewsdesk]

Yesterday the minutes of the Fed’s June meeting have been released. These minutes showed while several members judged that a reduction in asset purchases would likely soon be warranted, many want to see more improvement in the labor market before reducing its $85 billion-a-month quantitative easing program. Many members also anticipated that it likely would be appropriate to continue purchases into next year. Yesterday Bernanke said in a speech in Cambridge, Massachusetts that a highly accommodative monetary policy will be needed for the foreseeable future. Consequently the MSCI Asia Pacific Index rose 0.5 percent today. Yesterday the Standard & Poor’s Index remained unchanged and the Dow Jones Index fell 0.1 percent.
Furthermore the USD declined versus nearly all of its most traded counterparts after Bernanke’s speech. The EUR climbed versus the USD to a three week high before today U.S. data are forecast to show that continuing jobless claims increased. The number of people receiving jobless benefits might have climbed to 2.96 million and first-time claims may have dropped to 340,000. The EUR/USD appreciated 1.3 percent to 1.3141 and had even touched 1.3207 earlier.
The USD touched 98.27 JPY and the EUR/JPY increased 0.5 percent to 129.96. The International Monetary Fund upgraded Japan’s growth estimate for this year to 2 percent from 1.6 percent.
Australia’s currency appreciated and was at a two week high against the USD after Bernanke had signaled that the economic stimulus will not be reduced in the near future. Today the monthly employment report will be released in Australia which might show that hiring probably stagnated in June. After the AUD/USD had strengthened 0.9 percent to 92.99, it fell to 92.20. The NZD/USD was at 0.7913.

[PCMNewsdesk]

The MSCI Asia Pacific Index strengthened for a fourth day and added 0.2 percent based on speculation that policy makers from the U.S. to Japan will continue with the monetary stimulus. This week Ben S. Bernanke and the Bank of Japan indicated that they will continue with their stimulus after European and British central banks signaled they will leave interest rates low. Yesterday US data revealed that the number of filing for unemployment benefits unexpectedly climbed to a two-month high of 360,000 last week. The USD dropped the most since October 2011 after Ben S. Bernanke’s speech yesterday. It fell versus all but one of its most traded counterparts. Yesterday the Bank of Japan boosted its view of the economy and refrained from adding stimulus. The EUR/USD strengthened 0.9 percent to 1.3097 and the USD/JPY declined 0.7 percent to 98.96. The EUR appreciated 0.2 percent to 129.61 JPY. Yesterday the Standard & Poor’s 500 Index increased 1.4 percent and the Dow Jones Index climbed 1.1 percent.
Investors forecasted that Australia’s Reserve Bank might cut interest rates next month from an already record low of 2.75 percent to 2.5 percent. Today the Australian Bureau of Statistics is going to release monthly home loans data and according to economists it probably climbed 2.2 percent on May, compared with a 0.8 percent increase in the previous month. Yesterday data showed that unemployment rate in Australia climbed to 5.7 percent which was more than the market had forecasted. The AUD/USD weakened 0.2 percent to 0.9171 and the AUD/JPY traded at 90.676. In the past three months Australia’s currency already fell 10 percent and is therefore the worst performer among 10 developed nation currencies. The NZD/USD tumbled 0.1 percent to 0.7844.

[PCMNewsdesk]

The USD fell against the majority of its 16 most-traded peers after an unexpected slump in a regional manufacturing index bolstered the argument for the Federal Reserve to put off winding down its bond-buying program. The JPY reversed losses versus the USD after U.S. housingprice gains trailed forecasts. Data since a July 5 report said U.S. payrolls rose more than forecast have shown housing starts and existing-home sales unexpectedly fell. Fed Chairman Ben S. Bernanke told Congress last week it was “too early” to decide to begin tapering asset purchases. Canada’s dollar climbed after the nation’s retail sales jumped. “The growth data, aside from employment, have been showing signs of weakness,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc.’s RBS Securities unit in Stamford, Connecticut, said in a phone interview. “There is some focus on the weaker data, and with Bernanke out of the way, squaring up of positions is the name of the game in the near term.” The USD declined 0.3 percent to $1.3226 per EUR at 3:16 p.m., New York Time. It touched $1.3239, the weakest level since June 21, after gaining 0.2 percent earlier. The U.S. currency depreciated 0.2 percent to 99.46 JPY after rising 0.5 percent earlier to 100.18. The JPY weakened 0.1 percent to 131.54 per EUR. The European currency extended gains versus the USD before data tomorrow forecast to show increases this month in manufacturing and services in the 17-nation region. Canada’s dollar climbed versus its U.S. counterpart after a government report showed
Canadian retail sales increased in May at the fastest pace in three years. The currency strengthened 0.5 percent to C$1.0286 to the greenback. South Africa’s rand strengthened for a third day, advancing 1.2 percent to 9.7061 versus the USD. JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of currency fluctuations, declined to 9.21 percent and touched 9.18 percent, the lowest intraday level since May 9. The gauge has dropped for nine consecutive days, the longest stretch of declines since July 2012. It touched 11.96 percent, the highest this year, on June 24.

[PCMNewsdesk]

The EUR advanced against the majority of 16 most-traded peers after purchasing-manager indexes showed manufacturing in the currency bloc unexpectedly expanded in July, bolstering demand for the region’s assets. The dollar climbed versus the yen for the first time in three days as U.S. Treasury yields increased, boosting the greenback’s allure. The euro slipped versus the American currency after data showed U.S. sales of new homes rose more than forecast last month. The European Central Bank meets Aug. 1. A gauge of volatility among Group-of-Seven currencies was up for the first time in 10 days. “We saw the PMI readings surprise to the upside,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “If we see a pickup in growth, the ECB policy makers might not need to implement additional tools under consideration, and that’s something from a policy standpoint that’s going to support the currency.” The EUR gained 0.7 percent to 132.36 JPY at 4:15 p.m. New York time and touched 132.74, the strongest since May 23. Europe’s common currency advanced as much as 0.3 percent to $1.3256, the highest level since June 20, before falling 0.2 percent to $1.3201. The dollar rose 0.8 percent to 100.26 yen. Benchmark U.S. 10-year (USGG10YR) note yields touched 2.62 percent, the highest level in more than a week, as prices fell amid speculation the Federal Reserve will reduce its bond purchases this year as the economy improves. Yields on comparable Japanese (GJGB10) government debt touched 0.77 percent for a second day, the lowest level since May 14. JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of currency fluctuations, rose to 9.51 percent after falling earlier to 9.11
percent, the least since May 9. The gauge climbed to this year’s high of 11.96 percent on June 24. Trading in over-the-counter foreign-exchange options totaled $23 billion, compared with $24 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing
Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $3.3 billion, the largest share of trades at 14 percent. Options on the Australian-U.S.-dollar rate totaled $1.9 billion, or 8 percent. USD/JPY options’ trading was 46 percent less than the
average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. AUD/USD options’ trading was 25 percent less than average.

[PCMNewsdesk]

The USD fell vs most major counterparts on speculation the Federal Reserve will reassure investors that policy makers won’t be quick to raise interest rates at next week’s meeting. New Zealand’s dollar jumped the most since 2011 versus its U.S. peer after central-bank Governor Graeme Wheeler said a removal of monetary easing “will likely be needed in the future.” The U.S. currency extended losses after the Wall Street Journal’s Jon Hilsenrath wrote that the Fed will probably keep its bond-buying program unchanged next week. “Hilsenrath today has detailed thoughts that the Fed will remain with an easing bias, and that taper is talk, and only talk,” Douglas Borthwick, a managing director and head of foreign exchange at Chapdelaine FX in New York, wrote today in a note to clients. “It’s certainly not an actionable event any time soon.” The USD dropped 0.6 percent to $1.3282 per EUR at 4:41 p.m., New York Time. It slid 1.1 percent to 99.21 JPY and touched 98.89, the weakest intraday level since July 12. The euro depreciated 0.4 percent to 131.78 yen. JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of price swings among Group of Seven nations’ currencies, raised to 9.57 percent from 9.11 percent reached yesterday, the lowest intraday level since May 9. The gauge climbed on June 24 to this year’s high of 11.96 percent. The 2013 average is 9.55 percent. The Bloomberg Dollar Index remained lower today after the Commerce Department said orders for U.S. durable goods climbed 4.2 percent last month, led by transportation equipment. A Bloomberg survey forecast a 1.4 percent gain. The currency gauge, which tracks the greenback against 10 major peers, declined 0.7 percent to 1,024.10. The JPY climbed against most of its 16 major peers amid increased demand for refuge. “There was arguably some element of market caution supporting the yen, and possibly paring back some short positions,” Nick Bennenbroek, the head of currency strategy at Wells Fargo Securities LLC in New York, said in a telephone interview.
“Broad U.S. dollar weakness against a range of currencies is another factor that has continued to support the yen.” Short positions are bets an asset, in this case the yen, will decrease in value. Japan’s currency depreciated 3.3 percent in the past month, the biggest decline among 10 developed-market peers tracked by Bloomberg Correlation-Weighted Indexes. The EUR was little changed, while the dollar dropped 1.3 percent.