Daily Market Commentary
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5520 level and was supported around the $1.5435 level. Traders reacted to a mixed bag of U.S. economic data today that saw April housing starts rise a surprising 8.2% to 1.032 million in April while April building permits were up 4.9% to 978,000. These data were tempered by the mid-May University of Michigan consumer sentiment indicator that fell to 59.5 from 62.6 in April. There is still a growing perception that the U.S. economy may have escaped a technical recession and that the worst of the credit market dislocations could have passed. The fed funds futures market is pricing in about a 40% chance the Federal Open Market Committee will lift the federal funds target rate by 25bps by November. In eurozone news, European Central Bank officials continued their hawkish talk. ECB President Trichet reported policymakers must remain “extraordinarily attentive” to inflation with close attention on wage negotiations. Policymakers’ continued focus on inflation at the same time economic growth is weakening suggests official interest rates are unlikely to be changed for some time. Data released in the eurozone today saw the EMU-15 trade balance print at -€2.3 billion in March, down from +€800 million in February. Germany’s DIW institute lifted its GDP growth forecast for Q2 to 0.5% from “about 0.4%.” Euro bids are cited around the US$ 1.5230 level.
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.10 level and was supported around the ¥104.15 level. Technically, today’s intraday low was right around the 50% retracement of the move from ¥105.70 to ¥102.55. Data released in Japan overnight saw April consumer confidence fall to 35.2, its lowest level since March 2003. Q1 gross domestic product expanded 0.8% in Q1, or an annualized 3.3%, above expectations. Other data saw April machine tool orders up a revised 0.4% y/y while March revised industrial output was off 3.4% m/m. Most traders expect Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% for the foreseeable future. The Nikkei 225 stock index lost 0.23% to close at ¥14,219.48. Dollar bids are cited around the ¥101.35 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥162.45 level and was supported around the ¥161.25 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥204.40 and ¥99.45 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9900 in the over-the-counter market, down from CNY 6.9946. People’s Bank of China Vice Governor Su Ning reported the Chinese economy is unlikely to suffer from runaway inflation. Data released in China overnight saw the April property climate index up 1.42% y/y.
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9550 level and was supported around the $1.9440 level. Cable moved to intraday highs in the North American session after weaker-than-expected U.S. economic data were released. Bank of England reported there is no “arbitrary limit” as to the size of the central bank’s special liquidity program. The Financial Times reported U.K. financial institutions are likely to swap as much as ₤90 billion in mortgage-backed securities for U.K. Treasury bills to improve their balance sheets. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the ₤0.7970 level and was supported around the ₤0.7925 level.
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0430 level and was capped around the CHF 1.0585 level. Stops were hit below the CHF 1.0440 level, representing the 23.6% retracement of the move from CHF 0.9865 to CHF 1.0620. Data released in Switzerland today saw March retail sales decline 2.5% y/y. U.S. dollar offers are cited around the CHF 1.0760 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6270 and CHF 2.0415 levels, respectively.