EUR/USD
Remains positive while projected support at 1.4283 holds. Successfully defending 1.4283 would prompt a recovery back to Friday's marginal high at 1.4440, which shields the wave equality target at 1.4458. This 1.4458 target needs to be met in order to validate the recovery off the July 18 higher low at 1.4014. Failure to keep 1.4283 intact would damage the wave structure, and create scope for weakness to the July 21 low at 1.4138.
GBP/USD
Edges towards the 1.6348 upside target, as GBP bulls remain in control. The push into fresh five-week highs opens the wave equality target at 1.6415, which needs to be met in order to validate the short-term rally off the July 12 reaction low at 1.5783. Solid support lies at 1.6175, and only a move below projected support at 1.6151 would concern GBP bulls.
USD/JPY
Resistance at 78.60 and 78.70 is likely to cap upside risk, despite the strong recovery off Monday's Asian session low at 78.12. The main threat remains to the downside, and a break below 78.36 and 78.22 would bring the four-month low at 78.12 back into focus. Regaining ground above 78.70 would provide respite, opening 79.03.
AUD/USD
The bullish AUD tone remains intact while projected support at 1.0794 holds. AUD bulls are on course for meeting important wave equality targets at 1.0907 and 1.0924, which would become achievable on a break above Friday's 1.0877 high. Only a sustained break below 1.0794 would question the positive AUD outlook, exposing 1.0735.
FOREX FOCUS
Financial Armageddon will probably be avoided. But, that won't necessarily be good news for the dollar. On the contrary, protracted negotiations on raising the U.S. debt ceiling could well increase the threat of a ratings downgrade at the same time talk of further U.S. monetary easing is likely to return. In other words, neither fiscal nor monetary forces will be working in the dollar's favor for the foreseeable future. Hopes had been high before last weekend that President Obama was close to hammering out a deal with the Republicans on raising the debt ceiling and allowing the Treasury to continue raising money. But, with the talks now in tatters and the August 2 default deadline drawing closer, it looks increasingly likely the two sides will only come up with a short-term compromise that will keep the Treasury solvent but postpone any tough decision on spending cuts and tax increases until next year. The problem then, of course, is that negotiations could prove even more difficult as they will be taking place just as the two parties start their campaigns for the next presidential election. This will hardly put the U.S. in a good light and with credit agencies likely to keep their threat of a U.S. downgrade alive, Washington could well find it has to offer a weaker dollar and higher Treasury yields to keep foreigners buying its debt. So, the fiscal stresses that have overshadowed the dollar for the last few months could actually intensify if Congress fails to find a longer-term debt solution.
EUROPE
Lingering concerns over the Greek rescue deal and the worryingly glacial pace of U.S. debt-ceiling negotiations knocked investor sentiment during European hours Monday, giving the Swiss franc and Japanese yen a boost. The franc hit an all-time high against the dollar of CHF0.8021, while the dollar dropped to another post-intervention low of Y78.06 against the yen, as rattled traders flocked toward traditional safe havens. Gold climbed to a fresh record high of $1,623.49 per troy ounce, while European equities fell from the open, led down by financial stocks. "It's quite a choppy start to the week and this is set to continue with plenty of big data events on the horizon," said Ian Stannard, senior currency strategist at Morgan Stanley. Although the euro lost ground against the franc, it traded broadly sideways against the dollar as traders weighed up the U.S. fiscal troubles and the Greek bailout package.
ASIA
Asian currency markets took the U.S. debt impasse largely in stride Monday, but the euro slid late in the session when Greece was downgraded to near-default status. Democrats and Republicans missed a deadline they had set for themselves for a deal to raise the debt ceiling -- and avoid default -- in time for Asian markets to open. But while the dollar weakened, traders seemed if anything bored with the exercise: data from EBS indicate activity among major currencies were barely half their average levels of the past 30 sessions. Asian currency markets still expect "that something will get cobbled together," said Adrian McGowan, head of Asia-Pacific trading at Barclays Capital in Singapore. But late in the session, Moody's slashed Greece by three notches to Ca, a cut above default, on expectations that the latest bailout will force "substantial economic losses" on private creditors.
WORLD
Initial euphoria over Europe's solution to Greece's debt crisis wore off Friday in New York, sending the euro lower against major currencies as markets questioned whether the fundamental outlook for troubled euro-zone countries had really changed. On Thursday, European Union leaders reached a comprehensive solution to the Hellenic republic's distressed debt situation, amid fears that Greece's woes could spread to larger European economies such as Spain and Italy. In particular, analysts welcomed plans to expand the scope of the European Financial Stability Facility (EFSF), a funding vehicle that is a linchpin of Europe's efforts to rescue debt-laden countries. But many market observers say that the devil remains in the details, many of which are still hazy at best. While the broadening of the EFSF's powers appears sufficient to handle Greece's immediate needs, analysts harbored doubts about whether it could contend with the country's long-term financing needs--and if it could manage a bailout of Italy and Spain, the euro zone's third and fourth largest economies, respectively. The assets of both countries have recently been a target of jittery investors.
Selasa, 26 Juli 2011
Jumat, 22 Juli 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
Thursday's strength brings the wave equality target at 1.4458 into the immediate picture. And while projected support at 1.4283 holds, the structure of the bull wave from Monday's 1.4014 low creates scope for 1.4498 and 1.4592 on concerted EUR strength. Corrective weakness will attract support while above 1.4283, and only below there would concern EUR bulls.
GBP/USD
Scope for more GBP gains to 1.6348 have been created, following Thursday's push into fresh five-week highs. However, GBP bulls need to meet the wave equality target at 1.6415, in order to validate the short-term rally off the July 12 reaction low at 1.5783. Solid support lies at 1.6175, and only below projected support at 1.6144 would leave GBP bulls bewildered.
USD/JPY
A new trading range has been established between 78.22 and 79.00, but the overall tone remains USD bearish. Resistance at 78.74 protects the 79.00 level, and while the latter caps, USD bears will look to test support at 78.43. However, the strong recovery off Friday's Asian session low at 78.22 suggests the range floor will remain intact. Only a sustained break above 79.00 would put USD bulls in control, opening 79.32.
AUD/USD
Pushes into fresh ten-week highs above 1.0804, to clear the path for the resistance cluster at 1.0924. The four-week bull channel resistance line lies at 1.0974 during Friday's current session, and the May 2 reaction high at 1.1014 is effectively back within striking distance. Corrective weakness will attract support while above 1.0750, and downside risk is limited.
FOREX FOCUS
European Union leaders may have bought the euro some time but they haven't brought it a solution. The single currency may well have a comfortable summer. After many months of market tension, politicians as well as markets players will be only too glad to head for the beaches now that a second bail out for Greece has finally been negotiated. But, come the autumn, the real test of the EUR159 billion bailout that the leaders have just cobbled together for Greece will take place. The details of private sector involvement, the reaction of credit rating agencies, the impact on the borrowing costs of other peripheral euro zone debtors should all be a lot more clear by then. And investors will probably not like what they see. Greece won't be any happier accepting austerity measures linked to the rescue package and the fiscal independence of euro zone members that led to the debt crisis in the first place will be as strong as ever. There is little doubt that EU leaders have removed the immediate risk of debtor default that has been haunting the market for so long. Their agreement to expand the public sector contribution to Greece as well as rope in private sector lenders has certainly improved the chances that Athens will be able to resolve its debt issues in the longer-term. The relief over the last-minute deal has been expressed right across global markets with bond prices falling, stock markets rallying, the cost of peripheral debt tumbling and the euro itself rising by about 2% against the dollar. The reaction, however, can hardly be described as euphoric. It is more a case of markets giving the deal the benefit of the doubt. Just look at the euro. It may have rallied to a high of nearly $1.4450 after the package was announced in Brussels but this didn't even put the currency it in the upper end of the $1.3837-$1.4940 trading range that has existed for the last few months. This hardly looks as if euro bulls are getting carried away. Of course, the euro's performance is very much a matter of degree. Short positioning in the currency hasn't been that high and a reminder this week of the economic problems facing even the core countries in the euro zone may well have tempered enthusiasm. Friday's sharp fall in Germany's Ifo survey of business sentiment may even have cast doubt over whether the European Central Bank's decision to raise interest rates earlier this month was such a good idea. Some analysts suggest that as the summer lull gains pace and trading levels decline, there is a chance that the single currency will drift up to the top of the trading range. But, even if that happens, it will only be a matter of time before reality over the deal kicks back in. As questions over its implementation rise, so could confidence in the euro once again fall, with the single currency still struggling to take its place as one of the world's major reserve currencies that can seriously compete with the dollar.
EUROPE
The euro clung to overnight gains in European trade Friday and the Australian dollar hit a two-month high against the dollar as an easing in euro-zone debt worries nudged investors into putting on riskier currency bets. The euro remains just above $1.44 against the dollar, keeping much of its gains from Thursday, when the euro zone's leaders announced a new Greek bailout and an overhaul of its rescue fund package for fiscally frail member states. "The outcome of yesterday's [euro-zone] summit came in at the upper range of our optimistic expectations, with [euro-zone] leaders announcing a series of comprehensive measures to support Greece and to stabilise the euro zone as a whole," was Credit Agricole's reading of the matter. And judging by the initial market reaction, with shares mostly higher and peripheral euro-zone government bond spreads tightening, that seems to be the overall view. "It is a genuine relief rally," said Neil Mellor, strategist at Bank of New York Mellon. Fitch Ratings said the private sector involvement in the Greek deal will constitute a "restrictive default" once the bond exchange takes place, but that was widely expected. Even so, many questions remain, he added, pointing to the size of the rescue fund and the potential for further debt problems. "The contagion risk is quelled for a while but it is not going to go away. Greece will need greater debt forgiveness," Mellor said. Joerg Kraemer, economist at Commerzbank believes the euro zone has bought Greece enough time, at least until the end of 2014. But the crisis will only go away if weaker states consolidate their budgets and restructure their economies in order to become competitive, he added. So the euro still faces tough tests if the headlines turn bad again. "The upside for the euro, notably against the dollar, will be constrained by its already elevated level which will leave it vulnerable should any bad news materialise," said Daragh Maher at Credit Agricole.
ASIA
The euro on Friday held onto most of its gains made overnight on news of a comprehensive bailout package for Greece, but doubts about a long-term solution for the euro zone's debt problems made traders in Asia wary of pushing the single currency higher. The EUR159 billion bailout "went beyond market expectations," BNP Paribas said in a research note, calling the agreement "a major step towards stabilizing the markets and a resolution of the debt crisis." At 0445 GMT, the euro was at $1.4390 after it jumped to $1.4440 in late U.S. trade on Thursday on the back of the bailout announcement. Against the yen, the euro was at Y113.12 from Y112.98. Leaders of the 17 euro zone member countries agreed to enhance the European Financial Stability Facility, giving the bailout fund more flexibility in its purchases and allowing it to buy sovereign debt in the secondary market if deemed necessary. The European Central Bank can also accept Greek bonds as collateral for its fund provision even if Greece is placed on selective default by rating agencies. Traders were, however, cautious about the euro's prospects ahead. "The euro is likely to react negatively when rating agencies actually put Greece into default", said Yoshiko Takayasu, manager of foreign exchange sales at Royal Bank of Canada in Tokyo. "Given this, the euro is unlikely to have a firm footing above $1.4500," she said. Yuji Saito, director at Credit Agricole in Tokyo, said the bailout was "far from a fundamental solution." "There is doubt over whether the bailout is large enough to cover other countries when contagion spreads," he said. The dollar firmed against the yen in Asian trading despite worries over the showdown between the White House and congressional Republicans over raising the U.S. debt ceiling, as buying from importers and concerns over possible yen-selling intervention lifted the greenback higher.
WORLD
The euro rose sharply Thursday as plans for a new Greek bailout and overhaul of the euro zone's rescue fund assuaged fears about possible contagion. Market participants' hope that European leaders are close to finalizing a package to give Greece a second bailout and reduce liquidity risks in countries like Spain and Italy helped push the euro more than 1% higher against the dollar. The common currency also surged against safe havens like the yen and Swiss franc, though the long-term impact for the euro is still uncertain. "It's more of a temporary relief rally," Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J., said of the euro's big gains Thursday. Just announcing a draft of a plan appears to be a major step forward for the euro zone, which has consistently delayed reaching a deal to support Greece. The appearance of progress has been supportive for the euro. "If we have a deal and a plan--even with any problems or imperfections that it might have--it's a sign that we're not going to get a breakup and [euro-zone] leaders will do whatever it takes to solve these problems," said Greg Anderson, strategist at Citigroup. Over the long term, questions remain about whether the euro zone's bailout fund, the European Financial Stability Facility, will be expanded and how ratings agencies would treat a potential debt restructuring in Greece. Ratings agencies have said in recent months that a distressed Greek debt restructuring could be considered a default. Euro-zone governments outlined a new aid package for Greece and an overhaul of the rescue fund that aims to reduce the debt burdens of Greece, Portugal and Ireland, according to the draft proposal. The overhaul would extend loan maturities and lower interest rates for heavily indebted euro-zone countries.
Thursday's strength brings the wave equality target at 1.4458 into the immediate picture. And while projected support at 1.4283 holds, the structure of the bull wave from Monday's 1.4014 low creates scope for 1.4498 and 1.4592 on concerted EUR strength. Corrective weakness will attract support while above 1.4283, and only below there would concern EUR bulls.
GBP/USD
Scope for more GBP gains to 1.6348 have been created, following Thursday's push into fresh five-week highs. However, GBP bulls need to meet the wave equality target at 1.6415, in order to validate the short-term rally off the July 12 reaction low at 1.5783. Solid support lies at 1.6175, and only below projected support at 1.6144 would leave GBP bulls bewildered.
USD/JPY
A new trading range has been established between 78.22 and 79.00, but the overall tone remains USD bearish. Resistance at 78.74 protects the 79.00 level, and while the latter caps, USD bears will look to test support at 78.43. However, the strong recovery off Friday's Asian session low at 78.22 suggests the range floor will remain intact. Only a sustained break above 79.00 would put USD bulls in control, opening 79.32.
AUD/USD
Pushes into fresh ten-week highs above 1.0804, to clear the path for the resistance cluster at 1.0924. The four-week bull channel resistance line lies at 1.0974 during Friday's current session, and the May 2 reaction high at 1.1014 is effectively back within striking distance. Corrective weakness will attract support while above 1.0750, and downside risk is limited.
FOREX FOCUS
European Union leaders may have bought the euro some time but they haven't brought it a solution. The single currency may well have a comfortable summer. After many months of market tension, politicians as well as markets players will be only too glad to head for the beaches now that a second bail out for Greece has finally been negotiated. But, come the autumn, the real test of the EUR159 billion bailout that the leaders have just cobbled together for Greece will take place. The details of private sector involvement, the reaction of credit rating agencies, the impact on the borrowing costs of other peripheral euro zone debtors should all be a lot more clear by then. And investors will probably not like what they see. Greece won't be any happier accepting austerity measures linked to the rescue package and the fiscal independence of euro zone members that led to the debt crisis in the first place will be as strong as ever. There is little doubt that EU leaders have removed the immediate risk of debtor default that has been haunting the market for so long. Their agreement to expand the public sector contribution to Greece as well as rope in private sector lenders has certainly improved the chances that Athens will be able to resolve its debt issues in the longer-term. The relief over the last-minute deal has been expressed right across global markets with bond prices falling, stock markets rallying, the cost of peripheral debt tumbling and the euro itself rising by about 2% against the dollar. The reaction, however, can hardly be described as euphoric. It is more a case of markets giving the deal the benefit of the doubt. Just look at the euro. It may have rallied to a high of nearly $1.4450 after the package was announced in Brussels but this didn't even put the currency it in the upper end of the $1.3837-$1.4940 trading range that has existed for the last few months. This hardly looks as if euro bulls are getting carried away. Of course, the euro's performance is very much a matter of degree. Short positioning in the currency hasn't been that high and a reminder this week of the economic problems facing even the core countries in the euro zone may well have tempered enthusiasm. Friday's sharp fall in Germany's Ifo survey of business sentiment may even have cast doubt over whether the European Central Bank's decision to raise interest rates earlier this month was such a good idea. Some analysts suggest that as the summer lull gains pace and trading levels decline, there is a chance that the single currency will drift up to the top of the trading range. But, even if that happens, it will only be a matter of time before reality over the deal kicks back in. As questions over its implementation rise, so could confidence in the euro once again fall, with the single currency still struggling to take its place as one of the world's major reserve currencies that can seriously compete with the dollar.
EUROPE
The euro clung to overnight gains in European trade Friday and the Australian dollar hit a two-month high against the dollar as an easing in euro-zone debt worries nudged investors into putting on riskier currency bets. The euro remains just above $1.44 against the dollar, keeping much of its gains from Thursday, when the euro zone's leaders announced a new Greek bailout and an overhaul of its rescue fund package for fiscally frail member states. "The outcome of yesterday's [euro-zone] summit came in at the upper range of our optimistic expectations, with [euro-zone] leaders announcing a series of comprehensive measures to support Greece and to stabilise the euro zone as a whole," was Credit Agricole's reading of the matter. And judging by the initial market reaction, with shares mostly higher and peripheral euro-zone government bond spreads tightening, that seems to be the overall view. "It is a genuine relief rally," said Neil Mellor, strategist at Bank of New York Mellon. Fitch Ratings said the private sector involvement in the Greek deal will constitute a "restrictive default" once the bond exchange takes place, but that was widely expected. Even so, many questions remain, he added, pointing to the size of the rescue fund and the potential for further debt problems. "The contagion risk is quelled for a while but it is not going to go away. Greece will need greater debt forgiveness," Mellor said. Joerg Kraemer, economist at Commerzbank believes the euro zone has bought Greece enough time, at least until the end of 2014. But the crisis will only go away if weaker states consolidate their budgets and restructure their economies in order to become competitive, he added. So the euro still faces tough tests if the headlines turn bad again. "The upside for the euro, notably against the dollar, will be constrained by its already elevated level which will leave it vulnerable should any bad news materialise," said Daragh Maher at Credit Agricole.
ASIA
The euro on Friday held onto most of its gains made overnight on news of a comprehensive bailout package for Greece, but doubts about a long-term solution for the euro zone's debt problems made traders in Asia wary of pushing the single currency higher. The EUR159 billion bailout "went beyond market expectations," BNP Paribas said in a research note, calling the agreement "a major step towards stabilizing the markets and a resolution of the debt crisis." At 0445 GMT, the euro was at $1.4390 after it jumped to $1.4440 in late U.S. trade on Thursday on the back of the bailout announcement. Against the yen, the euro was at Y113.12 from Y112.98. Leaders of the 17 euro zone member countries agreed to enhance the European Financial Stability Facility, giving the bailout fund more flexibility in its purchases and allowing it to buy sovereign debt in the secondary market if deemed necessary. The European Central Bank can also accept Greek bonds as collateral for its fund provision even if Greece is placed on selective default by rating agencies. Traders were, however, cautious about the euro's prospects ahead. "The euro is likely to react negatively when rating agencies actually put Greece into default", said Yoshiko Takayasu, manager of foreign exchange sales at Royal Bank of Canada in Tokyo. "Given this, the euro is unlikely to have a firm footing above $1.4500," she said. Yuji Saito, director at Credit Agricole in Tokyo, said the bailout was "far from a fundamental solution." "There is doubt over whether the bailout is large enough to cover other countries when contagion spreads," he said. The dollar firmed against the yen in Asian trading despite worries over the showdown between the White House and congressional Republicans over raising the U.S. debt ceiling, as buying from importers and concerns over possible yen-selling intervention lifted the greenback higher.
WORLD
The euro rose sharply Thursday as plans for a new Greek bailout and overhaul of the euro zone's rescue fund assuaged fears about possible contagion. Market participants' hope that European leaders are close to finalizing a package to give Greece a second bailout and reduce liquidity risks in countries like Spain and Italy helped push the euro more than 1% higher against the dollar. The common currency also surged against safe havens like the yen and Swiss franc, though the long-term impact for the euro is still uncertain. "It's more of a temporary relief rally," Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J., said of the euro's big gains Thursday. Just announcing a draft of a plan appears to be a major step forward for the euro zone, which has consistently delayed reaching a deal to support Greece. The appearance of progress has been supportive for the euro. "If we have a deal and a plan--even with any problems or imperfections that it might have--it's a sign that we're not going to get a breakup and [euro-zone] leaders will do whatever it takes to solve these problems," said Greg Anderson, strategist at Citigroup. Over the long term, questions remain about whether the euro zone's bailout fund, the European Financial Stability Facility, will be expanded and how ratings agencies would treat a potential debt restructuring in Greece. Ratings agencies have said in recent months that a distressed Greek debt restructuring could be considered a default. Euro-zone governments outlined a new aid package for Greece and an overhaul of the rescue fund that aims to reduce the debt burdens of Greece, Portugal and Ireland, according to the draft proposal. The overhaul would extend loan maturities and lower interest rates for heavily indebted euro-zone countries.
Rabu, 06 Juli 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
Resistance at 1.4500 will look to cap the corrective recovery off 1.4395. Tuesday's weakness left Monday's 1.4580 high as a potential bull failure, and EUR bears will be looking to extend the setback below 1.4395 to test the important intraday higher low at 1.4325. A break below 1.4325 is required to confirm the bull failure at 1.4580. Regaining ground above 1.4500 would provide respite, but only above 1.4553 would re-open the 1.4580 high.
GBP/USD
Gyrates within a 1.6139/1.5993 range, as the near-term direction becomes uncertain once again. However, GBP bears would appear to have the upper hand, and are expected to defend the 1.6139 high. A push below 1.5993 would bring the focus back onto the late June reaction lows at 1.5911, threatening a downtrend extension to 1.5852 and towards the 1.5675 area. Only above 1.6139 would negate the bearish GBP outlook, opening 1.6225.
USD/JPY
Remains on course for more gains towards 81.50, despite the setback during Wednesday's Asian hours. While support at 80.73 holds, a return to Tuesday's high at 81.19 is expected, opening 81.27 and the resistance cluster between 81.40 and 81.50. Only below Monday's low at 80.54 would cause a technical breakdown, exposing the June 30 low at 80.26.
AUD/USD
The recovery off 1.0664 is on course for more gains to 1.0757 and the July 1 high at 1.0791. Keeping the important 1.0615 support level protected is behind this latest upwave, and the recent completion of a medium-term bull wedge keeps the underlying tone positive for AUD. A push through 1.0791 would open the May 11 lower high at 1.0890. Only a reversal below 1.0664 would negate the bullish AUD outlook.
FOREX FOCUS
Little is going to stop the pound from melting now. In short, concern over the U.K. economic recovery is about to intensify and speculation over further monetary easing is likely to increase while market support for other major currencies, such as the dollar and the euro, is about to rise. Britain's ruling coalition may be facing criticism about its fiscal discipline but recent data suggest that the impact of public spending cuts and tax increases may be even deeper than initially anticipated. Hopes that the economy will start to recover from sluggish growth of 0.5% in the first quarter have been dashed by recent figures, with economists predicting a slowdown to only 0.3% or less growth in the second quarter. The growing threat of public-sector strikes, as the government attempts to bring salaries and pensions more in line with the private sector, is only likely to undermine market sentiment, especially if the government is seen backing down on key issues that threaten fiscal reform. The fact that the global recovery is also faltering isn't helping the country's growth prospects, given the U.K.'s high dependence on exports. If anything, the resulting decline in global commodity prices is helping to quell fears of stagflation and could mean the Bank of England will be more comfortable introducing more monetary easing if needed. The latest purchasing managers' index for the country's service industries confirmed such a trend this week. Although the activity index proved stronger than expected, the pricing index fell quite markedly, suggesting that inflation pressures are subsiding and recent strong rises in the consumer price index will be reversed as expected. Although the service sector of the economy may have proved slightly more buoyant, the manufacturing and construction sectors remained very soft, reinforcing calls for more monetary easing through a second dose of quantitative easing, or QE2. In a global context, this is the last thing the pound needs. Although the U.S. recovery remains uncertain as well, the Fed has essentially ruled out another dose of quantitative easing and the prospects for the dollar are steadily improving. Similarly, the euro's recent gains against the pound have been subdued, given that the risk of a Greek debt default has remained high and investors have been very selective in their purchases of the single currency. However, hopes that tensions will subside while details of a second Greek bailout are negotiated over the next few months means that the euro could find some support. If so, then the pound could find itself facing a hot and unpleasant summer as yield differentials move against it and the euro and the dollar find more investor support at its expense.
EUROPE
The euro fell heavily in European trading hours as London traders took a grim view of news late Tuesday that a key ratings agency had downgraded Portuguese government bonds to junk status, with an interest-rate rise from China adding to the pressure as it hit risky bets across the board. After some respite in sleepy Asian trading conditions, the euro sank by as much as 0.9% from its highest point of the day against the dollar, to hit a low of $1.4335 by 1035 GMT. It made similar losses against the Swiss franc, sterling, and the yen. The 0.25 percentage-point interest-rate rise by the People's Bank of China has been expected for a while, but the timing was a surprise. It boosted demand for U.S. dollars and Swiss francs, in a typical flight to safe retreats, and also dented the Australian dollar, as traders bet that the Asian giant is engineering a steady slowdown. But the Aussie found support around $1.0669 against the greenback, after a 0.25% fall. The four-notch downgrade to Portugal by Moody's Investors Service Inc. was also, in many ways, no surprise. "[The ratings agencies] are lagging reactions and just adding to market volatility," said Pierre Lequeux, head of currency management at Aviva Investors. But it served as a warning that the euro-zone debt crisis doesn't end with Greece. "There was a feeling that once we get a second package for Greece, we can all move on and focus on the U.S. fiscal situation, laying the groundwork for a rally in the euro against the dollar. But this is a reminder that it's not just a Greece story, it's Portugal as well. Spanish and Italian yields are also rising," said Daragh Maher, a currencies analyst at Credit Agricole in London.
ASIA
The euro recovered slightly against the dollar in Asia Wednesday from overnight falls, but the gains were limited before the European Central Bank's policy-setting meeting Thursday and U.S. June jobs data due Friday. Fears of sovereign debt contagion in the eurozone were rekindled by Moody's Investors Service downgrading of Portugal's ratings, but traders in Tokyo refrained from making aggressive moves ahead of upcoming events. "The gains (in the euro) were within the scope of position adjustments ahead of this week's two major events," said Akira Hoshino, chief manager at the foreign exchange trading department of Bank of Tokyo-Mitsubishi UFJ. At 0450 GMT, the euro was at $1.4451 from $1.4426 late New York Tuesday, according to EBS via CQG. The dollar was at Y80.85 from Y81.10, while the euro was at Y116.84 from Y116.92. The U.K. pound was at $1.6080 from $1.6053. The dollar was at CHF0.8398 from CHF0.8408. Traders said a 25-basis point hike in key short-term interest rates by the ECB is almost certain and the focus is on whether the ECB chief will indicate further rate hikes later this year. MUFG's Hoshino said the ECB could "maintain a vigilant stance" on inflation, although the ECB probably won't clarify the timing of the next rate hike. Hoshino also noted there would be limited room for the euro to rally much, as he expects the pair to move in a $1.400 to $1.4500 range for the time being.
WORLD
The euro slid Tuesday after ratings agency Moody's downgraded Portugal to "junk" status, adding to deepening worries over the euro zone's financial health. Last week's optimism that the Greek debt crisis was moderating was also shaken this week when Moody's Investors Service and Standard & Poor's issued warnings. Moody's said banks that roll over Greek debt may face impairment charges and S&P said a French plan may put Greece in "selective default." "The sovereign debt crisis in Europe has not significantly diminished, even with the latest aid package to Greece. This will continue to keep pressure on the euro," said Bernard Baumohl, chief global economist with the Economic Outlook Group. "Given the continued weakness in the European economy, Portugal's finances remain under great stress," Baumohl added. The euro will likely remain weak over the next few months because of the perception that the European Union has essentially kicked the can down the road a bit further with respect to Greece, Baumohl said. Euro-zone finance ministers authorized the next EUR12 billion tranche of last year's European Union-International Monetary Fund bailout over the weekend, enabling Greece to make a debt payment later this month. Adding to the weight on the euro and other higher-yielding currencies, Moody's stated that China could be carrying significantly more troubled loans than first thought, stirring worries about Chinese economic growth. Yet the prospect of higher euro-zone interest rates may play in the single currency's favor later in the week, some traders said.
Resistance at 1.4500 will look to cap the corrective recovery off 1.4395. Tuesday's weakness left Monday's 1.4580 high as a potential bull failure, and EUR bears will be looking to extend the setback below 1.4395 to test the important intraday higher low at 1.4325. A break below 1.4325 is required to confirm the bull failure at 1.4580. Regaining ground above 1.4500 would provide respite, but only above 1.4553 would re-open the 1.4580 high.
GBP/USD
Gyrates within a 1.6139/1.5993 range, as the near-term direction becomes uncertain once again. However, GBP bears would appear to have the upper hand, and are expected to defend the 1.6139 high. A push below 1.5993 would bring the focus back onto the late June reaction lows at 1.5911, threatening a downtrend extension to 1.5852 and towards the 1.5675 area. Only above 1.6139 would negate the bearish GBP outlook, opening 1.6225.
USD/JPY
Remains on course for more gains towards 81.50, despite the setback during Wednesday's Asian hours. While support at 80.73 holds, a return to Tuesday's high at 81.19 is expected, opening 81.27 and the resistance cluster between 81.40 and 81.50. Only below Monday's low at 80.54 would cause a technical breakdown, exposing the June 30 low at 80.26.
AUD/USD
The recovery off 1.0664 is on course for more gains to 1.0757 and the July 1 high at 1.0791. Keeping the important 1.0615 support level protected is behind this latest upwave, and the recent completion of a medium-term bull wedge keeps the underlying tone positive for AUD. A push through 1.0791 would open the May 11 lower high at 1.0890. Only a reversal below 1.0664 would negate the bullish AUD outlook.
FOREX FOCUS
Little is going to stop the pound from melting now. In short, concern over the U.K. economic recovery is about to intensify and speculation over further monetary easing is likely to increase while market support for other major currencies, such as the dollar and the euro, is about to rise. Britain's ruling coalition may be facing criticism about its fiscal discipline but recent data suggest that the impact of public spending cuts and tax increases may be even deeper than initially anticipated. Hopes that the economy will start to recover from sluggish growth of 0.5% in the first quarter have been dashed by recent figures, with economists predicting a slowdown to only 0.3% or less growth in the second quarter. The growing threat of public-sector strikes, as the government attempts to bring salaries and pensions more in line with the private sector, is only likely to undermine market sentiment, especially if the government is seen backing down on key issues that threaten fiscal reform. The fact that the global recovery is also faltering isn't helping the country's growth prospects, given the U.K.'s high dependence on exports. If anything, the resulting decline in global commodity prices is helping to quell fears of stagflation and could mean the Bank of England will be more comfortable introducing more monetary easing if needed. The latest purchasing managers' index for the country's service industries confirmed such a trend this week. Although the activity index proved stronger than expected, the pricing index fell quite markedly, suggesting that inflation pressures are subsiding and recent strong rises in the consumer price index will be reversed as expected. Although the service sector of the economy may have proved slightly more buoyant, the manufacturing and construction sectors remained very soft, reinforcing calls for more monetary easing through a second dose of quantitative easing, or QE2. In a global context, this is the last thing the pound needs. Although the U.S. recovery remains uncertain as well, the Fed has essentially ruled out another dose of quantitative easing and the prospects for the dollar are steadily improving. Similarly, the euro's recent gains against the pound have been subdued, given that the risk of a Greek debt default has remained high and investors have been very selective in their purchases of the single currency. However, hopes that tensions will subside while details of a second Greek bailout are negotiated over the next few months means that the euro could find some support. If so, then the pound could find itself facing a hot and unpleasant summer as yield differentials move against it and the euro and the dollar find more investor support at its expense.
EUROPE
The euro fell heavily in European trading hours as London traders took a grim view of news late Tuesday that a key ratings agency had downgraded Portuguese government bonds to junk status, with an interest-rate rise from China adding to the pressure as it hit risky bets across the board. After some respite in sleepy Asian trading conditions, the euro sank by as much as 0.9% from its highest point of the day against the dollar, to hit a low of $1.4335 by 1035 GMT. It made similar losses against the Swiss franc, sterling, and the yen. The 0.25 percentage-point interest-rate rise by the People's Bank of China has been expected for a while, but the timing was a surprise. It boosted demand for U.S. dollars and Swiss francs, in a typical flight to safe retreats, and also dented the Australian dollar, as traders bet that the Asian giant is engineering a steady slowdown. But the Aussie found support around $1.0669 against the greenback, after a 0.25% fall. The four-notch downgrade to Portugal by Moody's Investors Service Inc. was also, in many ways, no surprise. "[The ratings agencies] are lagging reactions and just adding to market volatility," said Pierre Lequeux, head of currency management at Aviva Investors. But it served as a warning that the euro-zone debt crisis doesn't end with Greece. "There was a feeling that once we get a second package for Greece, we can all move on and focus on the U.S. fiscal situation, laying the groundwork for a rally in the euro against the dollar. But this is a reminder that it's not just a Greece story, it's Portugal as well. Spanish and Italian yields are also rising," said Daragh Maher, a currencies analyst at Credit Agricole in London.
ASIA
The euro recovered slightly against the dollar in Asia Wednesday from overnight falls, but the gains were limited before the European Central Bank's policy-setting meeting Thursday and U.S. June jobs data due Friday. Fears of sovereign debt contagion in the eurozone were rekindled by Moody's Investors Service downgrading of Portugal's ratings, but traders in Tokyo refrained from making aggressive moves ahead of upcoming events. "The gains (in the euro) were within the scope of position adjustments ahead of this week's two major events," said Akira Hoshino, chief manager at the foreign exchange trading department of Bank of Tokyo-Mitsubishi UFJ. At 0450 GMT, the euro was at $1.4451 from $1.4426 late New York Tuesday, according to EBS via CQG. The dollar was at Y80.85 from Y81.10, while the euro was at Y116.84 from Y116.92. The U.K. pound was at $1.6080 from $1.6053. The dollar was at CHF0.8398 from CHF0.8408. Traders said a 25-basis point hike in key short-term interest rates by the ECB is almost certain and the focus is on whether the ECB chief will indicate further rate hikes later this year. MUFG's Hoshino said the ECB could "maintain a vigilant stance" on inflation, although the ECB probably won't clarify the timing of the next rate hike. Hoshino also noted there would be limited room for the euro to rally much, as he expects the pair to move in a $1.400 to $1.4500 range for the time being.
WORLD
The euro slid Tuesday after ratings agency Moody's downgraded Portugal to "junk" status, adding to deepening worries over the euro zone's financial health. Last week's optimism that the Greek debt crisis was moderating was also shaken this week when Moody's Investors Service and Standard & Poor's issued warnings. Moody's said banks that roll over Greek debt may face impairment charges and S&P said a French plan may put Greece in "selective default." "The sovereign debt crisis in Europe has not significantly diminished, even with the latest aid package to Greece. This will continue to keep pressure on the euro," said Bernard Baumohl, chief global economist with the Economic Outlook Group. "Given the continued weakness in the European economy, Portugal's finances remain under great stress," Baumohl added. The euro will likely remain weak over the next few months because of the perception that the European Union has essentially kicked the can down the road a bit further with respect to Greece, Baumohl said. Euro-zone finance ministers authorized the next EUR12 billion tranche of last year's European Union-International Monetary Fund bailout over the weekend, enabling Greece to make a debt payment later this month. Adding to the weight on the euro and other higher-yielding currencies, Moody's stated that China could be carrying significantly more troubled loans than first thought, stirring worries about Chinese economic growth. Yet the prospect of higher euro-zone interest rates may play in the single currency's favor later in the week, some traders said.
Selasa, 05 Juli 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
More weakness is expected towards 1.4456 and last Friday's low at 1.4436, after Monday's doji candle neutralised the short-term uptrend. The sharp setback off Tuesday's Asian session high at 1.4553 protects Monday's 1.4580 high, and a break below 1.4456 would leave the 1.4580 high as a potential near-term bull failure, exposing downside risk to the 1.4408 area. A 1.618 Fibonacci extension target lies just above 1.4408. Regaining ground above 1.4492 would provide temporary respite, but only keeping 1.4456 intact, combined with a break above 1.4553, would open the range high at 1.4580 once more.
GBP/USD
The setback off 1.6139 is eyeing a return to the intraday bull pennant low at 1.5987. The corrective rally to 1.6139 has fallen significantly shy of the 1.6192 upside target, and further weakness below 1.5987 would leave the late June reaction lows at 1.5911 vulnerable. A recovery above 1.6092 would provide respite, but only above 1.6139 would negate the bearish GBP outlook.
USD/JPY
The recent highs at 81.15 and 81.27 are likely to come under threat, following the strong recovery off 80.54. A USD bull wave towards the 82.00 level is expected this week, as the action is part of a nine-week bear pennant continuation pattern. Resistance at 81.50 needs to be surpassed in order to open the 82.00 target. Corrective USD weakness is limited to the 80.85 area, and only below 80.54 would negate the bullish outlook.
AUD/USD
Corrects lower towards 1.0615, as weakness off the July 1 high at 1.0791 extends. However, with the 50% Fibonacci retracement level of the 1.0391/1.0791 rally providing backup support at 1.0591, corrective downside risk is limited. A recovery above 1.0710 is required to lift the tone, and threaten further gains towards 1.0749 and the 1.0791 high.
FOREX FOCUS
There is now little doubt that the European Central Bank will raise its interest rates again at its next meeting Thursday. Taking full advantage of the lull in tensions over Greece, the ECB is widely expected to raise rates by another 25 basis points to 1.50% in an undisguised effort to re-establish its hawkish credentials and prove its independence to markets. However, this could be a move the ECB regrets. Certainly, by still pouring liquidity into euro-zone banks, the ECB is effectively ensuring that they won't be afflicted by the rise in its repo rate. On that score at least, some economists reckon that higher rates at this stage won't be that damaging. However, there is growing evidence that a rate rise will come just as euro-zone growth slows, inflation pressures subside and, instead of falling, tensions over Greece start to rise again. For some time now, the debt problems of the currency bloc's peripheral members have been seen as a potential threat to the strong growth in core euro-zone countries. The latest measures of manufacturing activity have largely proved this, with new orders slowing and even prices easing back. On Monday, data showed that producer prices in the region fell for the first time in 20 months in May, reflecting the overall decline in global commodity prices that has taken place in recent weeks. Higher food and energy prices, which may have justified the ECB's hawkishness a few months ago, are now in a major retreat as global demand fails to live up to expectations. Although Simon Derrick, a senior strategist at Bank of New York Mellon, steps back from suggesting that we face a similar collapse to 2008, he does point to the 35% fall in wheat prices since their peak in February; the 21% decline in the price of corn futures from its recent high; a 30% fall in the price of silver since the start of May and the collapse in the Baltic Dry Index [which is a measure of trade activity] to half the level it reached last September. In other words, the ECB will be raising interest rates just when the market no longer needs them.
EUROPE
The dollar was broadly higher and the Swiss franc gained during European hours Tuesday as overnight fears about China's latent credit risks continued to reverberate and as euro-zone economic data disappointed. The pound was also a climber after surprisingly positive service-sector data. After the Greece-inspired relief rally, investors pared risky bets and flocked to safe-haven currencies such as the Swiss franc and, to a lesser extent, the dollar. Overnight, Moody's Investors Service said a Chinese government agency may have understated banks' loans to local governments by RMB3.5 trillion ($540.7 billion), warning that the scale of such loans could pose a threat to China's banking system. Euro-zone data failed to cheer traders with activity in the euro zone's private sector posting its weakest growth in more than a year and a half. Meanwhile, retail sales in the 17-country currency bloc slumped in May, likely reflecting a squeeze on real incomes and fears of unemployment. Another interest rate rise from the European Central Bank on Thursday is nonetheless still expected, which helped to steady the euro. That, as well as continued recycling of dollar reserves by Asian central banks continues to underpin the single currency. It was a slightly different story with sterling. A string of weak data and reports of mounting job losses and retailer closures has weighed on the pound in recent weeks so a small positive surprise in the June services purchasing managers' index caught traders unawares. The pound shot up against both the euro and the dollar as traders reversed negative bets. Sterling rose to as high as $1.6128 against the dollar while the euro slipped back below GBP0.90 against the pound.
ASIA
The dollar gained against the euro and the yen in Asia Tuesday as concerns about a possible Chinese interest rate hike reduced investor risk appetite, while expectations that U.S. multinational firms may bring their overseas profits home added to the dollar's strength. The People's Bank of China said in a statement Monday that inflationary pressures "are still high" while the economy continues to grow at a steady and relatively fast pace. On Tuesday, two local papers interpreted the PBOC's statement to mean that a hike in interest rates could be imminent. A Moody's Investors Service report on Monday said that Chinese banks may be facing bigger problems with municipal loans. This news also put downward pressure on the euro. "The currency market was overly optimistic last week and a correction is now taking place after these reports," said Kuniyuki Hirai, a manager at the foreign exchange trading department at Bank of Tokyo-Mitsubishi UFJ. A fall in Tokyo and Shanghai stock prices also made traders wary of buying the euro, he added. A Bloomberg report that a corporate tax holiday on foreign profits being debated by Congress may help strengthen the dollar, traders said. Firms may use a proposed reduction in tax on repatriated profits to bring back as much as $700 billion to create jobs and spur investment, Bloomberg cited a study by the Congressional Joint Committee on Taxation as saying. "It may be used as a trump card for Obama administration ahead of the U.S. Presidential vote next year. And if it is implemented, this could mark an end to a weak dollar policy in the U.S.," says Yuji Saito, foreign exchange market director at Credit Agricole in Tokyo.
WORLD
The U.S. dollar was modestly lower in holiday-thinned trade Monday as the euro brushed aside concerns triggered by Standard & Poor's warning on Greece's debt. Standard & Poor's warning that a debt rollover plan for Greece would be akin to a default rattled markets and negated the positive momentum seen after euro-zone ministers approved funding for Greece this past weekend. Late Monday, the euro was at $1.4541 from $1.4528 late Friday, according to EBS via CQG. The dollar was at Y80.77 from Y80.86, while the euro was at Y117.47 from Y117.45. The U.K. pound was at $1.6090 from $1.6067. The dollar was unchanged at CHF0.8475. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.254 from about 74.298. "There's been very little movement today. I wouldn't expect the euro to fall too far with the possibility of an ECB rate hike later in the week," said Shaun Osborne, chief FX strategist at TD Securities in Toronto. European Central Bank President Jean-Claude Trichet had said the bank was "strongly vigilant" on inflation, which many see as the ECB's willingness to increase rates even in the midst of a debt crisis. "We'll look at the ECB's language surrounding the decision," Osborne said. The tone of the market was broadly more positive toward risky assets, but some market participants said the swing of optimism last week that was sparked by Greece's agreement to austerity measures likely will fade away, with the markets more likely to look intently at economic data coming out of China and the U.S. this week.
More weakness is expected towards 1.4456 and last Friday's low at 1.4436, after Monday's doji candle neutralised the short-term uptrend. The sharp setback off Tuesday's Asian session high at 1.4553 protects Monday's 1.4580 high, and a break below 1.4456 would leave the 1.4580 high as a potential near-term bull failure, exposing downside risk to the 1.4408 area. A 1.618 Fibonacci extension target lies just above 1.4408. Regaining ground above 1.4492 would provide temporary respite, but only keeping 1.4456 intact, combined with a break above 1.4553, would open the range high at 1.4580 once more.
GBP/USD
The setback off 1.6139 is eyeing a return to the intraday bull pennant low at 1.5987. The corrective rally to 1.6139 has fallen significantly shy of the 1.6192 upside target, and further weakness below 1.5987 would leave the late June reaction lows at 1.5911 vulnerable. A recovery above 1.6092 would provide respite, but only above 1.6139 would negate the bearish GBP outlook.
USD/JPY
The recent highs at 81.15 and 81.27 are likely to come under threat, following the strong recovery off 80.54. A USD bull wave towards the 82.00 level is expected this week, as the action is part of a nine-week bear pennant continuation pattern. Resistance at 81.50 needs to be surpassed in order to open the 82.00 target. Corrective USD weakness is limited to the 80.85 area, and only below 80.54 would negate the bullish outlook.
AUD/USD
Corrects lower towards 1.0615, as weakness off the July 1 high at 1.0791 extends. However, with the 50% Fibonacci retracement level of the 1.0391/1.0791 rally providing backup support at 1.0591, corrective downside risk is limited. A recovery above 1.0710 is required to lift the tone, and threaten further gains towards 1.0749 and the 1.0791 high.
FOREX FOCUS
There is now little doubt that the European Central Bank will raise its interest rates again at its next meeting Thursday. Taking full advantage of the lull in tensions over Greece, the ECB is widely expected to raise rates by another 25 basis points to 1.50% in an undisguised effort to re-establish its hawkish credentials and prove its independence to markets. However, this could be a move the ECB regrets. Certainly, by still pouring liquidity into euro-zone banks, the ECB is effectively ensuring that they won't be afflicted by the rise in its repo rate. On that score at least, some economists reckon that higher rates at this stage won't be that damaging. However, there is growing evidence that a rate rise will come just as euro-zone growth slows, inflation pressures subside and, instead of falling, tensions over Greece start to rise again. For some time now, the debt problems of the currency bloc's peripheral members have been seen as a potential threat to the strong growth in core euro-zone countries. The latest measures of manufacturing activity have largely proved this, with new orders slowing and even prices easing back. On Monday, data showed that producer prices in the region fell for the first time in 20 months in May, reflecting the overall decline in global commodity prices that has taken place in recent weeks. Higher food and energy prices, which may have justified the ECB's hawkishness a few months ago, are now in a major retreat as global demand fails to live up to expectations. Although Simon Derrick, a senior strategist at Bank of New York Mellon, steps back from suggesting that we face a similar collapse to 2008, he does point to the 35% fall in wheat prices since their peak in February; the 21% decline in the price of corn futures from its recent high; a 30% fall in the price of silver since the start of May and the collapse in the Baltic Dry Index [which is a measure of trade activity] to half the level it reached last September. In other words, the ECB will be raising interest rates just when the market no longer needs them.
EUROPE
The dollar was broadly higher and the Swiss franc gained during European hours Tuesday as overnight fears about China's latent credit risks continued to reverberate and as euro-zone economic data disappointed. The pound was also a climber after surprisingly positive service-sector data. After the Greece-inspired relief rally, investors pared risky bets and flocked to safe-haven currencies such as the Swiss franc and, to a lesser extent, the dollar. Overnight, Moody's Investors Service said a Chinese government agency may have understated banks' loans to local governments by RMB3.5 trillion ($540.7 billion), warning that the scale of such loans could pose a threat to China's banking system. Euro-zone data failed to cheer traders with activity in the euro zone's private sector posting its weakest growth in more than a year and a half. Meanwhile, retail sales in the 17-country currency bloc slumped in May, likely reflecting a squeeze on real incomes and fears of unemployment. Another interest rate rise from the European Central Bank on Thursday is nonetheless still expected, which helped to steady the euro. That, as well as continued recycling of dollar reserves by Asian central banks continues to underpin the single currency. It was a slightly different story with sterling. A string of weak data and reports of mounting job losses and retailer closures has weighed on the pound in recent weeks so a small positive surprise in the June services purchasing managers' index caught traders unawares. The pound shot up against both the euro and the dollar as traders reversed negative bets. Sterling rose to as high as $1.6128 against the dollar while the euro slipped back below GBP0.90 against the pound.
ASIA
The dollar gained against the euro and the yen in Asia Tuesday as concerns about a possible Chinese interest rate hike reduced investor risk appetite, while expectations that U.S. multinational firms may bring their overseas profits home added to the dollar's strength. The People's Bank of China said in a statement Monday that inflationary pressures "are still high" while the economy continues to grow at a steady and relatively fast pace. On Tuesday, two local papers interpreted the PBOC's statement to mean that a hike in interest rates could be imminent. A Moody's Investors Service report on Monday said that Chinese banks may be facing bigger problems with municipal loans. This news also put downward pressure on the euro. "The currency market was overly optimistic last week and a correction is now taking place after these reports," said Kuniyuki Hirai, a manager at the foreign exchange trading department at Bank of Tokyo-Mitsubishi UFJ. A fall in Tokyo and Shanghai stock prices also made traders wary of buying the euro, he added. A Bloomberg report that a corporate tax holiday on foreign profits being debated by Congress may help strengthen the dollar, traders said. Firms may use a proposed reduction in tax on repatriated profits to bring back as much as $700 billion to create jobs and spur investment, Bloomberg cited a study by the Congressional Joint Committee on Taxation as saying. "It may be used as a trump card for Obama administration ahead of the U.S. Presidential vote next year. And if it is implemented, this could mark an end to a weak dollar policy in the U.S.," says Yuji Saito, foreign exchange market director at Credit Agricole in Tokyo.
WORLD
The U.S. dollar was modestly lower in holiday-thinned trade Monday as the euro brushed aside concerns triggered by Standard & Poor's warning on Greece's debt. Standard & Poor's warning that a debt rollover plan for Greece would be akin to a default rattled markets and negated the positive momentum seen after euro-zone ministers approved funding for Greece this past weekend. Late Monday, the euro was at $1.4541 from $1.4528 late Friday, according to EBS via CQG. The dollar was at Y80.77 from Y80.86, while the euro was at Y117.47 from Y117.45. The U.K. pound was at $1.6090 from $1.6067. The dollar was unchanged at CHF0.8475. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.254 from about 74.298. "There's been very little movement today. I wouldn't expect the euro to fall too far with the possibility of an ECB rate hike later in the week," said Shaun Osborne, chief FX strategist at TD Securities in Toronto. European Central Bank President Jean-Claude Trichet had said the bank was "strongly vigilant" on inflation, which many see as the ECB's willingness to increase rates even in the midst of a debt crisis. "We'll look at the ECB's language surrounding the decision," Osborne said. The tone of the market was broadly more positive toward risky assets, but some market participants said the swing of optimism last week that was sparked by Greece's agreement to austerity measures likely will fade away, with the markets more likely to look intently at economic data coming out of China and the U.S. this week.
Senin, 04 Juli 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
The 1.4600 level is within striking distance, as EUR bulls look to maintain their dominance. While projected support at 1.4492 limits the scope for corrective weakness, the main threat is for a push into fresh four-week highs above 1.4580, opening 1.4600 and two wave equality targets at 1.4664 and 1.4672. Only a push below 1.4456 would concern EUR bulls, exposing Friday's low at 1.4436.
GBP/USD
The recent consolidation phase between 1.5974 and 1.6117 is likely to be resolved to the upside. GBP bull pressure is building on Friday's high at 1.6095, and a push higher is threatened, opening 1.6117 and 1.6192. Failure to force a break through 1.6095 would extend the consolidation phase, and prompt weakness towards 1.5974/87.
USD/JPY
Weakness towards 80.64 is expected, following the sharp setback off 81.15. A large bull pennant continuation pattern is being formed on the 60-minute chart, suggesting there is scope for further weakness towards 80.50 and projected support at 80.38, protecting the pennant low at 80.26. Regaining ground above 80.94 is required to lift the tone, and re-open Friday's high at 81.15.
AUD/USD
The probe above 1.0776 paves the way for more AUD gains towards 1.0867 and the May 11 lower high at 1.0890. Last week's strength completed an eight-week bull wedge, and a sustained break above 1.0776 would attract a fresh wave of gains that have the May 2 reaction high at 1.1014 as a longer-term target. Corrective weakness will attract support while above 1.0620, but downside risk is limited.
FOREX FOCUS
Is the Swedish krona becoming the new Swiss franc? One of the more remarkable moves over the past few days as Greece agreed to take its austerity medicine and tensions in financial markets started to ease has been a shift out of that traditional safe haven, the Swiss franc, in favor of that far more niche Scandinavian, the Swedish krona. On the surface, this certainly looks plausible. International investors are willing to take on more risk and the Swedish economy certainly looks like a good bet. Its recent recovery has been strong and the Riksbank is poised to raise interest rates again on July 5. By comparison, the Swiss economy has been showing signs of stalling and any plans for the Swiss National Bank to raise its interest rates have been put into abeyance. So, the argument runs, with global risk sentiment recovering there is no need to keep your money in the lower-yielding franc after all. But there are at least two reasons why this argument is flawed. First, the recovery in global risk sentiment will probably prove to be limited. Greece may have said it will swallow its austerity medicine but its lenders are still having a lot of trouble convincing each other how to provide a bailout that doesn't look like a default. As a result, the risk of contagion to other euro-zone peripherals remains high and support for the euro itself has hardly been overwhelming. Hopes that the U.S. recovery is picking up steam has also contributed to the improved mood in the international investment community. But this too could all evaporate just as easily if new data fail to live up to the expectations of the optimists. All that aside, Sweden itself is providing reasons for players who are jumping on the krona bandwagon to be cautious. Like Switzerland, Sweden is a highly open economy, dependent on export growth to keep its recovery going. So, just like Switzerland, Sweden is finding that the recent stumble in global demand is taking its toll. On Friday, Switzerland discovered that industrial activity was slowing even more than expected, with the country's latest purchasing managers' index tumbling to 53.4 from 59.2. The problem is that similar data from Sweden were just about as bad. Its index fell to 52.9 from 56.1, taking it well below the long-term average of 55 and bringing warnings from economists that industrial activity could be contracting, with the PMI index under 50, by the autumn. Therefore, what has looked as an attractive "risk-on" trade for investors relaxing over Greece could well start to look more like a short-term end-month, end-half-year play that will unwind again in the Swiss franc's favor as the second half of the year gets underway.
EUROPE
The euro steadied against the dollar in European hours Monday, holding above $1.45 as some of the fresh Greek angst generated by Standard & Poor's Corp. faded and traders looked ahead to a possible euro-zone interest rate rise. Standard & Poor's had warned that a debt rollover plan for Greece could amount to a default, spooking currency markets in Asian hours. But the effect was fleeting, with activity slowing and U.S. markets set to remain shut due to a public holiday. Adrian Schmidt, a currencies strategist at Lloyds Bank, said the opinion of rating agencies was less of a factor for now. "It (the S&P's warning) remains a headwind, but there is some uncertainty about rating agencies' treatment of any deal," he said. Separately, he believes a summer lull might be at hand as the vacation season starts in earnest. That was echoed by analysts at Citigroup who are advising their clients to bet on recent ranges holding, with a so-called double no-touch option that pays out as long as the euro holds between $1.5132 and $1.3868. "We intend to hold this position for a minimum of one month. However, at some point between the one month mark and the expiry (Oct 3)...we may close all or part of the trade if it is profitable," they said in a note Monday. Separately, the euro is also being propped up by expectations that the European Central Bank will lift interest rates Thursday. ECB chief Jean-Claude Trichet has flagged a rate increase by using the code words "strong vigilance" several times ahead of the rate decision. Over in the UK, the pound reacted little to news that activity in the U.K. construction sector grew at a slower pace in June. The U.K. construction purchasing managers' index fell to 53.6 from 54.0, survey compiler Markit Economics said. Schmidt at Lloyds said sterling is being propped up as investors pare back overly negative views on the currency's outlook.
ASIA
The euro fell against its counterparts in Asia on Monday after Standard & Poor's Ratings Services warned that a debt rollover plan for Greece could amount to a default, though traders said the common currency will remain supported by expectations that the European Central Bank will hike rates this week. In remarks released Monday afternoon in Tokyo, S&P said the rollover plan, a leading proposal for easing repayment terms on Greece's sovereign debt, would constitute a default under the ratings firm's criteria. The notice from S&P didn't alter Greece's rating, which remains at CCC after a June 13 downgrade. The euro had been up against its rivals before the remarks, but quickly relinquished its gains, dropping around 40 pips to fresh intraday lows at $1.4510 and Y117.12. The falls came amid thin trade that was expected to dry up even further later in the global day due to the U.S. July 4 holiday, dealers said. S&P's warning echoed views already heard in the market, so likely did not present a longer term threat to the common currency, they said. "This should be about it for the fall, as there's nothing really new in this statement," said Satoshi Okagawa, a senior FX dealer at Sumitomo Mitsui Banking Corporation. Traders said the euro has a positive bias this week ahead of the ECB meeting Thursday, at which the central bank is widely expected to raise its key policy rate to 1.50% from 1.25%. "The question now is whether the ECB will just raise rates this time and then hold, or whether inflation data will keep the pressure on for continued rate hikes," said Motonari Ogawa, a senior FX dealer at Barclays Bank.
WORLD
Surprising strength in the U.S. manufacturing sector supported the dollar against most major currencies Friday, but the euro held its ground as fears surrounding Greece's debt crisis ebbed. The Institute for Supply Management's June manufacturing index came in at 55.3, above the 51.8 forecast. This was its 23rd consecutive month of growth. The figure underscored how a weak dollar--which has only just recovered from a near three-year low it hit in May--has helped exports soar. Yet the global economic outlook remains uncertain. With jitters about Greece's debt crisis retreating to the background, investors are becoming more concerned about the pitched battle being waged in Washington over the $14.3 trillion debt ceiling and the yawning fiscal deficit. Analysts are warning about the repercussions to the global economy if a deal isn't reached by Aug. 2, which may trigger an unprecedented default on U.S. debt. Greece "is gone but not forgotten, [and] for the most part we are focused on the debt ceiling," said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global. "Given that we don't have resolution on the debt ceiling, it's going to be hard for the dollar to rally on good data." Thin markets ahead of the July Fourth U.S. holiday made for sluggish trading. Most market participants were looking ahead to next week's full calendar of economic data, which include readings on the services sector and June payrolls. Late Friday, the euro was at $1.4531 from $1.4503 late Thursday, according to EBS via CQG. The dollar was at Y80.80 from Y80.56, while the euro was at Y117.47 from Y116.81. The U.K. pound was at $1.6085 from $1.6051. The dollar was at CHF0.8452 from CHF0.8407.
The 1.4600 level is within striking distance, as EUR bulls look to maintain their dominance. While projected support at 1.4492 limits the scope for corrective weakness, the main threat is for a push into fresh four-week highs above 1.4580, opening 1.4600 and two wave equality targets at 1.4664 and 1.4672. Only a push below 1.4456 would concern EUR bulls, exposing Friday's low at 1.4436.
GBP/USD
The recent consolidation phase between 1.5974 and 1.6117 is likely to be resolved to the upside. GBP bull pressure is building on Friday's high at 1.6095, and a push higher is threatened, opening 1.6117 and 1.6192. Failure to force a break through 1.6095 would extend the consolidation phase, and prompt weakness towards 1.5974/87.
USD/JPY
Weakness towards 80.64 is expected, following the sharp setback off 81.15. A large bull pennant continuation pattern is being formed on the 60-minute chart, suggesting there is scope for further weakness towards 80.50 and projected support at 80.38, protecting the pennant low at 80.26. Regaining ground above 80.94 is required to lift the tone, and re-open Friday's high at 81.15.
AUD/USD
The probe above 1.0776 paves the way for more AUD gains towards 1.0867 and the May 11 lower high at 1.0890. Last week's strength completed an eight-week bull wedge, and a sustained break above 1.0776 would attract a fresh wave of gains that have the May 2 reaction high at 1.1014 as a longer-term target. Corrective weakness will attract support while above 1.0620, but downside risk is limited.
FOREX FOCUS
Is the Swedish krona becoming the new Swiss franc? One of the more remarkable moves over the past few days as Greece agreed to take its austerity medicine and tensions in financial markets started to ease has been a shift out of that traditional safe haven, the Swiss franc, in favor of that far more niche Scandinavian, the Swedish krona. On the surface, this certainly looks plausible. International investors are willing to take on more risk and the Swedish economy certainly looks like a good bet. Its recent recovery has been strong and the Riksbank is poised to raise interest rates again on July 5. By comparison, the Swiss economy has been showing signs of stalling and any plans for the Swiss National Bank to raise its interest rates have been put into abeyance. So, the argument runs, with global risk sentiment recovering there is no need to keep your money in the lower-yielding franc after all. But there are at least two reasons why this argument is flawed. First, the recovery in global risk sentiment will probably prove to be limited. Greece may have said it will swallow its austerity medicine but its lenders are still having a lot of trouble convincing each other how to provide a bailout that doesn't look like a default. As a result, the risk of contagion to other euro-zone peripherals remains high and support for the euro itself has hardly been overwhelming. Hopes that the U.S. recovery is picking up steam has also contributed to the improved mood in the international investment community. But this too could all evaporate just as easily if new data fail to live up to the expectations of the optimists. All that aside, Sweden itself is providing reasons for players who are jumping on the krona bandwagon to be cautious. Like Switzerland, Sweden is a highly open economy, dependent on export growth to keep its recovery going. So, just like Switzerland, Sweden is finding that the recent stumble in global demand is taking its toll. On Friday, Switzerland discovered that industrial activity was slowing even more than expected, with the country's latest purchasing managers' index tumbling to 53.4 from 59.2. The problem is that similar data from Sweden were just about as bad. Its index fell to 52.9 from 56.1, taking it well below the long-term average of 55 and bringing warnings from economists that industrial activity could be contracting, with the PMI index under 50, by the autumn. Therefore, what has looked as an attractive "risk-on" trade for investors relaxing over Greece could well start to look more like a short-term end-month, end-half-year play that will unwind again in the Swiss franc's favor as the second half of the year gets underway.
EUROPE
The euro steadied against the dollar in European hours Monday, holding above $1.45 as some of the fresh Greek angst generated by Standard & Poor's Corp. faded and traders looked ahead to a possible euro-zone interest rate rise. Standard & Poor's had warned that a debt rollover plan for Greece could amount to a default, spooking currency markets in Asian hours. But the effect was fleeting, with activity slowing and U.S. markets set to remain shut due to a public holiday. Adrian Schmidt, a currencies strategist at Lloyds Bank, said the opinion of rating agencies was less of a factor for now. "It (the S&P's warning) remains a headwind, but there is some uncertainty about rating agencies' treatment of any deal," he said. Separately, he believes a summer lull might be at hand as the vacation season starts in earnest. That was echoed by analysts at Citigroup who are advising their clients to bet on recent ranges holding, with a so-called double no-touch option that pays out as long as the euro holds between $1.5132 and $1.3868. "We intend to hold this position for a minimum of one month. However, at some point between the one month mark and the expiry (Oct 3)...we may close all or part of the trade if it is profitable," they said in a note Monday. Separately, the euro is also being propped up by expectations that the European Central Bank will lift interest rates Thursday. ECB chief Jean-Claude Trichet has flagged a rate increase by using the code words "strong vigilance" several times ahead of the rate decision. Over in the UK, the pound reacted little to news that activity in the U.K. construction sector grew at a slower pace in June. The U.K. construction purchasing managers' index fell to 53.6 from 54.0, survey compiler Markit Economics said. Schmidt at Lloyds said sterling is being propped up as investors pare back overly negative views on the currency's outlook.
ASIA
The euro fell against its counterparts in Asia on Monday after Standard & Poor's Ratings Services warned that a debt rollover plan for Greece could amount to a default, though traders said the common currency will remain supported by expectations that the European Central Bank will hike rates this week. In remarks released Monday afternoon in Tokyo, S&P said the rollover plan, a leading proposal for easing repayment terms on Greece's sovereign debt, would constitute a default under the ratings firm's criteria. The notice from S&P didn't alter Greece's rating, which remains at CCC after a June 13 downgrade. The euro had been up against its rivals before the remarks, but quickly relinquished its gains, dropping around 40 pips to fresh intraday lows at $1.4510 and Y117.12. The falls came amid thin trade that was expected to dry up even further later in the global day due to the U.S. July 4 holiday, dealers said. S&P's warning echoed views already heard in the market, so likely did not present a longer term threat to the common currency, they said. "This should be about it for the fall, as there's nothing really new in this statement," said Satoshi Okagawa, a senior FX dealer at Sumitomo Mitsui Banking Corporation. Traders said the euro has a positive bias this week ahead of the ECB meeting Thursday, at which the central bank is widely expected to raise its key policy rate to 1.50% from 1.25%. "The question now is whether the ECB will just raise rates this time and then hold, or whether inflation data will keep the pressure on for continued rate hikes," said Motonari Ogawa, a senior FX dealer at Barclays Bank.
WORLD
Surprising strength in the U.S. manufacturing sector supported the dollar against most major currencies Friday, but the euro held its ground as fears surrounding Greece's debt crisis ebbed. The Institute for Supply Management's June manufacturing index came in at 55.3, above the 51.8 forecast. This was its 23rd consecutive month of growth. The figure underscored how a weak dollar--which has only just recovered from a near three-year low it hit in May--has helped exports soar. Yet the global economic outlook remains uncertain. With jitters about Greece's debt crisis retreating to the background, investors are becoming more concerned about the pitched battle being waged in Washington over the $14.3 trillion debt ceiling and the yawning fiscal deficit. Analysts are warning about the repercussions to the global economy if a deal isn't reached by Aug. 2, which may trigger an unprecedented default on U.S. debt. Greece "is gone but not forgotten, [and] for the most part we are focused on the debt ceiling," said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global. "Given that we don't have resolution on the debt ceiling, it's going to be hard for the dollar to rally on good data." Thin markets ahead of the July Fourth U.S. holiday made for sluggish trading. Most market participants were looking ahead to next week's full calendar of economic data, which include readings on the services sector and June payrolls. Late Friday, the euro was at $1.4531 from $1.4503 late Thursday, according to EBS via CQG. The dollar was at Y80.80 from Y80.56, while the euro was at Y117.47 from Y116.81. The U.K. pound was at $1.6085 from $1.6051. The dollar was at CHF0.8452 from CHF0.8407.
Jumat, 01 Juli 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
Resistance in the 1.4550 resistance area is likely to face renewed pressure, after keeping support at 1.4447 intact. A nine-week bear resistance line lies at 1.4550, but the series of higher lows on the 60-minute chart suggests there is scope for a push higher towards 1.4606. Failure to force a break above 1.4550 would concern EUR bulls, although only a reversal below 1.4467 would prompt a deeper setback towards 1.4375 and 1.4325.
GBP/USD
A consolidation phase between 1.5974 and 1.6117 is underway. This week's recovery off 1.5911 neutralised the bear tone, and GBP bulls will attempt to keep their new-found hopes alive by pushing above the 1.6117 high. However, only above 1.6117 would put GBP bulls in control of the near-term, opening 1.6213 and the June 22 lower high at 1.6262. A setback below 1.6008 is required to question the positive near-term outlook for GBP, exposing 1.5974.
USD/JPY
The recovery off Thursday's low at 80.26 has room to extend towards 81.00. Keeping the important support level at 80.20 intact underpins this rally, but Tuesday's reaction high at 81.27 still dominates the overall USD bear tone. A reversal below 80.41 would upset the positive near-term USD outlook, exposing 80.26 and 80.20.
AUD/USD
More gains towards the June 3 reaction high at 1.0776 are expected, as AUD bulls look to extend the powerful short-term uptrend. Wednesday's strength completed an eight-week bull wedge, and a push above 1.0776 would attract fresh gains towards the May 11 reaction high at 1.0890. Loss of 1.0674 would provide temporary respite, but good support lies at 1.0590 to limit the scope for corrective weakness.
FOREX FOCUS
Emerging markets are about to emerge a little more. And much of that is due to Greece. The country's final acceptance of further austerity measures has gone some way to remove the threat of an immediate debt default and help global risk sentiment to recover. However, the threat of a euro-zone default hasn't gone away and investors are going to remain wary about the financial crisis for many months to come. Meanwhile, recent concerns about the global slowdown should also start to fade, with stronger manufacturing activity in many major economies lifting hopes that a double-dip recession will be avoided. Global equity markets are rebounding form recent lows, global bond yields are on the up and even prices in many commodity markets appear to have stopped their recent slide. The New Zealand dollar's rally to a new post-float record against its U.S. counterpart after the news from Greece illustrated the renewed appetite for risk. But, it isn't only emerging markets that will benefit this time around. Strong fiscal fundamentals, evidence that inflation is under control, and a desire by investors to steer clear of the default risks in the euro zone and the debt ceiling debate in the U.S. all put emerging currencies back on the 'to buy' list. Jerome Booth, head of research at Ashmore Investment Management, which has about $60 billion under management in emerging economies, put it this way: "In terms of the largest macro-economic risks--depression, sovereign defaults, systemic banking crises, or a dollar crash --we expect emerging markets to be collectively much safer than the euro zone or US." Julian Jessop, chief international economist at Capital Economics, is also looking for emerging markets to outperform the markets in the more developed world, especially now that the central banks of many of these countries have stopped raising interest rates and removed the risk of a hard landing.
EUROPE
Currency markets were in volatile form Friday in European trading as sentiment swung on seemingly conflicting euro-zone headlines and as the post-Greek euphoria was offset by weak economic data. The euro broke above $1.4550 against the dollar in early trade, before succumbing to renewed trader nervousness after a meeting of euro-area finance ministers due Sunday was changed into a Saturday conference call. This prompted some in the market to fret over whether much would get done in the quest for the holy grail of a Greek debt rollover and bailout. The single currency regained the lost ground as subsequent reports encouraged traders to believe again that a deal might be near, but then slipped back as Standard & Poor's warned Italy's weak economic growth outlook represented a risk to the debt-reduction plan. Overall the session saw a continuation of the broadly positive attitude seen during Asian trading toward riskier currencies like the Australian dollar and Swedish krona and by more unwinding of safe-haven Swiss franc bets.
ASIA
The yen fell against the dollar and euro on Friday in Asia after the Bank of Japan's June tankan survey showed a deeper-than-expected drop in business sentiment in the aftermath of the March 11 disaster. Dealers said the dollar could rise further if U.S. manufacturing data later in the global day help to soothe worries about the state of the U.S. economy. The tankan survey's headline diffusion index plummeted to minus 9 from plus 6 in the March survey, worse than expectations for minus 7 and falling into negative territory for the first time in five quarters. Improved risk appetite due to receding worries over Europe's debt crisis was another reason behind the weakness in the safe-haven yen, dealers said. The Nikkei 225 Stock Average, which tends to benefit from increased risk appetite, was 0.53% higher as of 0450 GMT. Investors think the passage of an austerity package by the Greek parliament increases the likelihood that the European Union and the International Monetary Fund will provide aid to Athens at a meeting next week. U.S. economic data on Thursday also provided a risk-positive factor, with the headline figure in a closely watched survey of Chicago-area purchasing managers at 61.1 in June, higher than 56.6 in May and beating forecasts for 53.0. "The data helped to lessen investors' pessimism toward the U.S. economic outlook," said Masafumi Yamamoto, chief Japan strategist at Barclays Capital. Market participants will keep paying attention to U.S. economic indicators to gauge whether the current slowdown in U.S. economic momentum is long-lasting or temporary.
WORLD
Greece's Parliament voted "yes" for austerity Thursday and currency investors in turn voted for the euro. Greece's Parliament approved legislation implementing a crucial five-year, EUR28.4 billion austerity plan, giving the country a green light to receive fresh aid from its international creditors. "A lot of the price action today in the euro was driven by ... relief that there are no further hiccups in Greece," said Paresh Upadhyaya, head of Americas G10 FX strategy at Bank of America Merrill Lynch. "Greece will move to the back of the stage and interest-rate differentials will be the big driver." The European Central Bank is widely expected to raise its key policy rate at next week's meeting for the second time this year, while the Federal Reserve has maintained its ultra-loose monetary policy. The euro soared in New York to a two-week high against the classic haven Swiss franc as investors unwound their short-euro positions. The common currency, also supported by month-end flows, rose more than a cent intraday against the dollar, and hit a three-week high against the Japanese yen. Stronger-than-expected U.S. manufacturing activity in June, according to the closely watched Chicago Business Barometer, also helped give the euro and general risk sentiment a boost. With Greece worries gradually drifting to the sidelines, the euro could see further upside, analysts said. "I wouldn't be surprised if we eventually started to get back ... toward the
[$1.47]-level," said David Watt, strategist with RBC Capital Markets. Markets now await a July 3 meeting of euro-zone finance ministers, who are expected to approve their share of Greece's next funding tranche.
Resistance in the 1.4550 resistance area is likely to face renewed pressure, after keeping support at 1.4447 intact. A nine-week bear resistance line lies at 1.4550, but the series of higher lows on the 60-minute chart suggests there is scope for a push higher towards 1.4606. Failure to force a break above 1.4550 would concern EUR bulls, although only a reversal below 1.4467 would prompt a deeper setback towards 1.4375 and 1.4325.
GBP/USD
A consolidation phase between 1.5974 and 1.6117 is underway. This week's recovery off 1.5911 neutralised the bear tone, and GBP bulls will attempt to keep their new-found hopes alive by pushing above the 1.6117 high. However, only above 1.6117 would put GBP bulls in control of the near-term, opening 1.6213 and the June 22 lower high at 1.6262. A setback below 1.6008 is required to question the positive near-term outlook for GBP, exposing 1.5974.
USD/JPY
The recovery off Thursday's low at 80.26 has room to extend towards 81.00. Keeping the important support level at 80.20 intact underpins this rally, but Tuesday's reaction high at 81.27 still dominates the overall USD bear tone. A reversal below 80.41 would upset the positive near-term USD outlook, exposing 80.26 and 80.20.
AUD/USD
More gains towards the June 3 reaction high at 1.0776 are expected, as AUD bulls look to extend the powerful short-term uptrend. Wednesday's strength completed an eight-week bull wedge, and a push above 1.0776 would attract fresh gains towards the May 11 reaction high at 1.0890. Loss of 1.0674 would provide temporary respite, but good support lies at 1.0590 to limit the scope for corrective weakness.
FOREX FOCUS
Emerging markets are about to emerge a little more. And much of that is due to Greece. The country's final acceptance of further austerity measures has gone some way to remove the threat of an immediate debt default and help global risk sentiment to recover. However, the threat of a euro-zone default hasn't gone away and investors are going to remain wary about the financial crisis for many months to come. Meanwhile, recent concerns about the global slowdown should also start to fade, with stronger manufacturing activity in many major economies lifting hopes that a double-dip recession will be avoided. Global equity markets are rebounding form recent lows, global bond yields are on the up and even prices in many commodity markets appear to have stopped their recent slide. The New Zealand dollar's rally to a new post-float record against its U.S. counterpart after the news from Greece illustrated the renewed appetite for risk. But, it isn't only emerging markets that will benefit this time around. Strong fiscal fundamentals, evidence that inflation is under control, and a desire by investors to steer clear of the default risks in the euro zone and the debt ceiling debate in the U.S. all put emerging currencies back on the 'to buy' list. Jerome Booth, head of research at Ashmore Investment Management, which has about $60 billion under management in emerging economies, put it this way: "In terms of the largest macro-economic risks--depression, sovereign defaults, systemic banking crises, or a dollar crash --we expect emerging markets to be collectively much safer than the euro zone or US." Julian Jessop, chief international economist at Capital Economics, is also looking for emerging markets to outperform the markets in the more developed world, especially now that the central banks of many of these countries have stopped raising interest rates and removed the risk of a hard landing.
EUROPE
Currency markets were in volatile form Friday in European trading as sentiment swung on seemingly conflicting euro-zone headlines and as the post-Greek euphoria was offset by weak economic data. The euro broke above $1.4550 against the dollar in early trade, before succumbing to renewed trader nervousness after a meeting of euro-area finance ministers due Sunday was changed into a Saturday conference call. This prompted some in the market to fret over whether much would get done in the quest for the holy grail of a Greek debt rollover and bailout. The single currency regained the lost ground as subsequent reports encouraged traders to believe again that a deal might be near, but then slipped back as Standard & Poor's warned Italy's weak economic growth outlook represented a risk to the debt-reduction plan. Overall the session saw a continuation of the broadly positive attitude seen during Asian trading toward riskier currencies like the Australian dollar and Swedish krona and by more unwinding of safe-haven Swiss franc bets.
ASIA
The yen fell against the dollar and euro on Friday in Asia after the Bank of Japan's June tankan survey showed a deeper-than-expected drop in business sentiment in the aftermath of the March 11 disaster. Dealers said the dollar could rise further if U.S. manufacturing data later in the global day help to soothe worries about the state of the U.S. economy. The tankan survey's headline diffusion index plummeted to minus 9 from plus 6 in the March survey, worse than expectations for minus 7 and falling into negative territory for the first time in five quarters. Improved risk appetite due to receding worries over Europe's debt crisis was another reason behind the weakness in the safe-haven yen, dealers said. The Nikkei 225 Stock Average, which tends to benefit from increased risk appetite, was 0.53% higher as of 0450 GMT. Investors think the passage of an austerity package by the Greek parliament increases the likelihood that the European Union and the International Monetary Fund will provide aid to Athens at a meeting next week. U.S. economic data on Thursday also provided a risk-positive factor, with the headline figure in a closely watched survey of Chicago-area purchasing managers at 61.1 in June, higher than 56.6 in May and beating forecasts for 53.0. "The data helped to lessen investors' pessimism toward the U.S. economic outlook," said Masafumi Yamamoto, chief Japan strategist at Barclays Capital. Market participants will keep paying attention to U.S. economic indicators to gauge whether the current slowdown in U.S. economic momentum is long-lasting or temporary.
WORLD
Greece's Parliament voted "yes" for austerity Thursday and currency investors in turn voted for the euro. Greece's Parliament approved legislation implementing a crucial five-year, EUR28.4 billion austerity plan, giving the country a green light to receive fresh aid from its international creditors. "A lot of the price action today in the euro was driven by ... relief that there are no further hiccups in Greece," said Paresh Upadhyaya, head of Americas G10 FX strategy at Bank of America Merrill Lynch. "Greece will move to the back of the stage and interest-rate differentials will be the big driver." The European Central Bank is widely expected to raise its key policy rate at next week's meeting for the second time this year, while the Federal Reserve has maintained its ultra-loose monetary policy. The euro soared in New York to a two-week high against the classic haven Swiss franc as investors unwound their short-euro positions. The common currency, also supported by month-end flows, rose more than a cent intraday against the dollar, and hit a three-week high against the Japanese yen. Stronger-than-expected U.S. manufacturing activity in June, according to the closely watched Chicago Business Barometer, also helped give the euro and general risk sentiment a boost. With Greece worries gradually drifting to the sidelines, the euro could see further upside, analysts said. "I wouldn't be surprised if we eventually started to get back ... toward the
[$1.47]-level," said David Watt, strategist with RBC Capital Markets. Markets now await a July 3 meeting of euro-zone finance ministers, who are expected to approve their share of Greece's next funding tranche.
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