Eur/usd - page 113
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ECB says basis for forex benchmarks can be too narrow
Relying on just one set of data to compile a foreign currency benchmark does not ensure its reliability at any given time, the European Central Bank said in a briefing paper.
The European Union is approving a law to regulate market benchmarks after banks were fined for rigging the London Interbank Offered Rate or Libor, an interest-rate benchmark.
Global regulators are investigating similar allegations regarding currency markets.
In the briefing paper dated June 18, the euro zone's central bank said the FX market is getting more fragmented across a number of trading platforms and banks.
"While, in principle, arbitrage across platforms should ensure the conformity of the pricing available on each of them, the fact that the FX benchmarks are often computed with a single primary data source does not fully ensure that benchmark calculations best represents the market during the fixing point of time or window," the ECB paper seen by Reuters said.
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Today we have the Fed Interest Rate Decision and Fed's Monetary Policy Statement and press conference may influence the volatility of the pair and set the tone for the rest of the month.
Eurozone Construction Output Recovers In April
The Eurozone construction sector recovered in April after contracting in March, Eurostat reported Wednesday.
Construction output rose 0.8 percent in April from March, when it was down 0.3 percent. The increase was driven by a 1 percent rise in building output, while civil engineering posted a 0.9 percent fall.
Year-on-year, production in construction grew 8 percent in April, faster than the 6.4 percent increase seen in the previous month.
In the EU28, production in construction advanced 0.6 percent on month, taking the annual growth to 7.2 percent.
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In the Euro Zone, Recession Is Not Quite Over, Economists Say
Many people probably thought the euro zone recession ended about a year ago when output began growing again. Not so, a group of leading economists argued this week.
Growth is still too weak and unemployment too high to declare the recession over, economists at the Center for European Policy Research said. At best, they said, the recession that began in 2011 is merely in hibernation.
Recessions are often considered to be over when there have been two quarters in a row of positive growth. The euro zone hit that mark when it squeezed out annualized growth of 0.5 percent in the third quarter after a 1.3 percent increase in the second quarter.
But the European policy research group, a nonprofit organization based in London, does not accept that definition. It says that economists and policy makers should look more broadly at other indicators, like the sustainability of growth and unemployment. Joblessness in the euro zone is 11.7 percent, just below a record.
“Since early 2013 the euro area has witnessed a prolonged episode of extremely weak growth in economic activity,” the group’s euro area business cycle dating committee said in a statement. “Labor markets have shown little change over that period.”
The recession that began in mid-2011 is the longest since the group began keeping track in 1970.
The business cycle committee models itself on a similar panel at the National Bureau of Economic Research in the United States, a nonprofit organization that is the generally accepted arbiter of when recessions begin and end.
The European group has no official status but includes many leading economists. The chairman of the business cycle committee is Philippe Weil, president of the French Economic Observatory, a research group in Paris.
The conclusions of the panel, which meets periodically to consider the state of euro zone growth, are likely to add to growing unease about whether the bloc is on the mend or whether it is tipping into a new crisis.
Annual inflation is 0.5 percent, well below the European Central Bank’s target of just below 2 percent, and many economists have expressed alarm about the risk of deflation, a downward spiral of prices that causes consumers to stop spending and companies to stop hiring.
And while investors have flocked back to the region’s government debt and European stocks have rebounded from crisis lows, output in the 18 countries of the euro zone has still not recovered to the level of 2008, when the financial crisis began.
The euro zone economy grew at an annual rate of 0.8 percent in the first quarter of 2014, while economic output shrank in eight euro zone countries, including the Netherlands and Finland. Growth was zero in France, which has the second-largest economy in the euro zone after Germany.
Even the powerhouse German economy has been showing signs of trouble. Confidence has slumped markedly among companies that do business with Russia because of the crisis in Ukraine, according to a survey by the Ifo Institute in Munich.
While confidence among all German companies continues to increase, the pace has slowed, the Ifo Institute said on Wednesday.
“For companies that have relations to Russia, the business outlook in particular has worsened more so than for companies that have no dealings with Russia,” Timo Wollmershäuser, acting head of business cycle analysis and surveys at the Ifo Institute, said in a statement.
The moderate increase in business confidence this year, he said, “is in good part due to concerns over the Ukraine conflict.”
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the fed kept the interest rate with no change market is unrest we have now a new resistance level at 1.3590
Dollar lower against euro
The dollar was lower against the euro and the yen on Thursday after the Federal Reserve indicated that interest rates will remain low for a considerable time after the bank’s asset purchase program ends.
EUR/USD was up 0.17% to 1.3617 from 1.3543 late Wednesday.
The pair was likely to find support at 1.3550 and resistance at 1.3670.
At the conclusion of its two-day meeting on Wednesday, the Fed cut its bond purchases by another $10 billion a month, to $35 billion, saying there was "sufficient underlying strength" in the U.S. economy to continue tapering.
Despite this, the Fed also lowered its forecast for growth this year to a range of 2.1% to 2.3% from 2.8 to 3.0% previously, due to "unexpected contractions" in the first quarter as a result of the unusually harsh winter. The central bank still acknowledged a broad improvement in the labor market.
The Fed said it expects the federal-funds rate, currently close to zero, to reach 1.2% by the end of next year and 2.5% by the end of 2016, a slightly faster rate of tightening than formerly expected.
But the forecast did not bring forward the timing for the first rate hike, disappointing many investors and weighing on the dollar.
The dollar was lower against the yen, with USD/JPY slipping 0.12% to 101.78, off the one-week high of 102.14 reached Wednesday ahead of the Fed announcement.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.18% to 80.36, the lowest since June 6.
I can see a EURUSD consolidating in a wide range it’s very possible that the summer range could be between the 1.35 level on the bottom, and the 1.37 level on the top. Good for short-term trades.
Euro advances to more than 1-week high against dollar
The euro rose to a more than one-week high against the dollar on Thursday, one day after the Federal Reserve indicated that interest rates will remain low for a considerable time after the bank’s asset purchase program ends.
EUR/USD was up 0.29% to 1.3632, the highest since June 9, from 1.3543 late Wednesday.
The pair was likely to find support at 1.3550 and resistance at 1.3670.
The dollar weakened broadly after the Fed gave no indication of when interest rates could start to rise at the conclusion of its two-day meeting on Wednesday. In addition, the Fed’s forecast of where interest rates might reach in the long term fell from 4% to 3.75%.
The central bank cut its bond purchases by $10 billion a month, to $35 billion, saying there was "sufficient underlying strength" in the U.S. economy to continue tapering.
The central bank acknowledged the recent increases in inflation and drop in unemployment, but said it still expects interest rates to stay low for a “considerable time” after bond-buying ends.
The euro was boosted as borrowing costs in the peripheral euro zone fell back towards recent record lows on Thursday, as euro zone bonds advanced. Spain’s 10-year yield fell to 2.66%, while France 10-year yield dropped to 1.67%.
Euro zone bond yield have been driven lower since the European Central Bank cut all its main rates to record lows and imposed negative deposit rates for the first time earlier this month, pushing investors into riskier assets to boost returns.
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Bank of Japan sees no deflation threat in euro area
The Bank of Japan sees no threat of deflation in the euro area because the European Central Bank (ECB) has beefed up its arsenal to avert any such risk, deputy central bank governor Hiroshi Nakaso said on Thursday.
"The ECB has made substantial progress... so I don't think the euro area faces an imminent threat of falling into a Japanese-like deflation," Nakaso told a central banking conference in Athens.
Nakaso was referring to measures the ECB announced earlier this month, such as negative interest rates, to kickstart growth and provide liquidity to the bloc's banks.