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Euro Dips before EuroFin Meeting; SNB under Great Pressure
Tradervox.com (Dublin) – Euro Regional Finance Ministers will meet today to discuss measures taken by the heads of government in last month’s EU meeting. The euro has reacted, touching its lowest in two years after declining for three days since the ECB decided to lower interest rates, forcing the SNB to consider drastic measures to counter. The ECB president Mario Draghi will address the European parliament today in Brussels where he is also expected to touch on the banks decision, Italy and Spain crisis, as well as measures taken to avert further deterioration in the region.
The Japanese currency increased against the euro to almost a month high, after the country released balance trade data for the month of May. Further, the yen increased as the Asian stock decline increased safe haven appetite. The Australian dollar was also down as Chinese premier Wen Jiabao indicated that the economy was still under great downward pressure. China is the largest trading partner for Australia.
According to Mike Jones, a Wellington-based Bank of New Zealand Ltd Currency Strategist, there is a great risk in the coming finance ministers meeting as cracks in European unity might arise showing reluctance in governments commitment to implementing measures agreed on at the EU leaders’ meeting. If this happens, the euro will probably lose more grounds against major currencies.
The euro declined to $1.2251 which is its weakest since July 2010, before appreciating to 1.2288 at the start of the day in London. The 17-nation currency bought 97.43 yen, the weakest since June 5, before appreciating to 97.92.
The current decline has forced the Swiss National Bank to react with Economy Minister Johan Schneider-Ammann saying that the SNB should defend its 1.20 cap and prepare for worse times ahead as euro region economy continues to show weaknesses. The minister also said that the government is considering all measures to ensure that the cap is protected including introducing negative interest rates. He, however, expressed skepticism on introduction of negative measures.
Source: Euro Dips before EuroFin Meeting; SNB under Great Pressure | Tradervox
Currency Outlook for the Week
Tradervox.com (Dublin) – The US dollar has advanced against most global currencies as economic slowdown dampened the mood in the market. Last week, the ECB made an important decision to lower interest rates which increased demand for riskier assets. Here is an outlook for the major currency pairs this week.
EUR/USD: The pair started last week on a high, attempting to break the 1.2670 resistance line; it slid downwards as the market reacted to difficulties in executing EU leaders’ decision. However following the ECB rate decision, the cross dropped to two-year low of 1.2286. Europe sentiments indicate that economic conditions in the region are worsening; this is likely to force the euro/dollar pair further down where new low of 1.2260 is expected to offer some support during the week.
GBP/USD: this pair lost close to two cents last week to close at 1.5484; this week, the pair has eight releases that are likely to affect it. The pound started last week on a high at 1.5678, rose to 1.5721 but fell to 1.5484. The pair has received support at 1.5415 and below this is the 1.5361 line. On the upside, there is 1.5521 which If broken will open doors to 1.5600 support line. However, market analysts are predicting a downside trend for the pair this week.
USD/JPY: the pair slid lower last week, but it had remained stable through the week and the dollar weakened as a result of the mediocre US Nonfarm Payrolls data. The pair has been trading on an uptrend channel since the beginning of this month and it is close to support at the moment. For this pair, it is important to remember that uptrend support has more significance than uptrend resistance. It is expected that the pair will remain neutral through the week.
USD/CHF: the pair climbed three cents last week as Swiss franc fell, closing the week at 0.9769. This week is a bit quiet for the pair with only two events set to affect it. The cross is expected to continue with the decline if there are no strong data from Switzerland to revert this.
Source: Major Currency Outlook for the Week | Tradervox
Major Forex Events This Week
Tradervox.com (Dublin) – The US dollar has been performing strongly in the market as jobless claims came in lower than the market expected. Most analysts are taking this as an outlier and the market did not react strongly. However, there are some important events this week that will shape the market. Here are some major events this week.
Monday 16
The US retail sales data will be released at 1230hrs on this day. May data showed a drop for the second month of 0.2 percent equaling the April result. The economist had predicted a 0.1 gain on this data. The core sales excluding cars also showed a decrease by 0.4 percent extending previous month’s decline of 0.3 percent; economists had predicted an increase of 0.1 percent. The data in May was attributed to low wage gain and the joblessness exceeding 8 percent. The data for June is expected o show a gain of 0.2 percent in Retail sales while Core Sales is expected to increase by 0.1 percent.
Tuesday 17
On this day the UK Inflation data and German ZEW Economic Sentiment will be the main events from the European Union region. The UK inflation data will be released at 0830hrs GMT where a drop to 2.7 percent is expected. If this figure is confirmed, this will be a continuation of dropping inflation data from the previous months where the annual rate declined by 2.8 percent from a previous reading of 3.0 percent. The economic sentiment from Germany will be released at 0900 hrs, where a small increase to -14.5 is estimated. Investor sentiment dropped to -16.9 in June from a high of 10.8 in May.
In the Americas, the market will be looking at the US inflation data and the Canadian rate decision which will be released at 1230 and 1300 hrs respectively. The Core CPI for the US is expected to show a 0.2 percent increment after a drop was registered in the previous reading. The Bank of Canada is expected to leave the interest rate unchanged at 0.1 percent. The Ben Bernanke testimony before the US senate will also be another important event in the US. Bernanke will speak at 1400hrs in Washington DC.
Wednesday 18
On this day, investors will be interested I the UK Claimant count change and the US building permits reports which will be released at 0830 hrs and 1230 hrs respectively. Economists are expecting the data from the UK to show a increase to 9,700 while US building permits are expected to drop to 770k.
Thursday 19
Three events will be of importance on this day; the US unemployment claims at 1230 hrs, and US existing Home sales and the US Philly Fed Manufacturing Index at 1400hrs. The US Unemployment Claims report is expected to show a rise back to the normal range of 375k. The US Existing Home Sales data is expected to show a rise to 4.65 million while the US Philly Fed Manufacturing Index is also expected to show an improvement to -7.8.
Source: Major Forex Events This Week | Tradervox
Unemployment Claims Falls as EUR/USD Edges Closer to Critical Support
Tradervox.com (Dublin) – The weekly jobless claims dropped from 376,000 to 350,000 this week, which is a big shift from the trend experienced before. Most economists have termed this as a one-off event and is not reflective of a change in trend. Such numbers were seen at the beginning of the year, and the current figure is a new four-year low.
Despite such encouraging data, there are reasons to worry as currencies fail to react. The USD/JPY which increases on positive US data is still lower at 79.20 while the EUR/USD is still low at $1.2180. There have been credible explanations of the lower than expected data with some analysts saying this might have resulted from the celebration of the Independence Day in the US which was on July 4, which was in the middle of the week. This might have caused many unemployed people to fail to claim their benefits. Further, economists have also cited that most companies that shutdown for summer were not shut hence significantly reducing the number of unemployment claims.
The EUR/USD pair is edging closer to breaking critical support, and this might be the reason why this pair did not react as support levels show much strength. However, the pair is still at new 2-year low as investors analyze the Spanish bond performance and the FOMC data. The EUR/USD has broken the important support line of 1.22 and there is no other line prior to the critical support at 1.2150. This line was a major separator when the market collapsed after the first Greece bailout in May 2010.
The pair fell after FOMC meeting minutes showed that only two of the members support additional dollar printing as a measure to spur growth while others taking a wait and see stance. Further, bad news came from Europe, where Spain is due to receive 30 billion euros to help its financial institution. However, the government is paying dearly with the PM announcing a 65 billion euro package to solve the debt crisis in the country. This means additional VAT shooting from 18 to 21 percent, unemployment benefit cut, and cancellation of Christmas bonus. These measures will weigh heavily on the people and the market is waiting to see how people will react.
Source: Unemployment Claims Falls as EUR/USD Edges Closer to Critical Support | Tradervox
How to Trade the ZEW Economic Sentiment Index
Tradervox.com (Dublin) – The German ZEW economic sentiment index will be released on Tuesday at 0900 hrs GMT. ZEW takes into account the sentiments and views of institutional investors and analysts about the German economy for the month. If the reading is higher than the market forecast, the euro strengthens. The report surveys and assesses the views of financial experts in the country to provide a possible direction in the economy in the next six months. It takes into account the views about inflation, stock market and the exchange market hence making this indicator important as a predictor of medium term economic future in Germany.
The report will come after the euro has dropped to two-year low as crisis in the euro area continue to take a grip of the member nations. Investors are not impressed with the progress made in dealing with the situation as decision to help Spain in its banking problem has been met with some resistance. There are also some sentiments that Italy will need bailout sooner than later. Spain and Italy are some of the largest economies in the region and their prolonged debt crisis has led to bearish sentiments for the EUR/USD. Further, this situation has been exacerbated by the ECB decision to reduce interest rate and cut deposit rate which has been clipping the bank’s crisis fighting options.
With the report set to be released in the next hour; there are five different scenarios that are expected. If the index comes within the market expectation –that is between -18.0 to -10.0, the euro will increase within range; but there might be a slim chance of breaking higher. If above expectation, --that is -9.9 to -2.0, the euro-dollar pair may rise beyond one resistance line. If the index is well above market expectation –that is >-2.0, the pair will probably break a second resistance line as this would show increased optimism in the German economy which would resonate to confidence in the euro.
However, if this index comes in below the market expectation which is between -18.1 to -23.0; this would send the euro-dollar pair below a single resistance line. But is this is well below market expectation; that is below -23.1, then the pair will probably break two or more support lines.
Loonie Gains on BOC Decision
Tradervox.com (Dublin) – The Bank of Canada has signaled the possibility of an interest increase rate despite the nation’s growth slowing down due to poor global economic conditions. In a statement to the press after the meeting, Bank of Canada Governor Mark Carney indicated that domestic recovery will be limited by the poor global demand for exports. The BOC policy makers left the interest rate at one percent in accordance with the market expectation. The Canadian dollar increased against the greenback to one-week high which was also supported by the Fed Chairman’s remarks that efforts to reduce unemployment in the country might be frustrating hence raising speculations of QE3.
Shaun Osborne, who is Chief Currency Strategist at TD Securities indicated in an interview that the Canadian dollar and the US dollar will remain stuck at C$1.0140 in the meantime as investors await for further indications from the BOC and the Fed Chairman. The Canadian government bonds were also affected where the 10-year bond yields declined by 0.02 percent to settle at 1.64 percent. Government bonds had fallen to the lowest yesterday recording a low of 1.598 percent. These shifts in yields are coming just a day before the Bank of Canada issues details on its 10-year note auction to be held on July 25.
Against the euro, the Canadian dollar is expected to strengthen as it reached a high of C$1.2365 yesterday which is the strongest it has been since the single currency entered the market. The loonie strengthened against the US dollar by 0.3 percent to exchange at C$1.0120 per USD at the close of trading in Toronto yesterday. The Canadian currency had touched its highest since July 5 of $1.0119 during the day’s trading.
According to Osborne, the trend the loonie has taken against the euro might continue to be bearish and it may require some important improvements in the euro zone to change that trend.
Source: Loonie Gains on BOC Decision | Tradervox
Market Still Not Convinced on Euro Bailout Bids
Tradervox.com (Dublin) – The euro has dropped to more than two-year low after the final approval Spanish banks’ bailout was made. Analysts and investors are looking at this as a no-confidence vote to the efforts made by the European Policymakers. Despite approval of Spanish bailout, Mariano Rajoy, the Spanish Prime Minister has indicated that the country will experience another year of recession; moreover, Valencia has expressed its inability to meet its debt obligation and said that it will need help from the central government. The worsening crisis in Spain has been blamed for the surging borrowing cost in Italy, where the Prime Minister, Mario Monti entertained the prospects of Greece exiting the euro.
Marc Ostwald of Monument Securities Ltd in London has indicated that traders have realized the debt restructuring efforts are failing and some stern measures have to be taken. It seems like more and more officials in the euro zone are entertaining the idea of Greece leaving the euro which would leave the euro with a higher risk of breaking. The market decline exactly after one year since European leaders promised to give Greece a second bailout. However, these efforts seem to bear little fruits as the crisis continues to worsen.
The euro slid by one percent in the market over trade at $1.216 in Brussels while the Euro Stoxx 50 Index, led by the Italian banks, fell by 2.8 percent. According to Tom Russo, of Gardner Russo & Gardner, said that the current decline is as a result of traders’ unwillingness to take positions over the weekends. With the current state of affairs, the risk is too big to hold for two days without trading. The decline came as Euro zone Finance Ministers continue to discuss the issue of whether the bailout loan repayment will be on the sovereign or the Spanish banks.
Some analysts have indicated that the contagion concerns might force the European Central Bank to cut its benchmark interest rate from the 0.75 percent set last month, and it might also drop overnight deposit rate to below zero by end of October.
Source: Market Still Not Convinced on Euro Bailout Bids | Tradervox
Events that Will Affect AUD/USD This Week
Tradervox.com (Dublin) – The cross opened the week at 1.0234 and dropped to a low of 1.0202; however, the pair staged an impressive run, climbing to 1.0444, breaking through the resistance line at 1.0402 to close the week at 1.0422. This has been attributed to the weak US data including the unemployment claims and manufacturing data. There are several releases this week from Australian that will affect the cross and they are discussed below.
On Monday, the Australian PPI will be released. The previous release was not impressive as it came in down by 0.3 percent, registering the first decline since January 2010. The market is expecting July reading to rebound and record a 0.3 percent increase. The PPI index will be released at 0130 hrs GMT. The other important event will be the Chinese Flash Manufacturing PMI which will be released on Tuesday at 0230 hrs GMT. The index has been below the pivotal level of 50 since October last year, which indicative of contraction in Chinese manufacturing industry. Any changes in Chinese data affect Australian as this is Australia’s biggest trading partner.
Almost about half an hour later, the RBA Governor Glenn Stevens will speak on the state of economy in Australia at 0305hrs GMT. Traders have a keen eye on his speech as it might contain clues of future monetary policy. If his speech is more hawkish than the market expectations, this pushes the Australian dollar. The other event to put a close eye on is the CB Leading Index which will be released on Wednesday at 0000hrs GMT. The index declined for the first time since January in June, but an improvement is expected this time round.
The CPI data will be released on Wednesday at 0130hrs; this index has remained constant with very little change since the third quarter in 2011. The market expects a increase of 0.6 percent for the second quarter this year. The Trimmed Mean CPI which will be released at the same time on the same day is also expected to rise with the same margin.
Source: Major Events that Will Affect AUD/USD Cross This Week | Tradervox
BOJ’s Easing Efforts - A Promise of More Action
Tradervox.com (Dublin) – Finance Minister in Japan yesterday commended the work done by the Bank of Japan as he recorded that the foreign-exchange intervention done had yielded commendable results. In addition, the Bank of Japan Deputy Governor Hirohide Yamaguchi said that the bank will not hesitate to make more easing. His comments have indicated that the bank will be making some more easing since the yen has increased in July. The yen has increased against the dollar and is trading at near eleven-year high against the euro. A strong yen hurts the country’s exports which support economic growth. The yen has continued to strengthen as the country reported an unexpected trade surplus.
The yen advanced against the dollar to trade at 78.20 per dollar in Tokyo while it advanced against the euro to trade at 94.42 yen. The yen has continued to attract safety seekers as debt crisis in Europe continues to worsen. According to David Rea of Capital Economics Ltd in London, the Bank of Japan will intervene depending on what happens in the euro region. Data from the region has continued to disappoint so far, with German Ifo Business Confidence decreasing for the third month in a row.
Source: BOJ’s Easing Efforts - A Promise of More Action | Tradervox
Yen Strengthens Against Peers on Global Economic Slowdown Concerns
Tradervox.com (Dublin) – The Japanese currency has advanced against most of its major peers as concerns global economy is slowing mounted, boosting safe haven currencies. The yen advanced to almost eight-week high against the greenback prior to a report expected to show durable goods orders and Pending Home Sales in the US slowed. The yen is favored over the dollar as speculation of additional stimulus from the Federal Reserve is forecasted if poor data continues to come from US. Further, the Euro declined against the yen following concerns that Italian retail sales declined while unemployment in Spain increased. These are signs of deepening debt crisis in Europe which is weighing heavily on the region’s economy.
According to Imre Speizer who is a strategist at Westpac Banking Corp in Auckland, there are signs that euro zone economic fundamentals are weak and there are disappointing reports from US which have pushed the demand for yen as the ultimate safe haven currency. The yen strengthened as a report from US is set to show that the US Gross Domestic Product increased the slowest in a year at 1.4 percent. In addition, the increase has come amid Fed’s concerns in looking for new ways to solve the weaknesses in the US economy. Fed Chairman Ben S. Bernanke said last week that there will be efforts to boost recovery in the labor market which has continued to produce poor data.
The yen also rose as the US orders for durable goods are expected to have risen by 0.3 percent in June slower than the 1.3 gain in May. The yen increased by 0.2 percent against the euro to trade at 94.84 per euro while it increased from 78.19 to 78.16 against the dollar. The Japanese currency rose to 77.94 on Monday July 23 which is the strongest it has been since June 1.
Source: Yen Strengthens Against Peers on Global Economic Slowdown Concerns | Tradervox