Fundamental Outlook at 1400 GMT (EST + 0400)
€
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.6000 figure and was supported around the $1.5835 level. The common currency established a new lifetime high. The pair gained ground following hawkish comments from two European Central Bank officials. ECB’s Mersch said the prospect of a monetary tightening is “fully justified” while ECB’s Noyer said the ECB will tighten “if necessary” to get inflation below 2.0% in 2009. In stark contrast, the futures market continues to price in rate cuts by the ECB later this year. Mersch’s and Noyer’s comments follow other hawkish talk from ECB officials yesterday including Papademos who warned second-round effects may materialize. The ECB is expected to upwardly revise its inflation forecasts in June and downwardly revise its GDP growth forecast. Data to be released in the eurozone tomorrow includes the EMU-15 purchasing managers’ indices followed by Thursday’s German Ifo sentiment survey. In U.S. news, March existing home sales were off 2.0% m/m and 19.3% y/y to 4.93 million annualized units. Euro bids are cited around the US$ 1.5875/ 1.5345 levels.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥102.80 level and was capped around the ¥103.50 level. Nikkei reported Bank of Japan will downgrade its economic growth forecast for the fiscal year to March 2009 on 30 April to around 1.5% from its current 2.1% forecast. While most traders do not expect the central bank will reduce the overnight call rate from its current 0.50% level, many traders believe the BoJ will move towards a more neutral stance from its current directive of gradualist monetary contraction. The BoJ may also upwardly revise its consumer price inflation forecast from 0.4% on account of elevated commodity prices. Data released in Japan overnight saw March supermarket sales up 1.4%, the second consecutive monthly rise. Traders are also closely watching the food situation in Japan, a country that is facing a major food shortage and imports more than half of the food it consumes. The Nikkei 225 stock index lost 1.09% to close at ¥13,547.82. Dollar offers are cited around the ¥105.55 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥164.75 level and was supported around the ¥163.30 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥206.05 and ¥102.55 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9897 level in the over-the-counter market, down from CNY 7.0000.
£
The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9955 level and was supported around the $1.9745 level. Technically, today’s intraday low was just below the 61.8% retracement of the move from $1.9360 to $2.0395. Bank of England Monetary Policy Committee member Besley reported the BoE’s scheme to exchange £50 billion in mortgage-backed and other securities for nine-month U.K. Treasury bills “will allow the MPC to stay more focused on its task of using monetary policy to target inflation.” Many traders are skeptical that the plan will remove enough of the credit logjam from banks’ balance sheets while others believe it is too costly. Cable bids are cited around the US$ 1.9605/ 1.9505 levels. The euro weakened vis-à-vis the British pound as the single currency tested bids around the £0.7980 level and was capped around the £0.8050 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0025 level and was capped around the CHF 1.0130 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from CHF 0.9645 to CHF 1.0285. Data released in Switzerland today saw the March trade surplus print at CHF 1.247 billion. U.S. dollar offers are cited around the CHF 1.0375 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6090 and CHF 2.0135 levels, respectively.