Daily Currency Briefing: Quiet Before The Storm?
Daily Currency Briefing: Quiet Before The Storm?
Daily Currency Briefing: Quiet Before The Storm?
G10 Currencies
EUR-USD: The trade in EUR-USD was very calm yesterday. The pair moved in a narrow range between 1.4015 and 1.4120, while trading around 1.4140 during the night. There was little news on the debt crisis issue in the euro zone or the debt ceiling in the US. The calm is deceptive though as markets are nervous ahead of the EU summit planned for Thursday. The yields for peripheral bonds, which continued to rise yesterday, illustrate this very clearly, indicating that markets still doubt whether it will be possible to reach a solution that will suit all parties (government, ECB, rating agencies). Moreover it remains unclear what this solution would look like as regards hair cut or an involvement of private investors. The FX market clearly does not want to take position yet as the decision about raising the US debt ceiling is still outstanding as well. However, over the next few days we could see higher volatility in EUR-USD as there is a risk that every side will want to make their point ahead of the EU summit. Should it then turn out that an agreement will be difficult to reach, the euro is likely to come under pressure. Even if the US is also struggling with some sort of debt crisis the difficulties seem easier to solve compared with the complicated situation in the euro zone. On the data front the German ZEW index is due for publication today. We expect a notable fall of the index. Even though market attention is unlikely to focus on economic data releases this week, EUR-USD might come under temporary pressure nonetheless should the index disappoint very notably as we expect. The last thing the euro zone needs at present are increasing concerns about the German economy. GBP: The pound continues to be caught between a rock and a hard place. The ongoing tensions with the euro zone debt crisis and the continuing uncertainty regarding the US debt ceiling negotiations mean that the pound is trading as a function of risk appetite rather than fundamental data. At the moment there are few reasons to buy the pound apart from medium term valuation concerns and the many reasons to sell the pound still exist: low yield, the full effects of austerity yet to be felt and non existent consumer activity. Yet in the last 2 weeks EUR-GBP has fallen from 0.9080 to 0.8740 as investors and market participants exited long euro positions given the problems in the euro area. On Wednesday we will receive the minutes from the July MPC meeting. The market will focus in particular around the proposal of further quantitative easing. We have long argued that further QE will not be effective as consumers continue to deleverage and that the costs of the policy (perceived currency debasement and inflation) far outweigh the benefits. If the minutes clearly indicate an unwillingness to engage in further QE, EUR-GBP could fall towards the 200-day moving average around 0.8660. SEK: As we had expected the Riksbank remained hawkish in its minutes. Svante berg still assumes that the central bank will continue to raise rates at the remaining three rate meetings this year, in particular if the Eurozone debt crisis can be solved without any further negative effects on the financial markets. Interestingly enough the two doves Karolina Ekholm and Lars Svensson admit that they now both accept the rate hike which was done back in April, although they voted against it in April, and that they now accept larger rate increase today than was indicated by the repo-rate path they voted on in April. The minutes did not support SEK, it remains at the mercy of market sentiment. Markets will only be able to concentrate on fundamental factors once a solution for the Eurozone is presented. Until then the upper end in EUR-SEK remains the weak side. CAD: The Bank of Canada will leave key rates unchanged today. The BoC already seemed st slightly more hawkish at the last meeting on 31 May by suggesting that some of the considerPeter Kinsella +44 20 7475 3959 peter.kinsella@commerzbank.com You-Na Park Carolin Hecht +49 69 136 41505 42155 you-na.park@commerzbank.com carolin.hecht@commerzbank.com
able monetary policy stimulus currently in place will be eventually withdrawn. As a result the possibility of the statement providing a surprise is limited and the event is likely to provide little support for the CAD unless the Bank of Canada back-paddles, sounding more cautious than in May, which seems unlikely to us. The central bank did not put its head above the parapet with the changes to the May statement as it did not provide any timeframe for possible future rate rises. As a result the new Monetary Policy Report due for publication tomorrow is therefore likely to provide more potential for strong moves in CAD if the BoC raises its inflation and growth outlook. But in our view not even that is certain, after all the US economy has not developed quite as positively over the past few months as widely expected so that the BoC is likely to be cautious regarding any adjustments to its outlook. The Canadian inflation data and retail sales are due for publication on Friday. This data is likely to have the most notable effect on CAD in our view. Until then USD-CAD will continue to be driven by the news flow surrounding the debt issues in the US and the Eurozone. Good support is located at 0.9520 with resistance located around 0.9680. AUD: The RBA minutes of the July meeting were rather on the cautious side. The sentence that further monetary tightening of monetary policy would be necessary at some point had been omitted compared with the June minutes, but had already been missing from the statement th published on 5 July as well. According to the RBA, considering strong growth in Asia the medium term outlook for the Australian economy was solid but GDP growth for 2011 was unlikely to be as strong as earlier forecast. Moreover the downside risks in connection with the Eurozone debt crisis have increased. The RBA is taking more time to evaluate the development of inflation in this context the CPI data next week will be decisive. So altogether nothing new as th the RBA had already sounded more cautious regarding growth and inflation on 5 July. AUDNZD sellers immediately seized the opportunity though.
Antje Praefcke +49 69 136 43834 antje.praefcke@commerzbank.com
19 July 2011
Todays Events
Time 08:00 10:00 10:00 13:00 13:00 13:30 14:00 Region Indicator HUF EUR GER PLN PLN USA CAD Gross wages ZEW business expectations ZEW business expectations Producer price index Sold Industrial Output Housing Starts Housing Permits Interest rate decision Period May Jul Jul Jun Jun Jun Jun Jun Jun Jul yoy
-25,0
Actual
Our Forecast
Survey +4,2 -12,5 +0,1 +5,5 +4,8 +5,7 575 595 1,00
Last +5,9 -5,9 -9,0 -0,2 +6,5 +2,6 +7,7 560 609 1,00
Direction
Cross
CHF LIBOR CAD LIBOR 0,18 1,17 10Y T-Note 10Y Gilt Bund Future Future 3,03 129,44 124,83 Nikkei 225 9922,49 -51,98 -0,52 Palladium 798,25 Zinc 2398,5 FTSE 100 5752,81 -90,85 -1,55 Platinum 1777,50 Tin 27000,0 1305,44 -10,70 -0,81 Silver 40,42
S&P 500
Industrial Metals Aluminium Lead Copper Nickel $ per ton 2444,5 2730,0 9690,0 23770,0 Sources: Bloomberg L.P., European Banking Federation, British Bankers Association, Dow Jones, Xetra, S&P, TSE, LSE, LME.
19 July 2011
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