Euro Slumps Vs US Dollar After Rally

EURO

The euro slumped vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5660 level and was capped around the $1.5845 level. Technically, today’s intraday high was right around the 76.4% retracement of the move from $1.6020 to $1.5285. President Bush verbally intervened to support the U.S. dollar en route to Europe today saying “A strong dollar is in our nation’s interest. It is in the interest of the global economy,” adding he’ll discuss this topic with European leaders. Bush’s comments follow last week’s verbal interventions from Federal Reserve Chairman Bernanke and Treasury Secretary Paulson. Bernanke will speak about inflation later tonight and his comments will closely be monitored. Most traders believe the Fed will keep rates unchanged later this month when policymakers convene, possibly ending the Fed’s long-standing easing cycle. Data released in the U.S. today saw April pending home sales up 6.3% m/m and 13.1% y/y. Fitch reported the U.S. is likely to have a “short, moderate, and shallow” recession. In eurozone news, traders will pay close attention to this Thursday’s Irish referendum on the European Union’s Lisbon Treaty. The euro sold off in 2005 when French and Dutch voters decided against the referendum. Data released in Germany today saw the April trade surplus rise to €18.7 billion from €16.6 billion in March. Germany’s RWI institute is likely to lift its inflation forecast to 3.0% this year. Euro bids are cited around the $1.5230 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥106.35 level and was supported around the ¥104.40 level. The pair gapped lower at the open but soon erased intraday losses as risk aversion diminished and traders bid the pair higher. President Bush’s verbal intervention added some dollar-buying pressure. Data released in Japan overnight saw the May economy watchers’ index decline for the second consecutive month with the current conditions index lower at 32.1 and consumers’ perception of an economic recovery “extremely weak.” Other data saw April leading indicator print at 30.0 while the coincident index at 22.2. It was also reported that May bank lending was up 1.6%, M2+CD money supply growth was up 2.0%, May corporate failures were off 1.9%, and May corporate bankruptcies were down 2.2% y/y. The Nikkei 225 stock index lost 2.13% to close at ¥14,181.38. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro appreciated vis-à-vis the yen as the single currency tested offers around the ¥167.15 level and was supported around the ¥164.95 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥210.00 figure and ¥103.80 level, respectively. In Chinese news, People’s Bank of China announced it is raising its reserve requirement on bank deposits to 17.5% effective later this month – its fifth hike this year.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9800 figure and was supported around the $1.0145 level. Sterling moved higher after it was reported that May output prices escalated by their largest monthly rate since 1981. On an annual basis, May input and output prices were up 27.6% and 8.9%, respectively. Core output prices were up 5.9%, the highest level since 1991 and an indication that inflation is not only confined to food and oil products. These data will render it more difficult for Bank of England’s Monetary Policy Committee to ease interest rates anytime soon. It was also reported that BRC May consumer confidence fell to 79 from 94 in November 2007. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro weakened vis-à-vis the British pound as the single currency tested bids around the ₤0.7935 level and was capped around the ₤0.8035 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0280 level and was supported around the CHF 1.0145 level. Technically, today’s intraday low was right around the 50% retracement of the move from CHF 0.9645 to CHF 1.0625. Data released in Switzerland today saw the May unemployment rate fall to 2.4% from 2.6% in April. U.S. dollar offers are cited around the CHF 1.0760 level. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6125 and CHF 2.0300 levels, respectively.

Posted in Categories: Contributor, Eurozone, External Research, Forex, Japan, Switzerland, UK, USA.

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