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.
Senin, 04 Juli 2011
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.
Kamis, 30 Juni 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
The bounce off support at 1.4325 brings the focus onto the 1.4540/50 resistance area. The push into fresh three-week highs above 1.4449 recovery strengthens the 1.4325 higher low, and a bear channel resistance line at 1.4550 this week is within striking distance, protecting 1.4606. Only a setback below 1.4429 would concern EUR bulls and expose the 1.4325 higher low.
GBP/USD
The push above 1.6094 creates scope for further gains to the June 22 lower high at 1.6262. This week's lows at 1.5911 have become a potential near-term bear failure, meaning the origin of that bear wave at 1.6262 will become the focus of attention, having neutralised the GBP bear trend for now. Only a reversal below 1.5960 would bring the focus back onto the 1.5911 lows.
USD/JPY
Upgrades the setback off 81.27 to expose projected support at 80.20. The push below 80.55 has left Tuesday's high at 81.27 stranded, and a break below 80.20 would leave 81.27 as a potential bull failure high, exposing the June 22 higher low at 80.01. Keeping 80.20 intact would prompt a recovery back to the 80.66 area, but only above there would stabilise the falling USD.
AUD/USD
The push above 1.0717 puts AUD bulls in control, and paves the way for more gains to the important June 3 lower high at 1.0776. A push above 1.0776 is required to confirm Monday's 1.0391 low as a bear failure, and create room another wave of AUD bull pressure towards the May 11 reaction high at 1.0890. Congestion between 1.0606 and 1.0645 will look to cushion corrective weakness, but downside risk is limited.
FOREX FOCUS
Greece's austerity vote will soon look like nothing more than a minor distraction. With debt financing costs still rising and the European Central Bank likely to continue raising interest rates next week, the risk of a payment default by Greece or another peripheral euro-zone country will continue to increase. Pitched battles on the streets of Athens and the narrowest of votes in the Greek parliament may have grabbed headlines in recent days as the country struggles to convince the world that it is serious about repaying its debts. However, the scale of the debt problem engulfing the euro zone continues to grow, with the international investor community still voting with its feet. More and more are walking away or demanding either higher returns or more costly insurance premiums for holding euro-zone debt. While the market's focus has been on Greece, with that country's own yield spreads and credit default swaps narrowing on hopes that Greek members of parliament would see sense, the spreads and prices of other peripherals such as Portugal and Ireland have continued to widen. And there is little reason why that widening should stop. For a start there is little assurance that plans to roll over Greek debt are going to be successful. On paper, proposals for a voluntary negotiation of the terms and maturities, like those of the so-called Brady bonds for Latin American debtors in the 1980s, may look promising. But in practice the whole exercise looks doomed with many, including the ECB's executive board member Juergen Stark, warning this would still be a de facto default by Greece. And a de facto default by Greece means one thing: credit rating agencies, as at least one has promised already, will start downgrading peripheral euro-zone debtors in general.
EUROPE
In European trading hours Thursday, the dollar fell against the yen, weighed down by a stronger euro and partially on selling by Japanese exporters for the end-of-the-month closing of books, dealers said. The euro was stronger against the dollar, up at $1.4484. However, although the situation in Greece and prospects of an imminent rate hike by the ECB helped the euro, Germany's jobless data caused the single currency to pare gains.
ASIA
The euro rose above $1.4500 to a three-week high in Asia Thursday after the Greek parliament's passage Wednesday of new austerity measures appeared to make a near-term default unlikely. Buying by overseas investors led the common currency higher, with stop-loss buying orders around $1.4450 accelerating the gains. The euro touched $1.4519, its highest since June 10. Expectations for the European Central Bank to raise interest rates at a meeting next Thursday are also helping the euro, dealers said. Assuming Greece passes legislation later in the global day to implement the austerity bills, the euro could trend higher in the coming sessions, they said. Dai Sato, a senior vice president of the foreign exchange division of Mizuho Corporate Bank, said the euro could climb as high as $1.4700 in the near term. The possibility that Greece will avoid default soon is "making people optimistic in the near term, although people are pessimistic (about the Greek situation) over the longer term," Sato said. Gains in Chinese and other regional share markets also buoyed sentiment toward risk-sensitive currencies such as the euro, dealers said. Other gainers included the New Zealand dollar, which marked a fresh post-float high against the dollar at $0.8313.
WORLD
Investors bid up the euro Wednesday in New York after Greek lawmakers ignored violent protests in the streets and passed an austerity bill that kept alive a second round of bailout funding from European authorities. The euro traded above $1.4400 to two-week highs versus the dollar as that vote reduced the chances of an imminent Greece debt default. The focus now shifts to a vote Thursday to put the measures in motion and to a Sunday meeting of euro-zone finance ministers to plan the second bailout. But investors seemed to be encouraged by European officials' signals on this meeting as well. Greece's approval of new austerity measures is an important step for the country and for the stability of the euro as a whole, German Chancellor Angela Merkel said in Berlin. "We may see a little bit more of this rally" with the euro following the first Greece vote, said Scott Ainsbury, who helps manage about $8.5 billion in currency at New York-based hedge fund FX Concepts. The vote at least seemed to cap the Greece problem for now. But he cautioned against extrapolating too much from Wednesday's common currency move.
The bounce off support at 1.4325 brings the focus onto the 1.4540/50 resistance area. The push into fresh three-week highs above 1.4449 recovery strengthens the 1.4325 higher low, and a bear channel resistance line at 1.4550 this week is within striking distance, protecting 1.4606. Only a setback below 1.4429 would concern EUR bulls and expose the 1.4325 higher low.
GBP/USD
The push above 1.6094 creates scope for further gains to the June 22 lower high at 1.6262. This week's lows at 1.5911 have become a potential near-term bear failure, meaning the origin of that bear wave at 1.6262 will become the focus of attention, having neutralised the GBP bear trend for now. Only a reversal below 1.5960 would bring the focus back onto the 1.5911 lows.
USD/JPY
Upgrades the setback off 81.27 to expose projected support at 80.20. The push below 80.55 has left Tuesday's high at 81.27 stranded, and a break below 80.20 would leave 81.27 as a potential bull failure high, exposing the June 22 higher low at 80.01. Keeping 80.20 intact would prompt a recovery back to the 80.66 area, but only above there would stabilise the falling USD.
AUD/USD
The push above 1.0717 puts AUD bulls in control, and paves the way for more gains to the important June 3 lower high at 1.0776. A push above 1.0776 is required to confirm Monday's 1.0391 low as a bear failure, and create room another wave of AUD bull pressure towards the May 11 reaction high at 1.0890. Congestion between 1.0606 and 1.0645 will look to cushion corrective weakness, but downside risk is limited.
FOREX FOCUS
Greece's austerity vote will soon look like nothing more than a minor distraction. With debt financing costs still rising and the European Central Bank likely to continue raising interest rates next week, the risk of a payment default by Greece or another peripheral euro-zone country will continue to increase. Pitched battles on the streets of Athens and the narrowest of votes in the Greek parliament may have grabbed headlines in recent days as the country struggles to convince the world that it is serious about repaying its debts. However, the scale of the debt problem engulfing the euro zone continues to grow, with the international investor community still voting with its feet. More and more are walking away or demanding either higher returns or more costly insurance premiums for holding euro-zone debt. While the market's focus has been on Greece, with that country's own yield spreads and credit default swaps narrowing on hopes that Greek members of parliament would see sense, the spreads and prices of other peripherals such as Portugal and Ireland have continued to widen. And there is little reason why that widening should stop. For a start there is little assurance that plans to roll over Greek debt are going to be successful. On paper, proposals for a voluntary negotiation of the terms and maturities, like those of the so-called Brady bonds for Latin American debtors in the 1980s, may look promising. But in practice the whole exercise looks doomed with many, including the ECB's executive board member Juergen Stark, warning this would still be a de facto default by Greece. And a de facto default by Greece means one thing: credit rating agencies, as at least one has promised already, will start downgrading peripheral euro-zone debtors in general.
EUROPE
In European trading hours Thursday, the dollar fell against the yen, weighed down by a stronger euro and partially on selling by Japanese exporters for the end-of-the-month closing of books, dealers said. The euro was stronger against the dollar, up at $1.4484. However, although the situation in Greece and prospects of an imminent rate hike by the ECB helped the euro, Germany's jobless data caused the single currency to pare gains.
ASIA
The euro rose above $1.4500 to a three-week high in Asia Thursday after the Greek parliament's passage Wednesday of new austerity measures appeared to make a near-term default unlikely. Buying by overseas investors led the common currency higher, with stop-loss buying orders around $1.4450 accelerating the gains. The euro touched $1.4519, its highest since June 10. Expectations for the European Central Bank to raise interest rates at a meeting next Thursday are also helping the euro, dealers said. Assuming Greece passes legislation later in the global day to implement the austerity bills, the euro could trend higher in the coming sessions, they said. Dai Sato, a senior vice president of the foreign exchange division of Mizuho Corporate Bank, said the euro could climb as high as $1.4700 in the near term. The possibility that Greece will avoid default soon is "making people optimistic in the near term, although people are pessimistic (about the Greek situation) over the longer term," Sato said. Gains in Chinese and other regional share markets also buoyed sentiment toward risk-sensitive currencies such as the euro, dealers said. Other gainers included the New Zealand dollar, which marked a fresh post-float high against the dollar at $0.8313.
WORLD
Investors bid up the euro Wednesday in New York after Greek lawmakers ignored violent protests in the streets and passed an austerity bill that kept alive a second round of bailout funding from European authorities. The euro traded above $1.4400 to two-week highs versus the dollar as that vote reduced the chances of an imminent Greece debt default. The focus now shifts to a vote Thursday to put the measures in motion and to a Sunday meeting of euro-zone finance ministers to plan the second bailout. But investors seemed to be encouraged by European officials' signals on this meeting as well. Greece's approval of new austerity measures is an important step for the country and for the stability of the euro as a whole, German Chancellor Angela Merkel said in Berlin. "We may see a little bit more of this rally" with the euro following the first Greece vote, said Scott Ainsbury, who helps manage about $8.5 billion in currency at New York-based hedge fund FX Concepts. The vote at least seemed to cap the Greece problem for now. But he cautioned against extrapolating too much from Wednesday's common currency move.
Rabu, 29 Juni 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
The recovery off 1.4102 is approaching key resistance levels at 1.4413 and 1.4442. However, the structure of the bull wave from 1.4102 suggests there is scope for more gains towards the 1.4471 area. Tuesday's higher low at 1.4237 needs to hold in order to keep the near-term tone bullish for EUR, and only below there would turn the situation negative, exposing 1.4168.
GBP/USD
The corrective rally has room to extend to the 1.6079 area. Keeping support at 1.5911 intact still leaves the 1.5901 downside target unmet, and therefore at risk of becoming a significant bear failure. However, only a sustained break above projected resistance at 1.6094 would concern GBP bears at this stage. The wider bear threat still weighs, and a push below 1.5954 would expose the 1.5911 lows, exposing 1.5859.
USD/JPY
The push higher is targeting key resistance at 81.48. A 1.618 Fibonacci extension target lies just below there, at 81.40, and a fresh wave of USD bull pressure will be required to force a break higher towards 81.77. There is scope for downside consolidation back to the 80.66 area, but only below 80.66 would undermine the bullish USD outlook, which is protected by 80.93.
AUD/USD
The strong recovery off 1.0391 is looking to extend to the 1.0592/1.0603 resistance area. The push above 1.0551 opens the 1.618 Fibonacci extension target at 1.0592, which lies close the June 24 lower high at 1.0603, and these levels combined should create an upside boundary for the near-term. A fresh wave of AUD bull pressure is required to force a break through 1.603, strengthening the 1.0391 low and opening lower highs at 1.0653 and 1.0717. Corrective weakness will attract support while above 1.0478, and only below there would suggest a return to the 1.0391 low is on the cards.
FOREX FOCUS
AUD/JPY is extending the strong recovery off 84.06 and is within striking distance of the June 15 peak at 86.40. In conjunction with the significant recovery in AUD/USD, an across-board basing process appears to underway for AUD. A push above 86.40 would leave Monday's 84.06 low as a bear failure, and attract further gains towards the June 1 lower reaction high at 87.62. Pivotal support for the short-term lies in the 85.00 area, which is protected by 85.55. AUD/JPY is at 86.05.
EUROPE
A cautiously optimistic tone prevailed in European trading hours Wednesday as the euro modestly strengthened ahead of Greece's parliamentary vote on crucial austerity measures. The 17-country currency edged above $1.44 against the dollar, but still lost a little ground against the Swedish krona due to nagging concerns related to the vote on a EUR28 billion ($40 billion) program of spending cuts and tax increases that Greece has promised its international creditors. "Today is Greece or bust," said Richard Cochinos, a foreign exchange strategist at Bank of America Merrill Lynch. To a large extent, market participants expect parliament to be able to pass the crucial austerity package shortly after 1100 GMT. If the package is rejected, the negative reaction could be quite violent, market participants say. "There is a bit of asymmetry going into the outcome with upside potential for the euro relatively small and the downside large," said Daragh Maher, deputy head of global foreign exchange strategy at Credit Agricole in London. Even if Greece's vote is passed as expected, the risks will not totally be removed.
ASIA
The euro was steady against the dollar Wednesday in Asia as investors awaited the outcome of a key Greek vote on austerity package due later in the day. Greece's parliament is expected to start voting around 1100 GMT on a EUR28 billion ($40 billion) program of spending cuts and tax increases the country has promised to its international creditors. Gains in most Asian stock markets also helped maintain market risk-sentiment, providing some support for the higher-yielding euro, dealers said. Japan's Nikkei Stock Average rose 1.1% while South Korea's Kospi Composite gained 1.3%. The market has largely factored in passage of the crucial austerity package by the parliament, dealers said. For that reason, if the package is rejected, market risk-sentiment will likely deteriorate sharply, prompting investors to sell off the euro and move into the safety of the greenback, dealers said. If the austerity package passes, the euro will likely remain rangebound versus the dollar, with investor focus shifting to another phase of the Greek rescue program, dealers said.
WORLD
The euro rose Tuesday in New York on investors' growing hopes that Greece would pass austerity measures and avoid defaulting on its debt, while German banks agreed to consider rolling over some Greek government bonds. Despite rioting in Athens, Greece's parliament is expected to vote for crucial austerity measures Wednesday. Approval is needed for any future assistance for the country. Another supportive factor for the euro was German banks agreeing in principle to consider rolling over about $10 billion in Greek government debt, provided there are assurances that the terms of the deal won't be seen by ratings agencies as putting Greece into default. Optimism on Greece boosted the commodity-linked and growth-sensitive Australian dollar, which soared by nearly 1% versus the U.S. dollar. The U.S. dollar in turn rose against the yen, surging to a four-week high after Treasury yields hit session highs following poor demand for safe-haven five-year Treasury notes at auction. "The short version of it is that those who needed to hedge a Greek risk have long done it and some are looking to put some risk back which ever way they do it," said Sebastien Galy, currency strategist at Societe Generale in London
The recovery off 1.4102 is approaching key resistance levels at 1.4413 and 1.4442. However, the structure of the bull wave from 1.4102 suggests there is scope for more gains towards the 1.4471 area. Tuesday's higher low at 1.4237 needs to hold in order to keep the near-term tone bullish for EUR, and only below there would turn the situation negative, exposing 1.4168.
GBP/USD
The corrective rally has room to extend to the 1.6079 area. Keeping support at 1.5911 intact still leaves the 1.5901 downside target unmet, and therefore at risk of becoming a significant bear failure. However, only a sustained break above projected resistance at 1.6094 would concern GBP bears at this stage. The wider bear threat still weighs, and a push below 1.5954 would expose the 1.5911 lows, exposing 1.5859.
USD/JPY
The push higher is targeting key resistance at 81.48. A 1.618 Fibonacci extension target lies just below there, at 81.40, and a fresh wave of USD bull pressure will be required to force a break higher towards 81.77. There is scope for downside consolidation back to the 80.66 area, but only below 80.66 would undermine the bullish USD outlook, which is protected by 80.93.
AUD/USD
The strong recovery off 1.0391 is looking to extend to the 1.0592/1.0603 resistance area. The push above 1.0551 opens the 1.618 Fibonacci extension target at 1.0592, which lies close the June 24 lower high at 1.0603, and these levels combined should create an upside boundary for the near-term. A fresh wave of AUD bull pressure is required to force a break through 1.603, strengthening the 1.0391 low and opening lower highs at 1.0653 and 1.0717. Corrective weakness will attract support while above 1.0478, and only below there would suggest a return to the 1.0391 low is on the cards.
FOREX FOCUS
AUD/JPY is extending the strong recovery off 84.06 and is within striking distance of the June 15 peak at 86.40. In conjunction with the significant recovery in AUD/USD, an across-board basing process appears to underway for AUD. A push above 86.40 would leave Monday's 84.06 low as a bear failure, and attract further gains towards the June 1 lower reaction high at 87.62. Pivotal support for the short-term lies in the 85.00 area, which is protected by 85.55. AUD/JPY is at 86.05.
EUROPE
A cautiously optimistic tone prevailed in European trading hours Wednesday as the euro modestly strengthened ahead of Greece's parliamentary vote on crucial austerity measures. The 17-country currency edged above $1.44 against the dollar, but still lost a little ground against the Swedish krona due to nagging concerns related to the vote on a EUR28 billion ($40 billion) program of spending cuts and tax increases that Greece has promised its international creditors. "Today is Greece or bust," said Richard Cochinos, a foreign exchange strategist at Bank of America Merrill Lynch. To a large extent, market participants expect parliament to be able to pass the crucial austerity package shortly after 1100 GMT. If the package is rejected, the negative reaction could be quite violent, market participants say. "There is a bit of asymmetry going into the outcome with upside potential for the euro relatively small and the downside large," said Daragh Maher, deputy head of global foreign exchange strategy at Credit Agricole in London. Even if Greece's vote is passed as expected, the risks will not totally be removed.
ASIA
The euro was steady against the dollar Wednesday in Asia as investors awaited the outcome of a key Greek vote on austerity package due later in the day. Greece's parliament is expected to start voting around 1100 GMT on a EUR28 billion ($40 billion) program of spending cuts and tax increases the country has promised to its international creditors. Gains in most Asian stock markets also helped maintain market risk-sentiment, providing some support for the higher-yielding euro, dealers said. Japan's Nikkei Stock Average rose 1.1% while South Korea's Kospi Composite gained 1.3%. The market has largely factored in passage of the crucial austerity package by the parliament, dealers said. For that reason, if the package is rejected, market risk-sentiment will likely deteriorate sharply, prompting investors to sell off the euro and move into the safety of the greenback, dealers said. If the austerity package passes, the euro will likely remain rangebound versus the dollar, with investor focus shifting to another phase of the Greek rescue program, dealers said.
WORLD
The euro rose Tuesday in New York on investors' growing hopes that Greece would pass austerity measures and avoid defaulting on its debt, while German banks agreed to consider rolling over some Greek government bonds. Despite rioting in Athens, Greece's parliament is expected to vote for crucial austerity measures Wednesday. Approval is needed for any future assistance for the country. Another supportive factor for the euro was German banks agreeing in principle to consider rolling over about $10 billion in Greek government debt, provided there are assurances that the terms of the deal won't be seen by ratings agencies as putting Greece into default. Optimism on Greece boosted the commodity-linked and growth-sensitive Australian dollar, which soared by nearly 1% versus the U.S. dollar. The U.S. dollar in turn rose against the yen, surging to a four-week high after Treasury yields hit session highs following poor demand for safe-haven five-year Treasury notes at auction. "The short version of it is that those who needed to hedge a Greek risk have long done it and some are looking to put some risk back which ever way they do it," said Sebastien Galy, currency strategist at Societe Generale in London
Selasa, 28 Juni 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
The recovery off 1.4102 is showing signs of fatigue on the approach to key resistance at 1.4360/85. This resistance area protects both the June 22 reaction high at 1.4442, and the projected resistance line of a bear pennant continuation pattern at 1.4413. A push below 1.4250 would attract fresh EUR bear pressure back to the intraday higher low at 1.4168.
GBP/USD
The downside target at 1.5901 is still within striking distance, despite Monday's corrective rally. There is scope for more downside as GBP bears target the downwave equality target at 1.5859 as a minimum objective, and concerted weakness would pave the way for 1.5752 and 1.5675. Regaining ground above 1.6011 would provide temporary respite, but corrective upside risk is limited to 1.6094.
USD/JPY
The focus remains on the June 15 reaction high at 81.08, as USD bulls regain control of the short term. The probe above 80.80 keeps the 13-day uptrend line intact, and a break above 81.08 would pave the way for the 1.618 Fibonacci extension target at 81.40. Significant resistance lies at 81.48. Support at 80.60 has become pivotal for the short term, but only a sustained break below 80.48 would concern USD bulls.
AUD/USD
A decisive push below 1.0441 is underway, which exposes a support cluster between 1.0325 and 1.0250. Two 1.618 Fibonacci extension targets lie just above former range highs at 1.0250, where this bear wave is likely to find a significant long-term base. Regaining ground above 1.0539 is required to lift the tone.
FOREX FOCUS
The path of true love is never smooth, as the yen is about to find out. For many months, the Japanese currency has worked its charms, wheedling its way into the heart of the international investment community even as Japan itself suffered from a devastating earthquake and tsunami. Through all the ups and downs, the market's affection remained strong with investors preferring the yen against many other major currencies in times of global uncertainty. Signs are, however, that this is all falling apart even though the Japanese economy itself is staging a much more robust recovery from the earthquake than expected. The shift in affections is evident in the yen's performance against the Swiss franc, that other great safe haven love that investors tend to turn to. In recent months, the franc has risen steadily against the yen, showing that the Japanese currency is steadily losing its ranking in the safe haven stakes. It all appears to be part of a larger shift in affections as the market adjusts to the latest concerns about the global recovery and inflationary pressures. The timing for the yen might be ironic, given that new retail sales indicate that consumption has rebounded sharply and should soon return to pre-earthquake levels once supply constraints have eased. Industrial production figures and the latest Bank of Japan Tankan survey this week will also contribute to the view that the worst for the Japanese economy is over. However, this good news on the recovery isn't expected to translate into higher rate expectations, given the ongoing fiscal and political problems facing Japan. The currency strategy team at Commerzbank put it this way: "The yen cannot expect any support on the interest front, as the central bank cannot afford a vicious circle of rising interest rates leading to the increased probability of defaults and thus higher interest rates. As a result it will keep interest rates low and eventually that will have an effect on the yen."
EUROPE
Greece continued to hold currency markets in thrall in European trade Tuesday, as overnight buying interest in the euro faded, while the pound sagged as weak economic data rubbished the case for higher interest rates. With Greece on a 48-hour general strike, ahead of Wednesday's parliamentary vote on the strict budgetary measures upon which a crucial bailout depends, the single currency gave back some of its overnight gains as attention switched to the eleventh-hour struggle to stave off a Greek default. The euro was pretty much stuck in the $1.42s against the dollar while making some headway against the beleaguered pound for reasons more to do with the sombre outlook for the U.K. economy. The Swiss franc, the star turn of the past few weeks, continued to have another good outing. Over in Greece, embattled Prime Minister George Papandreou wants lawmakers to approve plans to cut spending by EUR28.6 billion by 2015. At the same time, Greek central bank governor Giorgos Provopoulos has waded into the debate, saying that taxpayers are at their limits. The battle lines are drawn but You-Na Park, strategist at Commerzbank, said she expects Papandreou to win through. "It will pass through. Doesn't look like there is any other way and that may spark a relief rally for the euro," she said, but added that any gains aren't likely to be big. After all the medium-term outlook for Greece won't be resolved and the amount of private sector participation is still undecided.
ASIA
The euro held steady against the dollar and the yen in Asia Tuesday as growing optimism that Greece will approve a package of austerity measures Wednesday prodded traders to refrain from making fresh bets. Earlier in the day, short covering that triggered stop-loss purchases above 1.4300 sent the single currency as high as $1.4330. But the gains were eroded later due to the absence of fresh news related to the Greek debt crisis. Positive news regarding Greece overnight and a rebound in the stock market are making it tough to sell the euro against the dollar," said Kuniyuki Hirai, manager at the foreign exchange trading department of Bank of Tokyo-Mitsubishi UFJ. European governments said Monday they want private creditors to roll over as much as EUR30 billion of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it is receptive to the French proposal on Greece, if it is voluntary. Traders in Tokyo said that with the situation turning for the better, all eyes are now on Wednesday's parliamentary vote on a EUR28 billion package of austerity measures in Greece.
WORLD
Investors' optimism about the prospect of a broad plan with European Union guarantees to roll over Greek debt that could involve private creditors and diminish the chance of default helped boost the euro Monday in New York. European governments have said they want private creditors to roll over as much as EUR30 billion worth of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it is receptive to the French proposal on Greece, if it is voluntary. Hopes that an austerity plan could pass in the Greek Parliament later this week also gave the currency support. "There is optimism on Greece" at the start of this new week, said Kathy Lien, director of currency research at GFT Forex in New York. There is a broad sense that most parties in the euro zone, and inside Greece itself, know what is at stake and won't let Greece fail. "Euro bears were covering today on optimism that [the likely passage of the austerity plan] is going to be positive for the euro," said Phil Streible, senior market strategist at Lind-Waldock in Chicago. The thinking now is that the euro could next head to $1.4300-$1.4325, he predicted. But the euro will then be susceptible as that good news wanes and more troubles present themselves, said Streible. To that end, "I was selling $1.48 August calls today and putting in orders for $1.40 September puts," for the euro, he said.
The recovery off 1.4102 is showing signs of fatigue on the approach to key resistance at 1.4360/85. This resistance area protects both the June 22 reaction high at 1.4442, and the projected resistance line of a bear pennant continuation pattern at 1.4413. A push below 1.4250 would attract fresh EUR bear pressure back to the intraday higher low at 1.4168.
GBP/USD
The downside target at 1.5901 is still within striking distance, despite Monday's corrective rally. There is scope for more downside as GBP bears target the downwave equality target at 1.5859 as a minimum objective, and concerted weakness would pave the way for 1.5752 and 1.5675. Regaining ground above 1.6011 would provide temporary respite, but corrective upside risk is limited to 1.6094.
USD/JPY
The focus remains on the June 15 reaction high at 81.08, as USD bulls regain control of the short term. The probe above 80.80 keeps the 13-day uptrend line intact, and a break above 81.08 would pave the way for the 1.618 Fibonacci extension target at 81.40. Significant resistance lies at 81.48. Support at 80.60 has become pivotal for the short term, but only a sustained break below 80.48 would concern USD bulls.
AUD/USD
A decisive push below 1.0441 is underway, which exposes a support cluster between 1.0325 and 1.0250. Two 1.618 Fibonacci extension targets lie just above former range highs at 1.0250, where this bear wave is likely to find a significant long-term base. Regaining ground above 1.0539 is required to lift the tone.
FOREX FOCUS
The path of true love is never smooth, as the yen is about to find out. For many months, the Japanese currency has worked its charms, wheedling its way into the heart of the international investment community even as Japan itself suffered from a devastating earthquake and tsunami. Through all the ups and downs, the market's affection remained strong with investors preferring the yen against many other major currencies in times of global uncertainty. Signs are, however, that this is all falling apart even though the Japanese economy itself is staging a much more robust recovery from the earthquake than expected. The shift in affections is evident in the yen's performance against the Swiss franc, that other great safe haven love that investors tend to turn to. In recent months, the franc has risen steadily against the yen, showing that the Japanese currency is steadily losing its ranking in the safe haven stakes. It all appears to be part of a larger shift in affections as the market adjusts to the latest concerns about the global recovery and inflationary pressures. The timing for the yen might be ironic, given that new retail sales indicate that consumption has rebounded sharply and should soon return to pre-earthquake levels once supply constraints have eased. Industrial production figures and the latest Bank of Japan Tankan survey this week will also contribute to the view that the worst for the Japanese economy is over. However, this good news on the recovery isn't expected to translate into higher rate expectations, given the ongoing fiscal and political problems facing Japan. The currency strategy team at Commerzbank put it this way: "The yen cannot expect any support on the interest front, as the central bank cannot afford a vicious circle of rising interest rates leading to the increased probability of defaults and thus higher interest rates. As a result it will keep interest rates low and eventually that will have an effect on the yen."
EUROPE
Greece continued to hold currency markets in thrall in European trade Tuesday, as overnight buying interest in the euro faded, while the pound sagged as weak economic data rubbished the case for higher interest rates. With Greece on a 48-hour general strike, ahead of Wednesday's parliamentary vote on the strict budgetary measures upon which a crucial bailout depends, the single currency gave back some of its overnight gains as attention switched to the eleventh-hour struggle to stave off a Greek default. The euro was pretty much stuck in the $1.42s against the dollar while making some headway against the beleaguered pound for reasons more to do with the sombre outlook for the U.K. economy. The Swiss franc, the star turn of the past few weeks, continued to have another good outing. Over in Greece, embattled Prime Minister George Papandreou wants lawmakers to approve plans to cut spending by EUR28.6 billion by 2015. At the same time, Greek central bank governor Giorgos Provopoulos has waded into the debate, saying that taxpayers are at their limits. The battle lines are drawn but You-Na Park, strategist at Commerzbank, said she expects Papandreou to win through. "It will pass through. Doesn't look like there is any other way and that may spark a relief rally for the euro," she said, but added that any gains aren't likely to be big. After all the medium-term outlook for Greece won't be resolved and the amount of private sector participation is still undecided.
ASIA
The euro held steady against the dollar and the yen in Asia Tuesday as growing optimism that Greece will approve a package of austerity measures Wednesday prodded traders to refrain from making fresh bets. Earlier in the day, short covering that triggered stop-loss purchases above 1.4300 sent the single currency as high as $1.4330. But the gains were eroded later due to the absence of fresh news related to the Greek debt crisis. Positive news regarding Greece overnight and a rebound in the stock market are making it tough to sell the euro against the dollar," said Kuniyuki Hirai, manager at the foreign exchange trading department of Bank of Tokyo-Mitsubishi UFJ. European governments said Monday they want private creditors to roll over as much as EUR30 billion of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it is receptive to the French proposal on Greece, if it is voluntary. Traders in Tokyo said that with the situation turning for the better, all eyes are now on Wednesday's parliamentary vote on a EUR28 billion package of austerity measures in Greece.
WORLD
Investors' optimism about the prospect of a broad plan with European Union guarantees to roll over Greek debt that could involve private creditors and diminish the chance of default helped boost the euro Monday in New York. European governments have said they want private creditors to roll over as much as EUR30 billion worth of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it is receptive to the French proposal on Greece, if it is voluntary. Hopes that an austerity plan could pass in the Greek Parliament later this week also gave the currency support. "There is optimism on Greece" at the start of this new week, said Kathy Lien, director of currency research at GFT Forex in New York. There is a broad sense that most parties in the euro zone, and inside Greece itself, know what is at stake and won't let Greece fail. "Euro bears were covering today on optimism that [the likely passage of the austerity plan] is going to be positive for the euro," said Phil Streible, senior market strategist at Lind-Waldock in Chicago. The thinking now is that the euro could next head to $1.4300-$1.4325, he predicted. But the euro will then be susceptible as that good news wanes and more troubles present themselves, said Streible. To that end, "I was selling $1.48 August calls today and putting in orders for $1.40 September puts," for the euro, he said.
Senin, 27 Juni 2011
FOREX INTRADAY SNAPSHOT
EUR/USD
The June 16 reaction low at 1.4073 is likely to face renewed pressure. EUR bear momentum is on the increase, and a break below 1.4073 is expected, exposing 1.4055 and 1.3989 initially. However, a push below 1.4073 would also create longer-term scope for 1.3850 and 1.3818 this week. Only a recovery above 1.4224 would question the bearish EUR outlook, which is protected by 1.4185.
GBP/USD
The downside target at 1.5901 is within striking distance, but there is more scope to the downside. GBP bears are targeting the downwave equality target at 1.5859 as a minimum objective, and concerted weakness would pave the way for 1.5752 and 1.5675. Regaining ground above 1.6044 would provide temporary respite, but corrective upside risk is limited.
USD/JPY
The focus is on the June 15 reaction high at 81.08, as USD bulls regain control of the short term. The probe above 80.80 keeps the twelve-day uptrend line intact, and a break above 81.08 would pave the way for the 1.618 Fibonacci extension target at 81.40. Significant resistance lies at 81.48. Support at 80.50 will look to cushion corrective weakness, and only below 80.29 would prompt a return to Friday's low at 80.13.
AUD/USD
A decisive push below 1.0441 is underway, which exposes a support cluster between 1.0325 and 1.0250. Two 1.618 Fibonacci extension targets lie just above former range highs at 1.0250, where this bear wave is likely to find a significant long-term base. Regaining ground above 1.0506 is required to provide respite, but only above 1.0603 would lift the tone.
FOREX FOCUS
Even euro speculators are starting to lose their nerve. For some time now, speculative positions in the single currency have remained fairly strong, suggesting that there was still some confidence in the euro project. However, new data from the International Monetary Market in Chicago shows that in the week to last Tuesday, there was a sharp run down in exposure to about 16% of open interest from as much as 40% in early 2011. Of course, there are still some brave souls hanging in there but they may well have fled since that survey nearly a week ago as market tensions over a Greek bail out continue to rise. The next test for euro supporters will be the vote this Wednesday by Greek parliamentarians on a 5-year austerity program. At the moment, the government is expected to secure a victory even though it has such a small 5-member majority that could be reduced even further by dissention. The terms of the package have attracted wide criticism, including claims by the country's own central bank governor that spending isn't being cut enough and tax evasion remains too high. This suggests that even if Prime Minister George Papandreou does win, popular backing for the measures will be weak and their implementation will become a problem. In the meantime, all the other problems will come to the fore. For a start, there is the negotiations over a restructuring of private sector bonds. French bank proposals to roll over as much as 70% of their holdings may have attracted some positive market comment over the weekend but it remains to be seen if the eventual roll over can be achieved without triggering a so-called 'credit event' call from the debt rating agencies. In other words, the rating agencies will call the roll over what it is--a default--and the subsequent downgrade of ratings will create further financial havoc. The importance of those ratings was evident late last week when Moody's pointed out just how vulnerable Italian banks are to a cut in Italy's debt rating. Bank shares plummeted, stories of deposit withdrawals abounded and Italy found that its yield spreads were being pushed to new record highs as investors demanded even more of a return. Later this week, euro supporters could also get a nasty reminder that economics isn't playing on their side either when the latest flash estimate for euro zone inflation is released Thursday.
EUROPE
The euro enjoyed a modest rebound in European morning trade Monday as hopes grew of a deal to rollover Greek government debt, ahead of a crucial Greek austerity vote, but investor confidence remains distinctly fragile. In Asian hours, heightened risk aversion boosted the dollar across the board and pushed the European currency to a fresh all-time low against the Swiss franc of CHF1.1808. Insuring European sovereign debt against default also became more expensive, with the iTraxx SovX Western Europe credit default swaps index hitting a new record high and Italy pulling off a successful two-year bond auction, but at a higher cost. Currency traders nonetheless welcomed weekend news that French banks have proposed a plan to reinvest half of the proceeds from maturing Greek government bonds into buying 30-year bonds issued by the embattled country. The German Finance Ministry later said private sector suggestions were welcomed. The positive attitude to private sector participation in a Greek credit event, a particularly thorny issue that has slowed down progress toward a new bailout package for Greece, helped lift the single currency to a session high against the dollar of $1.4219, despite lingering skepticism. "The market is taking comfort from the news coming from banks, but risk indicators are still giving out negative signals and we would view any rebound in the euro as a selling opportunity," said Ian Stannard, a currency strategist at Morgan Stanley in London. A pivotal factor just around the corner is Greece's budget vote, scheduled for Wednesday morning. While a positive outcome would support the currency in the short-term, currency analysts cautioned that the debt saga remains far from resolved. "Even if the Greek vote passes, we'll probably only get three months of stability followed by renewed problems as it becomes clear that the country is failing to meet its commitments," said Geoffrey Yu, director of FX strategy, at UBS AG in London.
ASIA
The dollar broadly strengthened against major currencies in Asia on Monday as jitters over this week's parliamentary votes in Greece on a EUR28 billion package of austerity measures heightened traders' risk aversion, prompting them to buy the greenback. Falling stock and commodity prices, coupled with global growth concerns, also added to uncertainty in the currency market, leading traders to trim their holdings of riskier currencies such as the euro, the U.K. pound, and the Australian dollar. The greenback also gained against its safe-haven rivals such as the yen and the Swiss franc. "It was rare to" see such a big move during Asian trading hours on Monday, said Makoto Noji, senior currency strategist at SMBC Nikko Securities. Uncertainty over this week's Greek votes and falls in global share prices "prompted short-covering for the dollar, while the euro is besieged by various negative factors," he added. At 0500 GMT, the euro was at $1.4123 from $1.4192 late Friday in New York, according to figures from EBS. It earlier tumbled to as low as $1.4102. The U.K. pound stood at $1.5922, after falling to a near five-month low of $1.5913, from $1.5967. The dollar was at CHF0.8374 from CHF0.8328. "A risk-averse mood has extended from last week, with an eye on falling stock and commodity prices and Greece's debt problems," said Yoshio Yoshida, a trader at Mizuho Trust and Banking Co. "Those factors have worked in favor of dollar buying, although trading could be a wild ride this week," he added.
WORLD
Euro-zone debt worries reached Italy on Friday as contagion fears pushed the euro to an all-time low against the Swiss franc. The common currency fell as low as CHF1.1844 against the safe-haven franc over fears the Greek sovereign crisis was gaining a greater foothold outside the country's borders and in the region's banking system. Trading in Italian bank shares was suspended due to high volatility in Milan after ratings agency Moody's Investors Service said it was considering downgrading the creditworthiness of a group of the country's banks. Italy's sovereign 10-year yield spread over German bunds reacted by climbing to 213 basis points--the widest since the birth of the euro in January 1999. "There are concerns over contagion since Italy's economy is very weak and also over the lack of transparency in the banking sector," Peter Rosenstreich, associate director and chief market analyst with Switzerland's Swissquote Bank SA, said. "Without a total and credible solution to the Greek and [European Union] sovereign debt crisis, all EU nations are susceptible to sudden exodus of confidence and capital."
The June 16 reaction low at 1.4073 is likely to face renewed pressure. EUR bear momentum is on the increase, and a break below 1.4073 is expected, exposing 1.4055 and 1.3989 initially. However, a push below 1.4073 would also create longer-term scope for 1.3850 and 1.3818 this week. Only a recovery above 1.4224 would question the bearish EUR outlook, which is protected by 1.4185.
GBP/USD
The downside target at 1.5901 is within striking distance, but there is more scope to the downside. GBP bears are targeting the downwave equality target at 1.5859 as a minimum objective, and concerted weakness would pave the way for 1.5752 and 1.5675. Regaining ground above 1.6044 would provide temporary respite, but corrective upside risk is limited.
USD/JPY
The focus is on the June 15 reaction high at 81.08, as USD bulls regain control of the short term. The probe above 80.80 keeps the twelve-day uptrend line intact, and a break above 81.08 would pave the way for the 1.618 Fibonacci extension target at 81.40. Significant resistance lies at 81.48. Support at 80.50 will look to cushion corrective weakness, and only below 80.29 would prompt a return to Friday's low at 80.13.
AUD/USD
A decisive push below 1.0441 is underway, which exposes a support cluster between 1.0325 and 1.0250. Two 1.618 Fibonacci extension targets lie just above former range highs at 1.0250, where this bear wave is likely to find a significant long-term base. Regaining ground above 1.0506 is required to provide respite, but only above 1.0603 would lift the tone.
FOREX FOCUS
Even euro speculators are starting to lose their nerve. For some time now, speculative positions in the single currency have remained fairly strong, suggesting that there was still some confidence in the euro project. However, new data from the International Monetary Market in Chicago shows that in the week to last Tuesday, there was a sharp run down in exposure to about 16% of open interest from as much as 40% in early 2011. Of course, there are still some brave souls hanging in there but they may well have fled since that survey nearly a week ago as market tensions over a Greek bail out continue to rise. The next test for euro supporters will be the vote this Wednesday by Greek parliamentarians on a 5-year austerity program. At the moment, the government is expected to secure a victory even though it has such a small 5-member majority that could be reduced even further by dissention. The terms of the package have attracted wide criticism, including claims by the country's own central bank governor that spending isn't being cut enough and tax evasion remains too high. This suggests that even if Prime Minister George Papandreou does win, popular backing for the measures will be weak and their implementation will become a problem. In the meantime, all the other problems will come to the fore. For a start, there is the negotiations over a restructuring of private sector bonds. French bank proposals to roll over as much as 70% of their holdings may have attracted some positive market comment over the weekend but it remains to be seen if the eventual roll over can be achieved without triggering a so-called 'credit event' call from the debt rating agencies. In other words, the rating agencies will call the roll over what it is--a default--and the subsequent downgrade of ratings will create further financial havoc. The importance of those ratings was evident late last week when Moody's pointed out just how vulnerable Italian banks are to a cut in Italy's debt rating. Bank shares plummeted, stories of deposit withdrawals abounded and Italy found that its yield spreads were being pushed to new record highs as investors demanded even more of a return. Later this week, euro supporters could also get a nasty reminder that economics isn't playing on their side either when the latest flash estimate for euro zone inflation is released Thursday.
EUROPE
The euro enjoyed a modest rebound in European morning trade Monday as hopes grew of a deal to rollover Greek government debt, ahead of a crucial Greek austerity vote, but investor confidence remains distinctly fragile. In Asian hours, heightened risk aversion boosted the dollar across the board and pushed the European currency to a fresh all-time low against the Swiss franc of CHF1.1808. Insuring European sovereign debt against default also became more expensive, with the iTraxx SovX Western Europe credit default swaps index hitting a new record high and Italy pulling off a successful two-year bond auction, but at a higher cost. Currency traders nonetheless welcomed weekend news that French banks have proposed a plan to reinvest half of the proceeds from maturing Greek government bonds into buying 30-year bonds issued by the embattled country. The German Finance Ministry later said private sector suggestions were welcomed. The positive attitude to private sector participation in a Greek credit event, a particularly thorny issue that has slowed down progress toward a new bailout package for Greece, helped lift the single currency to a session high against the dollar of $1.4219, despite lingering skepticism. "The market is taking comfort from the news coming from banks, but risk indicators are still giving out negative signals and we would view any rebound in the euro as a selling opportunity," said Ian Stannard, a currency strategist at Morgan Stanley in London. A pivotal factor just around the corner is Greece's budget vote, scheduled for Wednesday morning. While a positive outcome would support the currency in the short-term, currency analysts cautioned that the debt saga remains far from resolved. "Even if the Greek vote passes, we'll probably only get three months of stability followed by renewed problems as it becomes clear that the country is failing to meet its commitments," said Geoffrey Yu, director of FX strategy, at UBS AG in London.
ASIA
The dollar broadly strengthened against major currencies in Asia on Monday as jitters over this week's parliamentary votes in Greece on a EUR28 billion package of austerity measures heightened traders' risk aversion, prompting them to buy the greenback. Falling stock and commodity prices, coupled with global growth concerns, also added to uncertainty in the currency market, leading traders to trim their holdings of riskier currencies such as the euro, the U.K. pound, and the Australian dollar. The greenback also gained against its safe-haven rivals such as the yen and the Swiss franc. "It was rare to" see such a big move during Asian trading hours on Monday, said Makoto Noji, senior currency strategist at SMBC Nikko Securities. Uncertainty over this week's Greek votes and falls in global share prices "prompted short-covering for the dollar, while the euro is besieged by various negative factors," he added. At 0500 GMT, the euro was at $1.4123 from $1.4192 late Friday in New York, according to figures from EBS. It earlier tumbled to as low as $1.4102. The U.K. pound stood at $1.5922, after falling to a near five-month low of $1.5913, from $1.5967. The dollar was at CHF0.8374 from CHF0.8328. "A risk-averse mood has extended from last week, with an eye on falling stock and commodity prices and Greece's debt problems," said Yoshio Yoshida, a trader at Mizuho Trust and Banking Co. "Those factors have worked in favor of dollar buying, although trading could be a wild ride this week," he added.
WORLD
Euro-zone debt worries reached Italy on Friday as contagion fears pushed the euro to an all-time low against the Swiss franc. The common currency fell as low as CHF1.1844 against the safe-haven franc over fears the Greek sovereign crisis was gaining a greater foothold outside the country's borders and in the region's banking system. Trading in Italian bank shares was suspended due to high volatility in Milan after ratings agency Moody's Investors Service said it was considering downgrading the creditworthiness of a group of the country's banks. Italy's sovereign 10-year yield spread over German bunds reacted by climbing to 213 basis points--the widest since the birth of the euro in January 1999. "There are concerns over contagion since Italy's economy is very weak and also over the lack of transparency in the banking sector," Peter Rosenstreich, associate director and chief market analyst with Switzerland's Swissquote Bank SA, said. "Without a total and credible solution to the Greek and [European Union] sovereign debt crisis, all EU nations are susceptible to sudden exodus of confidence and capital."
Jumat, 24 Juni 2011
FXPRO INTRADAY SNAPSHOT
EUR/USD
The corrective recovery off 1.4125 is tackling resistance at 1.4285. However, with layers of resistance looming at 1.4330 and 1.4360, scope for corrective gains are limited. Wednesday's bull failure high at 1.4442 continues to dominate the daily chart and Thursday's low at 1.4125 remains vulnerable, which will become the focus on a break below 1.4195.
GBP/USD
Corrects higher off 1.5939, but with upside risk limited to 1.6122, the main threat remains to the downside. Renewed GBP bear pressure is expected on 1.5939, and there is scope for an extension lower towards targets at 1.5901 and 1.5859. Resistance at 1.6066 and 1.6100 protect the 1.6122 barrier.
USD/JPY
Thursday's cap at 80.80 keeps the action within a short-term bear pennant continuation pattern. Bear pressure is building on support at 80.34, and a push below there would bring Wednesday's 80.01 low back into the picture. Loss of 80.34 would also leave the 80.80 high as a near-term bull failure. Regaining ground above 80.64 is required to suggest a return to the 80.80 high is on the cards, protecting the important June 15 reaction high at 81.08.
AUD/USD
Stages a recovery off 1.0455, and a push above resistance at 1.0552 is expected. The pace of the three-week downtrend is slowing, and a break above 1.0552 would open the important 1.0630/51 projected resistance area. However, AUD bulls need to force a break through 1.0651 in order to gain control. A push below 1.0478 is required to re-expose the 1.0455 low, threatening a downtrend extension to 1.0441 and towards 1.0325.
FOREX FOCUS
Inflation is concentrating minds from Washington to Beijing. But that doesn't mean global risk sentiment will improve. On the contrary, recent comments from China, as well as the International Energy Agency's highly unusual decision to release crude oil stocks, both smack of a certain amount of desperation. Let's look at China first. Premier Wen Jiabao's claim that inflation has been vanquished will certainly come as a surprise to all those who, both inside and outside the country, have been looking for tighter monetary policy as well as further gains in the yuan itself. However, Wen's comments may reflect a greater reality about the state of the Chinese economy and the rapidly growing fears that the housing market is about to implode. Up until now, fighting inflation may have been the primary priority, especially given the damage that higher prices pose to the government's popularity. But, if recent economic data, including the latest manufacturing activity numbers this week, continue to point to a slowdown, Beijing's priorities might be changing. By claiming an inflation victory, Wen will reduce expectations of tighter policy and take some of the pressure off the housing market. This could make the headline of a well-timed piece of research by Societe Generale: "Chinese Construction Bubble: Preparing For A Potential Burst", look even more prescient. For financial markets, it is the coincidence of Wen's remarks with the IEA's announcement that have proved particularly unsettling. Although the prospects for the U.S. as well as the global economy are not looking as good as they once were, there is a growing fear that the recent rise in energy prices has gone too far and that inflation has become too entrenched.
EUROPE
The dollar rallied against other currencies in late Friday-morning trade in Europe on Italian bank credit concerns, reversing earlier losses after robust German business confidence gave investors renewed hope that a slowdown in the global economy would pass after weak data this week. The abrupt reversal in currency trader sentiment came after trading in leading Italian bank stocks was suspended after these fell sharply. The development followed a warning from Moody's Investors Service late Thursday that it may cut the credit ratings of 16 Italian banks. It also added to wider euro-zone debt concerns in the wake of 11th-hour efforts to stave off a default in Greece, even as hopes grew that the euro zone would muddle through following overnight news that Greece had reached an agreement with the International Monetary Fund and the European Union on a five-year austerity program. "There are still substantial uncertainties because the new Greek packages come with additional conditionality, including another EUR5 billion in extra fiscal cuts which will be difficult to get through parliament," said Hans Redeker, head of global currency strategy at Morgan Stanley.
ASIA
The euro rose against the dollar in Asia Friday as multinational efforts to tame crude prices and inflationary pressure prompted investors to think that central banks may refrain from policy tightening for now. The International Energy Agency said Thursday its 28 members including the U.S. have agreed to release 60 million barrels of oil from strategic reserves to boost supplies ahead of the peak summer driving season. As a result of Libyan conflict earlier this year, crude output has declined and pushed up oil prices. That added to already-high inflationary pressure in emerging countries such as China and Brazil, making investors speculate that authorities may tighten monetary policy at a faster pace to curb prices even at the expense of cooler share markets. The IEA announcement instantly sent oil prices down to a four-month low and eased the speculation, contributing to gains in Asian share markets. Japan's Nikkei Stock Average was up 0.8% and China's Shanghai Composite Index was 1.8% higher as of 0450 GMT. The euro often becomes strong when share markets are upbeat due to a high yields that euro-denominated assets have. That was indeed the case in Asia. "We may see the euro briefly touching $1.43," said Hideki Amikura, a senior dealer at Nomura Trust and Banking. Still, Amikura and other Tokyo dealers say the euro's upside potential is limited because Greece's debt problems are not over yet and a slowdown in the European economy has been seen recently.
WORLD
The euro had been beaten down so much by global growth and Greece debt concerns Thursday in New York that news of a widely expected accord helped significantly pare its losses. Greece's agreement with the International Monetary Fund and the European Union on a five-year austerity program isn't a long-term solution to Greece's credit woes. The program also still has to survive in Greece's parliament. The austerity agreement was necessary so that Greece's parliament would have something to vote on. But the news was enough to lift the euro to $1.4264 from an intraday low of $1.4125. "It's a (factor) of how jumpy the market is. In order to vote on an austerity package, you have to have" an actual austerity proposal, said David Watt, senior currency strategist at RBC Capital Markets in Toronto. "Anything that might look like a bit of news, the market will react to it. The market is skittish and that doesn't always help." That said, support for an austerity plan is vital to a second bailout package for the laid-low country, and is integral to euro-zone officials' desire to avoid a complicated and messy debt restructuring. But this doesn't mean the problems are over for the once high-flying euro, said analysts, especially if global growth shows continued signs of slowing
The corrective recovery off 1.4125 is tackling resistance at 1.4285. However, with layers of resistance looming at 1.4330 and 1.4360, scope for corrective gains are limited. Wednesday's bull failure high at 1.4442 continues to dominate the daily chart and Thursday's low at 1.4125 remains vulnerable, which will become the focus on a break below 1.4195.
GBP/USD
Corrects higher off 1.5939, but with upside risk limited to 1.6122, the main threat remains to the downside. Renewed GBP bear pressure is expected on 1.5939, and there is scope for an extension lower towards targets at 1.5901 and 1.5859. Resistance at 1.6066 and 1.6100 protect the 1.6122 barrier.
USD/JPY
Thursday's cap at 80.80 keeps the action within a short-term bear pennant continuation pattern. Bear pressure is building on support at 80.34, and a push below there would bring Wednesday's 80.01 low back into the picture. Loss of 80.34 would also leave the 80.80 high as a near-term bull failure. Regaining ground above 80.64 is required to suggest a return to the 80.80 high is on the cards, protecting the important June 15 reaction high at 81.08.
AUD/USD
Stages a recovery off 1.0455, and a push above resistance at 1.0552 is expected. The pace of the three-week downtrend is slowing, and a break above 1.0552 would open the important 1.0630/51 projected resistance area. However, AUD bulls need to force a break through 1.0651 in order to gain control. A push below 1.0478 is required to re-expose the 1.0455 low, threatening a downtrend extension to 1.0441 and towards 1.0325.
FOREX FOCUS
Inflation is concentrating minds from Washington to Beijing. But that doesn't mean global risk sentiment will improve. On the contrary, recent comments from China, as well as the International Energy Agency's highly unusual decision to release crude oil stocks, both smack of a certain amount of desperation. Let's look at China first. Premier Wen Jiabao's claim that inflation has been vanquished will certainly come as a surprise to all those who, both inside and outside the country, have been looking for tighter monetary policy as well as further gains in the yuan itself. However, Wen's comments may reflect a greater reality about the state of the Chinese economy and the rapidly growing fears that the housing market is about to implode. Up until now, fighting inflation may have been the primary priority, especially given the damage that higher prices pose to the government's popularity. But, if recent economic data, including the latest manufacturing activity numbers this week, continue to point to a slowdown, Beijing's priorities might be changing. By claiming an inflation victory, Wen will reduce expectations of tighter policy and take some of the pressure off the housing market. This could make the headline of a well-timed piece of research by Societe Generale: "Chinese Construction Bubble: Preparing For A Potential Burst", look even more prescient. For financial markets, it is the coincidence of Wen's remarks with the IEA's announcement that have proved particularly unsettling. Although the prospects for the U.S. as well as the global economy are not looking as good as they once were, there is a growing fear that the recent rise in energy prices has gone too far and that inflation has become too entrenched.
EUROPE
The dollar rallied against other currencies in late Friday-morning trade in Europe on Italian bank credit concerns, reversing earlier losses after robust German business confidence gave investors renewed hope that a slowdown in the global economy would pass after weak data this week. The abrupt reversal in currency trader sentiment came after trading in leading Italian bank stocks was suspended after these fell sharply. The development followed a warning from Moody's Investors Service late Thursday that it may cut the credit ratings of 16 Italian banks. It also added to wider euro-zone debt concerns in the wake of 11th-hour efforts to stave off a default in Greece, even as hopes grew that the euro zone would muddle through following overnight news that Greece had reached an agreement with the International Monetary Fund and the European Union on a five-year austerity program. "There are still substantial uncertainties because the new Greek packages come with additional conditionality, including another EUR5 billion in extra fiscal cuts which will be difficult to get through parliament," said Hans Redeker, head of global currency strategy at Morgan Stanley.
ASIA
The euro rose against the dollar in Asia Friday as multinational efforts to tame crude prices and inflationary pressure prompted investors to think that central banks may refrain from policy tightening for now. The International Energy Agency said Thursday its 28 members including the U.S. have agreed to release 60 million barrels of oil from strategic reserves to boost supplies ahead of the peak summer driving season. As a result of Libyan conflict earlier this year, crude output has declined and pushed up oil prices. That added to already-high inflationary pressure in emerging countries such as China and Brazil, making investors speculate that authorities may tighten monetary policy at a faster pace to curb prices even at the expense of cooler share markets. The IEA announcement instantly sent oil prices down to a four-month low and eased the speculation, contributing to gains in Asian share markets. Japan's Nikkei Stock Average was up 0.8% and China's Shanghai Composite Index was 1.8% higher as of 0450 GMT. The euro often becomes strong when share markets are upbeat due to a high yields that euro-denominated assets have. That was indeed the case in Asia. "We may see the euro briefly touching $1.43," said Hideki Amikura, a senior dealer at Nomura Trust and Banking. Still, Amikura and other Tokyo dealers say the euro's upside potential is limited because Greece's debt problems are not over yet and a slowdown in the European economy has been seen recently.
WORLD
The euro had been beaten down so much by global growth and Greece debt concerns Thursday in New York that news of a widely expected accord helped significantly pare its losses. Greece's agreement with the International Monetary Fund and the European Union on a five-year austerity program isn't a long-term solution to Greece's credit woes. The program also still has to survive in Greece's parliament. The austerity agreement was necessary so that Greece's parliament would have something to vote on. But the news was enough to lift the euro to $1.4264 from an intraday low of $1.4125. "It's a (factor) of how jumpy the market is. In order to vote on an austerity package, you have to have" an actual austerity proposal, said David Watt, senior currency strategist at RBC Capital Markets in Toronto. "Anything that might look like a bit of news, the market will react to it. The market is skittish and that doesn't always help." That said, support for an austerity plan is vital to a second bailout package for the laid-low country, and is integral to euro-zone officials' desire to avoid a complicated and messy debt restructuring. But this doesn't mean the problems are over for the once high-flying euro, said analysts, especially if global growth shows continued signs of slowing
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