(Reuters) - A string of Europe's largest firms issued surprisingly upbeat profit reports on Thursday, bolstering an abrupt renewal of investor confidence in the region after months of debt turmoil and fears for the euro.
Broader economic data added to the theme, following some startlingly strong numbers last week -- euro zone economic sentiment rose strongly in July and German unemployment fell to its lowest level since November 2008.
Economists said the underlying performance in the region as a whole was never quite as bad as suggested by incessant news of debt default dangers in Greece and other southern European economies badly bruised by the recession of 2008-2009.
But they also cautioned that the abrupt swing toward a more positive mood did not change the fact that the region's economy is likely to heal only slowly with harsh government austerity measures poised to bite in the months ahead.
On the day, the upbeat news from some of Europe's biggest companies was nonetheless impressive and came on the heels of surveys last week which showed an unexpectedly high level of growth in both the manufacturing and services sectors in the region.
Publicis (PUBP.PA), the world's third-largest advertising group in terms of revenues, posted better-than-expected profit figures for the first half, declared its outlook better than previously envisaged, and the company's boss went as far as to declare the bad times over.
"We really have the feeling of being at the end of economic crisis, or even having put it completely behind us," Publicis CEO Maurice Levy told reporters.
His remarks were not isolated.
Dutch staffing firm Randstad (RAND.AS), second largest in the world in its field, said it was not seeing signs of a double dip in the economy, with companies continuing to hire more staff, notably in Germany and France.
"We are seeing growth everywhere. Even in Greece we are seeing the usual pattern. We are not seeing signs of a second dip," Randstad Chief Financial Officer Robert-Jan van de Kraats told Reuters.
Europe's debt market crisis spilled out of Greece late last year when markets took fright at the size of the country's deficit and ballooning debt, knocking the euro and European assets as investors started to fret about the risk of debt default in the region despite a Greek bailout.
Drugs and engineering giants gave good readouts too.
France's Sanofi-Aventis (SASY.PA) beat second-quarter earnings expectations, AstraZeneca (AZN.L) posted strong results and German chemicals maker BASF (BASF.DE) surpassed analysts' earnings expectations for the sixth straight quarter, bolstered by a rebound in the car and electronics industries.
German engineering conglomerate Siemens (SIEGn.DE) posted a better-than-expected 40 percent rise in fiscal third-quarter operating profit, helped by cost cuts and the export fillip from a weaker euro -- an exchange rate advantage ironically spawned by the debt crisis and investor fears that at some stages fueled questions about the common currency's very survival.
That debt market crisis propelled debt refinancing costs to record highs for governments in places such as Portugal, Ireland and Spain in May-June, but they have fallen back sharply in many cases in the last 10 days or so, suggesting investors sense the worst of the danger has passed.
The premium investors demand to hold the 10-year bonds of Ireland and Portugal instead of the equivalent debt of safe-bet Germany has fallen about 18 percent in less than two weeks and markedly too in Spain.
MOOD SWING
All that reflects a suddenly more positive take on Europe as the region additionally gains attractiveness in relative terms for global investors after a string of somewhat disappointing news on the U.S. front in recent weeks.
Investment bank UBS, where economists have long argued that investors were perhaps overly negative about the fiscal woes of the region, published a note that captured the shift in mood as far as they see it.
"Today our Global Strategy team upgraded Europe to Neutral (from Underweight) as they position their portfolio for a more positive tone," said the note.
"We continue to promote Europe on compelling valuations, economic data and relief for the banks to boot," UBS said, noting that Germany's Ifo index of business sentiment registered its biggest leap in 20 years in July, British second-quarter GDP was much stronger than expected and the fact that "stress tests" on banks across the region had proven mostly reassuring.
Other signals that the crisis was petering out include sharp drops in the price of credit default swaps (CDS), which provide protection against debt default and which soared in May.
The Markit iTraxx SovX index of Western European CDS prices is now at 114 bps, 54 basis points below its highest closing level of 168 basis points, seen on May 7.
In addition to a renewed focus on economic activity, signs are that investors are also encouraged by the existence of the 750-billion-euro standby lending facility euro zone governments have put in place to stem debt crisis contagion.
Despite some skepticism, investors also appear reassured by the fact that all but seven banks passed so-called stress tests of their financial resilience [ID:nLDE6661JE]. Bank shares in Europe, as measured by the STOXX Europe 600 bank index .SX7P, are up 7.4 percent since the stress test results emerged on July 23. and 25 percent up from the trough they hit in early June.
NOT SO FAST
At Deutsche Bank, however, economist Gilles Moec warned against getting carried away about the economy's recovery.
"There's no big change in terms of the underlying macro picture: we're in for slow growth," said Moec.
After poor first-quarter GDP figures in much of Europe, the second-quarter is expected to be stronger by definition more than as a result of any major upswing, and government stimulus deployed to combat the recession is still in place, with much of the post-recession austerity yet to come.
Economic growth is expected to be a modest 1.1 this year and 1.3 percent in 2011, according to a Reuters poll of 40 economists that was published in mid-July [ID:nLAG006340]. That follows a GDP drop of 4.1 percent in 2009.
"What is really impressive is the speed at which investors' focus has shifted away from hammering Europe to having a more sober look at the U.S.," said Moec.
A Reuters poll of 15 Europe-based asset managers showed on Thursday that European investors boosted fixed-income allocation to a 2010 high in July, although, as Mauro Ratto, head of Europe and Asia management at Pioneer Investments, put it:
"Concerns about the euro government debt crisis seem to be receding. However, most warning signs are still flashing red ... the prospect of budget tightening is unlikely to improve European growth rates."
(Additional reporting by William James and Jeremy Gaunt in London, Lionel Laurent in Paris and Reuters company news reporters across Europe; Editing by Mike Peacock and Stephen Nisbet)
(Reuters) - Euro zone economic sentiment rose strongly in July, buoyed by figures from Germany that point to a recovery as the currency area overcomes the sovereign debt crisis, but the outlook remains uncertain.
The European Commission said its economic sentiment indicator for the 16-nation currency area rose to 101.3 in July, a 28-month high, from an upwardly revised 99.0 in June. Economists polled by Reuters expected the index to stay at 99.0.
Economic morale is the latest in a string of indicators that have shown the currency area continues to recover from the worst economic crisis in decades, despite turbulence on its sovereign debt market and uncertainty about the health of banks.
"July's improvement in the (euro zone) consumer and business surveys adds to the evidence that the euro-zone is performing surprisingly well, but with stark divergences between countries," said Jennifer Mckeown, senior European economist at Capital Economics.
Martin van Vliet said: "It confirms the spillover effect of the debt crisis to the real economy was limited. But the euro zone economy is bound to lose steam in the second half of the year. For now, let's enjoy it while it lasts."
OUTLOOK GLOOMY
Growth may falter because of fiscal austerity measures ordered by many governments to prevent the sovereign debt crisis from spreading from Greece to other countries. Foreign demand for European goods is also expected to diminish.
Howard Archer, chief European economist at IHS Global Insight, noted that the index measuring consumers' willingness to make major purchases over the next 12 months fell as the did the figure showing consumers' willingness to make major purchases at present.
"This raises question marks as to whether improved consumer confidence will translate into significantly higher spending. We have our doubts on this given that the euro zone unemployment rate is currently at a near 12-year high of 10.0 percent," he said.
The Commission said economic sentiment improved thanks to an increase in the index for the export-driven industrial sector to -4 from -6 and improvement in services to 6 from 4.
Morale of consumers, whose demand is crucial for making economic growth self-sustaining, rose to -14 from -17.
The increase was driven by strong figures in Germany, the euro zone's biggest economy, where economic sentiment rose to 110.1 from 106.1. The figure also increased in France and Italy, but fell in Spain.
In the wider 27-nation European Union, economic sentiment grew to 102.2 in July from 100.3 in June.
The Commission's separate business climate indicator for the euro zone increased more than expected, rising to 0.66 in July from 0.40 in June. It was the highest reading since March, 2008.
It has forecast that the euro zone will register growth of 0.9 percent this year after gross domestic product contracted 4.1 percent in 2009.
The Commission survey also showed that euro zone inflation expectation remained muted.
Selling price expectations in industry fell to 5 in July from 6 in June, while consumers' assessment of price trends over the next 12 months remained unchanged at 11.
The European Central Bank, which watches the indicators closely, is expected to leave its main interest rate at 1.0 percent well into 2011.
The Japanese yen rose today against the U.S. currency as the growing concern for the global recovery spurs the investors to seek safety, increasing the appeal of the Japanese currency.
The U.S. economy continues to show the sings of the weakness. While the banking sector in Europe looks pretty robust, the manufacturing sector gives the reason for the concern. According to the experts’ estimates, the manufacturing confidence in the Eurozone was minus five in July.
USD/JPY fell from 87.44 to about 87.17 today as of 8:58 GMT after reaching as low as 87.08.
The euro rose against the U.S. dollar today on the concern for the U.S. economic recovery, which decreased the appeal of the U.S. currency for the investors and increased the attractiveness of the shared European currency.
The euro regained some of its strength after the stress tests showed that only seven European banks required to raise capital. In the same time, the U.S. gives more and more reasons for the concern about its economic growth. The analysts’ estimates say that the gross domestic product rose by the annual rate of 2.5 percent in the last quarter, down from 2.7 percent in the three months earlier. The government report for the GDP will be released tomorrow.
EUR/USD rose from 1.2994 to 1.3074 today as of 8:36 GMT.
MORNING BRIEFING: Beige Book shows some districts slowing economy
What’s new: United States: Financial state of emergency in California United States: Beige book report shows some districts slowing economy Euro zone: Tougher lending rules for banks from ECB United Kingdom: No tacit agreement to keep low rate China: IMF board split on China’s exchange rate debate Japan: BOJ’s Kamezaki says won’t base policy on forex New Zealand: RBNZ raises interest rates by 25bps to 3.00%
Today:
Rates in Asia and Indices: EURUSD: 1.3045 - 1.2978. USDCHF: 1.0581 - 1.0517. GBPUSD: 1.5631- 1.5584. EURJPY: 113.97 – 113.18. USDJPY: 87.52 – 87.10. DowJones: 10'497.88 -0.38% NASDAQ: 2'264.56 -1.04% S & P 500: 1'106.13 -0.69% Nikkei: 9'696.02 -0.59% Shanghai: 2'648.60 +0.57% Gold: $ 1'167.20 Crude Oil: $ 77.22
Comments: In an interview, British finance minister George Osborne declared ‘There is no tacit agreement with Bank of England Governor Mervyn King on keeping interets rates low. He is absolutely independent, as is his Monetary Policy Committee.'
New Zealand’s Central bank lifted interest rates by 25bps to 3.0%, but scaled back its plans for further move. The New Zealand Dollar fell sharply after the Reserve Bank of New Zealand signalled the pace of further interest rate hikes would be less than earlier thought. The kiwi fell to a low near $0.7202, from about $0.7287 before the announcement.
The Beige Book, released yesterday at 2000 CET, reports on conditions in all 12 districts that are part of the Federal Reserve system. The report, based on information before July 19, said activity "continued to increase, on balance" though Cleveland and Kansas City said business held steady. "Among those districts reporting improvements in economic activity, a number of them noted that the increases were modest, and two districts, Atlanta and Chicago, said the pace of economic activity had slowed recently," the Fed said.
The Euro is still hovering near an 11-week high against the US Dollar reached earlier this week. EURUSD is up to 1.3045 today, just shy of the recent high reached 27th of July. Against the Yen, the single currency dipped on high selling by Japanese exporters. Traders are expecting more offers to emerge if the Euro rises to above 115 Yen.
€ The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2965 level and was capped around the $1.3040 level. The big news in the market today was a weaker-than-expected result for U.S. June durable goods orders. Defying expectations of a positive print, the headline number came in at -1.0%, down from the revised May tally of -0.8%, while the ex-transportation component fell to -0.6% from the May result of 1.2%. Sub-components such as capital goods orders non-defense ex-air were also considerably weaker and these data suggest the U.S. economy sputtered lower at the end of the first half of the year. Other data saw MBA mortgage applications off 4.4% from the prior +7.6% result. Weekly initial jobless claims and continuing jobless claims data will be released tomrorow followed by GDP, PCE, and final July University of Michigan consumer sentiment data on Friday. The Federal Reserve released its July Beige Book today and its noted that economic growth decelerated in some areas over the past two months. The expiration of a homebuyers’ tax credit and a decline in commercial real estate both had a negative impact on the U.S. economy. The Fed continues to anticipate “continued moderate growth.” New Fed nominees Yellen, Diamons, and Raskin won their Senate votes today and will soon join the Board of Governors. In eurozone news, provisional German states’ July consumer price inflation data released today came in on the elevated side. The preliminary national July CPI came in at 0.2% m/m and 1.1% y/y with the harmonized measure at +0.3% m/m and +1.2% y/y. French June CPI data will be released tomorrow. The European Central Bank introduced more stringent rules today on bank collateral including new haircuts on certain bonds. Euro offers are cited around the US$ 1.3265 level.
¥/ CNY The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥87.25 level and was capped around the ¥88.10 level. Bank of Japan Policy Board member Kamezaki reported the central bank “wants to make utmost efforts proactively to escape from deflation and return to a sustainable growth path under price stability,” noting a stronger yen will hurt exporters. In contrast, other BoJ officials including Governor Shirakawa have been hesitant about commenting on the strong yen. There is speculation that industrial production growth in Japan is decelerating and this may increase pressure on the BoJ to ease further. Yen gains were also prompted by weaker-than-expected Australian consumer price inflation data, suggesting global growth continues to decelerate. Reserve Bank of Australia will likely not hike rates next week and the yen could stay bid as a result of this evolving monetary and economic landscape. While Kamezaki’s remarks may not increase the changes of yen-selling intervention by the government, traders remain fixated on the ¥85 level. Economic growth in Japan may also slow in the fourth quarter. The spread between three-month U.S. Dollar Libor and three-month yen Libor narrowed to 23.937 basis points today, the smallest difference since 20 May. Data released in Japan overnight saw July small business confidence improve to 48.1 from the prior reading of 47.4. June retail trade data will be released tonight. The Nikkei 225 stock index climbed 2.70% to close at ¥9,573.27. U.S. dollar bids are cited around the ¥86.29 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥113.20 level and was capped around the ¥114.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥135.85 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.50 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7778 in the over-the-counter market, down from CNY 6.7784. The Federal Reserve Bank of Cleveland warned that the anticipated appreciation of the Chinese yuan will not lead to a “substantial” reduction in the U.S. trade deficit. People’s Bank of China is expected to keep monetary policy relatively stable and continue to promote domestic final private demand.
£ The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5635 level and was supported around the US$ 1.5545 level. Data to be released in the U.K. tomorrow include July Nationwide house prices, June net consumer credit, June net lending secured on dwellings, June mortgage approvals, and the July GfK consumer confidence survey. Bank of England Governor King today expressed concerns that proposed reforms to the Basel capital accord will not be strong enough. Monetary Policy Committee member Miles said now is not the proper time to change policy while MPC member Bean said sterling’s decline will likely have a larger-than-expected impact on consumer prices. Cable bids are cited around the US$ 1.5270 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8310 level and was capped around the £0.8365 level.
Plenty of important macro data from the U.S. was published yesterday. Investors were disappointed by the figures and responded mainly by moving away from riskier assets. At first U.S. Durable Goods came negative at -1%, at 12:30GMT later at 18:00GMT Beige book revealed a gloomy outlook for U.S. economy. Although company earnings are still high, yesterday fears about recovery came back to dominate the markets.
Economic News
USD - Traders Shift from EU Debts Concern to U.S. Economic Outlook U.S. macro data came far less than expected. Investors responded by moving away from riskier assets back to buying the Yen and U.S. Dollar. The EUR/USD was slightly down after U.S Durable Goods was published, The USD/JPY traded lower, currently trading at $87.22 as investors feel safer holding the Yen over the USD. The British Pound continued to rally against the U.S. Dollar, despite the move to safer assets.
U.S. demand for Durable Goods, which is usually a sign for economic strength, came negative at -1.0%. Forecasts which already expected a form of decline from last month were more moderate than the actual figure. Traders were surprised by the final figure and reacted by sending markets lower. Later the Beige Book was released by the Fed during mid U.S. day trading. It provided a mixed economic picture but eventually supported the markets from declining further. The report said that the U.S. economy was growing but there were also signs of a slowdown in some regions over the past two months.
Looking ahead to today, traders should follow the release of the Unemployment Claims at 12:30 GMT. A worse than expected result might intensify the current trend and strengthen the greenback further.
EUR - EUR's Recent Rally Losing Steam EUR's rally against its major counterparts stumbled yesterday as new economic data raised fears about the strength of global economic recovery, with the common currency ending lower against its major counterparts.
EUR/USD ended slightly lower yesterday, reaching a low of 1.2968; however, it managed to recover some of its loses to currently trade at 1.3010. The pair seemed to trade without a clear trend and moved mostly sideways. The EUR/JPY, however sent more clear signs of a correction building up. The pair's five days rally ended yesterday after it breached an 11 week high. Signals show that pair should further decline in coming days.
Looking ahead to today, traders are advised to follow the British HPI data at 6:00 GMT as well as the German Employment change at 7:55 GMT. Positive data might bring back some market optimism, pushing the Pound and EUR higher against their counterparts.
JPY - Strengthens on Safe Heaven appeal The JPY strengthened against the U.S. Dollar yesterday as investors expressed their concerns about the U.S. economy by selling the U.S. Dollar and buying the Japanese Yen. The Yen traded higher against most of its major counterparts; however, a strong currency may ultimately weigh on the Japanese economy as it is heavily dependent on exports.
A strong Yen would have bad influence on profits of Japanese companies. Consequently the Japanese government might be forced to weaken their local currency. So far no comments were published regarding Government intervention. As long as the Japanese Bank avoids market intervention the Yen is expected to keep its strengthening momentum.
Looking ahead to today traders should pay attention to the $86.88 support line, crossing down might take the USD/JPY pair even lower. Some analysts estimate that that the Yen could even reach as high as $85 in the coming months.
Crude Oil - High U.S. Inventories Send Crude Oil Price Lower Crude Oil prices ended lower yesterday after U.S Oil Inventories rose by 7.3M barrels. Lately this figure made little impact over Crude Oil prices but yesterday it came quite high compared with expectations of a 1.4M drop.
Demand for durables goods which also came surprisingly lower added to worries that demand for Oil would decrease in the near future as manufacturing declines. Crude Oil price might decline further in the short term if economic figures continue to deteriorate. Investors are worried about a possible double dip, meaning a renewed recession.
Gold price rebounded slightly during yesterday trading session. During the day it reached as low as $1156.25, but thereafter recovered and is currently trading at $1165 Gold price dropped after inflation worries began to fade and analysts begin to worry about another recession or economic slow down.
Technical News
EUR/USD The pair was relatively unchanged yesterday and as such has formed a 2nd consecutive doji candlestick which reflects the bulls and bears inability to move the price significantly. The RSI (14) has crossed below the overbought line, triggering a sell signal. But traders may want to be patient and wait for the RSI line to break its trend line before going short. A rising trend line can be drawn from the low of the RSI line that begins on June 4th.
GBP/USD The pound was stronger yesterday and has risen versus the dollar for the past 6 consecutive bars. This has pushed most oscillators into oversold territory as the Slow Stochastic is showing a bearish cross and the RSI (14) is floating in the oversold territory. However, before going short, traders may want to wait for a breach of a short term trend line that can begins at the bar on June 22nd.
USD/JPY A bearish flag pattern has formed on the 4-hour chart. The base of the flag pole begins at the high on June 14th and runs to the low for the pair at 86.25. The flag pattern is sloping upward with a previous downward trend. Therefore, a breakout may be expected to the downside in the direction of the long term trend. Traders may want to wait for a confirmation of the breakout at a price of 86.80 and enter short.
USD/CHF For the past 15 days the pair has traded in a defined range between the prices of 1.0650 and 1.0400. In this trading range a double bottom reversal pattern may be forming. A confirmation of the reversal pattern will be a close above the 1.0650 resistance line.
The Wild Card Gold The drop in the price of gold shows a potential reversal in the trend. The price has closed below the long term upward sloping trend line for the past two days, confirming a significant breach of the trend line and a breach below the support level of $1169. However, yesterday's trading closed and formed a hanging man candlestick. This may signal an upturn in the price. CFD traders may find a good opportunity to go long on a breach above the $1169 resistance level.
The dollar declined against the yen in Asia Thursday on speculation that U.S. Treasury yields will fall further due to concerns over a slowdown in the world's biggest economy.
Strong demand at a U.S. five-year sovereign note auction overnight suggested that recent weak economic reports from the U.S. have made investors pessimistic about the country's growth outlook.
The U.S. currency was weaker also because of speculation that foreign investors will buy new shares offered by Japanese companies, a process which involves yen-buying.
On Wednesday, market sentiment was dampened after data showing demand for U.S. durable goods slid for a second straight month in June. At the same time, the Federal Reserve's latest beige-book report pointed to signs that the economic recovery may be running out of steam, adding to the market's disappointment.
The dollar was at JPY87.19 as of 0450 GMT, lower than JPY87.44 in New York Wednesday.
The euro was higher at USD1.3013 at 0450 GMT from USD1.2988 overnight while it was lower against the yen at JPY113.47 from JPY113.54.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 81.970 from 82.132.
The British pound remained at a 5-month peak against the dollar despite dovish comments from the Bank of England, which did little to diminish optimism about the UK economic outlook after a run of encouraging data.
Flat Asian stock markets left the Australian dollar floundering Thursday, rising only slightly through the trading day, with crucial Chinese manufacturing data Sunday the next major test of market confidence. General U.S. dollar weakness and cross-related demand helped to put some support under the Aussie dollar.
Market expectation
Currency dealers believe Treasury yields will keep falling for the time being, meaning investors will see less returns from their dollar-denominated assets. That view helped prompt dollar selling, said analysts.
Investors will pay attention to Thursday's seven-year Treasury bond tender to see whether yields keep falling.
The euro won't be able to rise far above USD1.3, dealers said, because big U.S. hedge funds have resumed selling the euro based on their medium-term European economic forecasts.
The greenback may fall to as low as JPY86.00 in this global day, some dealers said. But the pace of any decline below JPY86.50 would be slow due to dollar-buying orders placed by Japanese importers, said analysts.
European stock markets are expected to have an uneven open Thursday, as investors weigh up the competing influences of disappointing U.S. economic data but upbeat second quarter corporate earnings.
(Reuters) - The euro dipped against the yen on Thursday, pulling away from a recent two-month high on selling by Japanese exporters, while the kiwi struggled after New Zealand's central bank raised interest rates but warned further hikes could be more gradual.
The New Zealand dollar fell sharply after the Reserve Bank of New Zealand (RBNZ) signaled the pace of further interest rate hikes would be less than earlier thought. The kiwi fell to a low near $0.7205, from about $0.7280 before the announcement.
After staging a mild recovery, the New Zealand dollar was up 0.5 percent from late U.S. trading on Wednesday at $0.7244.
"The kiwi was dented by dovish comments from New Zealand's central bank, that came a day after data showed inflation has cooled in Australia," said Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking.
Australian inflation data released on Wednesday proved far more tame than expected, ruling out the need for an interest rate rise possibly for the rest of the year.
The euro edged up 0.2 percent against the dollar to $1.3014, hovering near its 11-week high of $1.3047 hit on trading platform EBS earlier this week.
But the euro dipped 0.2 percent against the yen to 113.40 yen, pulling away from its highest in more than two months of 114.74 yen struck on trading platform EBS on Wednesday.
A trader for a Japanese bank cited euro-selling by Japanese exporters before the month-end, adding that more offers were likely to emerge if the euro rebounds and rises toward 115 yen.
"A lot of exporters are waiting at levels above 115 yen," the trader said.
The dollar slipped 0.3 percent against the yen to 87.19, extending losses after data on Wednesday showed new U.S. durable goods orders unexpectedly fell for a second straight month in June.
Still, the core measure of orders excluding aircraft and defense rose 0.6 percent in June, on top of an upwardly revised 4.6 percent jump in May, suggesting activity was not nearly as soft as the headline number suggested.
The dollar is likely to find support against the yen at levels around 86.80 yen, near the dollar's intraday low hit on Monday and Tuesday, said Teppei Ino, a technical analyst at Bank of Tokyo-Mitsubishi UFJ.
"There aren't strong reasons to bid up the yen beyond those levels at the moment, especially ahead of key U.S. data on Friday," Ino said. U.S. second-quarter gross domestic product data is due out on Friday.
A recent string of lackluster U.S. economic data has weighed on the greenback and led investors to cut short positions in the euro.
The single currency touched an 11-week high against the dollar earlier this week, helped by strong bank earnings and gains in European equities, following last week's favorable results of regulatory stress tests.
The dollar index .DXY was down 0.3 percent at 81.956, with near-term support around 81.44, a 50 percent retracement of the index's move from a low of 74.17 in November 2009 to a high near 88.71 in June.
The U.S. Federal Reserve's Beige Book on Wednesday pointed to a less-than-booming recovery with sluggish housing markets and sales of costly items like new cars weakening.
(Additional reporting by Anirban Nag in Sydney and Hideyuki Sano and Rika Otsuka in Tokyo; Editing by Joseph Radford)
The Polish zloty extended its rally for the eighth consecutive day against the euro as the estimates of the Economy Ministry showed that the economy grew with the increasing pace, igniting the speculation that the central bank may raise the interest rates. The Polish currency dropped against the U.S. dollar slightly.
The Economy Ministry’s report showed that the gross domestic product grew by 3.1 percent in the first half of this year, compared 1.8 percent in 2009. The ministry also estimated that the annual rate of the private consumption grew by 2.2 percent. The Polish currency rose the most against the euro today among other emerging market currencies.
Nigel Rendell, senior emerging-market strategist at RBC Capital said
The international environment has been quite helpful and the wave of uncertainty has been removed so that’s encouraging people to go into emerging markets and the zloty looks best in the region. The possibility that interest rates may be lifted before the end of the year is also acting as an incentive.
EUR/PLN traded at 4.0018 today as of 19:57 GMT after opening at 4.0054. USD/PLN fell to 3.0822 from the opening rate of 3.0791.
The U.S. dollar fell today against the Japanese yen after the report today showed that the orders for the U.S. durable goods fell unexpectedly in June, fueling the concern for the economic recovery and spurring the investors to turn to the safety of Japan’s currency. The EUR/USD moves up and down today after it closed yesterday near its opening level.
Durable goods orders declined for the second consecutive month, falling by 1.0 percent in June after dropping 0.8 percent in May. The impact of this report was even more significant as the market participants anticipated the growth, not another month of decline. The unfavorable economic data outweighed the better than expected corporate earning, causing the Standard & Poor’s 500 Index drop by 0.5 percent. The Stoxx Europe 600 Index was down 0.4 percent.
Ben Bernanke, the Chairman of the United States Federal Reserve, said on July 21st that “the economic outlook remains unusually uncertain”. The data from the U.S. definitely added to the risk aversion sentiment on the markets, increasing the appeal of the yen.
USD/JPY traded near 87.67 as of 16:27 GMT today after opening at 87.90. EUR/USD near 1.2995 close to the opening level of 1.2996.
The dollar was flat to lower Wednesday, slightly extending a loss versus the Japanese yen while seeing little movement versus other currencies after U.S. durable-goods orders showed an unexpected June drop.
The dollar index (DXY), which tracks the greenback against a basket of major currencies, was slightly lower at 82.123 versus 82.200 in North American trade late Tuesday.
The euro, which failed to maintain an earlier push above the USD1.30 level, slipped to USD1.2980, down slightly from USD1.2989 in North American trading late Tuesday.
Against Japan's yen, the euro erased an early gain to stand at JPY113.82, off slightly from JPY114.05 late Tuesday.
The dollar, meanwhile, slightly extended a loss versus the yen to trade at JPY87.56, down from JPY87.82 late Tuesday. The yen tends to be among the largest beneficiaries of declines in risk appetite.
The Commerce Department said orders for durable goods fell 1% in June, defying expectations for a 1% rise.
The British pound traded at USD1.5601, up 0.1%. The currency showed little reaction to testimony by Bank of England Governor Mervyn King and other central bankers, including Andrew Sentence, before a parliamentary committee.
Market expectation
Worry over the U.S. economy taking a downturn is weighing on the dollar, analysts said. Investors will pour over the Federal Reserve's Beige Book, to be released at 2 p.m. EDT, for another assessment of the U.S. recovery from the perspective of the regional Fed banks.
Economists widely expect the Reserve Bank of New Zealand to raise its key interest rate by 25 basis points during late Wednesday New York hours to 3.00%. But a slightly more cautious statement is expected as the economic recovery remains fairly tepid.
Until key data from major economies grow gloomier the franc is likely to remain on its weaker path. Should the data published in the U.S. continue to disappoint, sentiment could deteriorate once again, benefiting the franc. While that is not the case, the franc is likely to remain under pressure, said analysts.
(Reuters) - World stocks rose for the fifth day running on Wednesday as solid corporate earnings combined with easing fears about financial stability to boost investors appetite for riskier assets.
The dollar, following recent risk patterns, was lower against a basket of major currencies.
MSCI's all-country world index .MIWD00000PUS was up 0.4 percent against the previous close and the Thomson Reuters global stock index .TRXFLDGLPU gained half a percent. The MSCI index had touched a 2-1/2 month high during Tuesday's session.
Earnings reports in Europe and Japan were behind much of the improved mood.
"Earnings are coming through better than expected," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin. "Banks are better ... having underperformed for some time."
Among European companies reporting forecast-beating results were Spanish bank BBVA (BBVA.MC), British American Tobacco (BATS.L), German chipmaker Infineon (IFXGn.DE) and the world's leading luxury goods group LVMH (LVMH.PA).
The FTSEurofirst 300 .FTEU3 was up half a percent for a 1.3 percent year-to-date gain. Banks were leading the way. BBVA was up nearly 1 percent.
Earlier, Japan's Nikkei .N225 climbed 2.7 percent for its highest close and biggest one-day gain in two weeks. Canon (7751.T) jumped 5.7 percent after the world's No. 1 camera maker reported its strongest profit in seven quarters.
The positive earnings sentiment trumped concerns about a slowing U.S. economy, epitomized by mixed economic data on Tuesday. Home prices rose in May, but labor-market worries took July consumer confidence to its lowest since February.
U.S. financial services firm State Street suggested on Tuesday, however, that confidence among institutional investors was rising across the board and that good valuations were attracting them back into equities.
EURO REBOUND
The euro hit a two-month high against the yen and was up against the dollar as recent signs of resilience in the euro zone economy and solid bank earnings released brought out buyers.
Against the dollar, the euro was up a quarter of a percent at $1.3025, hovering near an 11-week high of $1.3047 struck on Tuesday.
"Clearly there's a risk-on situation as the market is starting to believe there's a (European) recovery in place, but there is thin liquidity behind it," said Neil Mellor, currency strategist at Bank of New York Mellon.
Euro zone government bond yields fell, with the focus on a Portuguese auction later in the day.
(Additional reporting by Brian Gorman and Neal Armstrong; editing by Patrick Graham)
(Reuters) - The euro struck a two-month high against the yen and stayed within reach of an 11-week high against the dollar on Wednesday, as markets stayed in risk-on mode on robust European bank earnings and solid economic data.
The Australian dollar bucked the trend, after weaker-than-forecast Australian inflation dented rate hike expectations.
Risk sentiment had been boosted on Tuesday as European shares hit a five-week closing high. Two of Europe's top banks, UBS AG (UBSN.VX)(UBS.N) and Deutsche Bank AG (DBKGn.DE)(DB.N), posted results that reassured investors following last week's regulatory stress tests.
A rise in Germany's GfK consumer sentiment indicator on Wednesday to its highest level since November has also boosted hopes that the economic outlook in Europe is improving.
Asian equity markets tracked the positive tone, as Japan's Nikkei 225 Index .N225 and China's Shanghai Stock Exchange .SSEC both jumped more than 2 percent on Wednesday.
"Clearly there's a risk-on situation as the market is starting to believe there's a European recovery in place, but there is thin liquidity behind it," said Neil Mellor, currency strategist at Bank of New York Mellon.
At 3:24 a.m. ET, the euro was trading up around 0.3 percent versus the yen at 114.50, close to a two-month high hit in early European dealing at 114.74 on trading platform EBS.
Technical analysts said the picture was becoming bullish, as euro/yen continued to make gains within its Ichimoku cloud. The top of the cloud was seen as key resistance at 117.86.
The euro stayed within touching distance of an 11-week high against the dollar at $1.3045 hit the previous day. Traders said an option barrier at $1.3050 would need to be taken out for a move toward Fibonacci resistance at $1.3125, which is a 38.2 percent retracement of the December-June move.
Large option expiries were reported by traders at $1.3000 and $1.2850, potentially slowing the euro's gains on the day.
Focus for the morning was the ECB's three-month liquidity operation, with the result due around 5:20 a.m. ET.
"The tenders have shown there are a still a large number of European banks which are clearly hooked on ECB funding, which isn't a good situation," said BNYM's Mellor.
Results of a Portuguese bond auction were also keenly awaited, set for release around 0930 GMT.
AUSSIE SLIDES ON CPI DATA
The Australian dollar slid 0.7 percent to $0.8949, having dropped from a 11-week high of $0.9069 reached the previous day.
Australian consumer prices rose much less than expected last quarter and core inflation slowed to its lowest in more than three years, ruling out the need for a rate rise next week and possibly the rest of the year.
"The Aussie has given back some of its recent gains as CPI data prompted investors to push back expectations for higher rates," said Ayako Sera, a market strategist at Sumitomo Trust & Banking.
"But the Aussie is likely to keep drawing support from Australian interest rates, which are still the highest among industrialized countries."
The dollar index .DXY was down 0.2 percent at 82.011, staying close to a 12-week low hit on Tuesday at 81.824.
(Additional reporting by Rika Otsuka; Editing by Susan Fenton)
The Brazilian real declined today on the speculations that the central bank may start selling the currency for the dollars for the first time in more than a year.
The central bank needs to curb the real’s gains and protect the nation’s exporters after the currency appreciated 6.2 percent in the last two months and the current account deficit grew. The bank already has intervened previously, but that wasn’t enough to stop the currency’s rally.
USD/BRL traded at 1.7685 as of 8:24 GMT after opening at 1.7665 and falling as low as 1.7625.
The Canadian dollar weakened today after the decline of the U.S. consumer confidence and the decreasing prices for commodities damped the appeal of the currencies tied to growth.
The Conference Board’s index of the U.S. consumers’ sentiment dropped to 50.4, compared to the median forecast of 51.3. The Standard & Poor’s 500 Index declined 0.3 percent. The S&P 500 rose previously by 0.5 percent and gained more than 8 percent since June 30th, while crude oil went up 2.7 percent.
Previous gains encouraged the traders to perform profit taking, curbing the equities and the oil prices, which also affected Canada’s currency. The rebound is possible, but some analysts point out that that fundamentals and technicals signal about further decline before recovery.
USD/CAD rose to 1.0360 form 1.0320 as of 18:41 GMT today after it tumbled as low as 1.0255. EUR/CAD rose to about 1.3456 from the opening level of 1.3405.
The U.S. currency strengthened today against the euro and the Japanese yen as the macroeconomic indicators suggested that the U.S. economy is recovering. The dollar dropped versus the Great Britain pound.
The report about the new home sales yesterday showed the unexpected surge to 330,000 in June from 267,000 in May. S&P/Case-Shiller Home Price index rose to 146.64 in April from 147.33 in May. Not all reports were favorable, though. The manufacturing index of the Federal Reserve Bank of Richmond suggested that the manufacturing growth is slowing. The consumer confidence dropped to 50.4 in July from 54.3 in June.
The U.S. economy shows signs of recovery, but it’s a long way to the certainty about its strength. Will the recovery gain momentum. The reports suggest that the consumers and the manufacturers don’t believe in this.
EUR/USD dropped to 1.2981 from 1.2994 as of 15:54 GMT today after it jumped as high as 1.3045. GBP/USD rose to 1.5536 from 1.5489 after it reached 1.5576, the highest level since February 23d. USD/JPY currency pair went up to 87.81 from the opening level of 86.87.
The Swiss franc weakened today versus the U.S. dollar and the euro as the U.S. and the European economies show signs of recovery, damping demand for the franc as the safe currency and drawing the investors to the riskier assets.
The MSCI World Index of stocks and futures gained 0.3 percent. The economists, including Charles Plosser, the president of the Federal Reserve Bank of Philadelphia, think that it’s too early to talk about increasing the stimulus, which is already significant, by the Federal Reserve. Plosser said that
Talk of new efforts to stimulate the economy are premature right now. I don’t think the data have been sufficiently compelling one way or another.
USD/CHF jumped to 1.0588 from 1.0484 today as of 11:02 GMT. EUR/CHF traded at 1.3761 after it opened at 1.3773.
The euro edged lower against the yen as the single currency's overnight gains to a more than two-month high encouraged Japanese exporters to sell the unit to lock in profits. Further declines in the risk-sensitive euro are likely to be short-lived, as rising Asian shares are supporting sentiment toward the currency.
As of 0450 GMT, the European single unit stood at JPY114.05 compared with its New York overnight levels of JPY114.37 and JPY114.42, its highest since May 18.
Cross-yen sales, which involve selling the dollar for the yen in the process, contributed to the dollar's fall. The U.S. unit was at JPY87.73 as of 0450 GMT, from JPY87.97 overnight.
The euro changed hands at USD1.3000 compared with USD1.3006 in New York late Tuesday. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.142 from 82.138.
The U.K. pound, now little changed, earlier bucked the trend of losses in higher-yielding currencies, hanging onto its strong gain on the dollar and trading near its highest level since February after U.K. retail sales smashed through economists' expectations with their best reading in three years.
The Australian dollar was lower late Wednesday after weaker-than-expected second quarter inflation data buried the idea that interest rates might be raised next week. Late Wednesday, financial markets were pricing virtually no chance of a rate hike in August, down from 30% ahead of the inflation report.
Market expectation
The European single currency may reverse course later in the global day if European and U.S. equities track firm Asian stock performances, prompting investors to sell the safe-haven yen, traders said.
EURJPY, EURUSD up as various investors including non-Japan hedge funds, Japan life insurance firms buy at lower levels, says traders. Players holding ample cash are gradually becoming focused on risk-tolerance with Nikkei +2.7% after market participants reduced risk exposure in past weeks to await release of Europe bank stress test results. Says EURJPY may rise to JPY115.00 vs last JPY114.26 (near JPY114.43, highest since May 18); EURUSD may gain to USD1.3040 vs USD1.3010. Adds if Friday's 2Q U.S. GDP data improve (+2.5% expected vs +2.7% in previous quarter), increasing Treasury yields, players may buy USD, risk-sensitive EUR further vs JPY, pushing EURJPY to JPY115.00 into weekend, JPY117.00 next week.
Market participants will pay attention to the Federal Reserve's Beige Book and the U.S.'s advance report on durable goods for June, both slated for release later in the day.
European stock markets are expected to open in an uncertain manner Wednesday, with U.S. economic weakness adding some downside pressure to Wall Street overnight, but relatively strong earnings news offering a degree of confidence.
The U.S. Dollar advanced on Wednesday, gaining 1% against the Japanese Yen and pushing the EUR back under $1.30, after a report showed U.S. consumer confidence fell more than expected, pressuring equities lower and reducing investors' appetite for risky assets. Economic News
USD - Dollar Rises on Demand for Greenback's Safety The U.S Dollar advanced against most of its major counterparts as a decline in U.S. consumer sentiment to a 5 month low revived demand for the relative safety of the world's main reserve currency. The U.S. consumer confidence for July fell to its lowest level since February with all eyes on consumer durable goods numbers for June later in the session for more evidence about the world's largest economy. The greenback advanced as much as 1.3% to 87.97 Yen in the biggest intraday gain since June 2. Treasury two-year note yields increased as much as 0.06 percentage point to 0.64% in the biggest intraday climb since June 10. The USD/JPY recent weakness has been related to the very low level of U.S. yields, analysts said. And the fact that the yields are rebounding at this stage is likely to lend some support to the pair.
EUR - EUR Erases Gains; Slips Below $1.30 level The European currency hovered below a key level on Wednesday, running into profit taking after it hit a 11-week high against the U.S. Dollar, with attention turning toward the Australian Dollar ahead of crucial inflation data. The EUR slipped below the psychological, and technically crucial, level of $1.30, having hit a high of $1.3045 on Tuesday.
The 16-nation currency held some impressive gains against the Japanese yen, trading above 114 yen after having jumped over 1% on Tuesday to a 2-month high. Traders said the EUR/JPY looked increasingly bullish on charts, especially after it rose above 113.50 yen where it had met lots of offers from Japanese exporters.
Moreover, despite the EUR/USD easing from highs, sentiment toward the single currency remains bullish in the short term with a number of commentators surprised by the resilience of the Euro-Zone economy. On the other hand, doubts remain over the ability of the U.S. economy to avoid a slowdown. Market players say that a sustained break above the $1.30 level could place the single currency against the greenback in a new $1.30-$1.35 trading range in the coming weeks.
JPY - Yen Rises on Safety Demand Japan's currency gained versus all 16 major counterparts ahead of U.S. reports in two days which are forecasted to show economic and business activity grew at a slower pace. The Yen rose from near a two-month low against the EUR on speculation signs of a slowing U.S. recovery will spur demand for safer assets.
The Yen typically strengthens in times of financial turmoil as Japan's trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The Yen traded at 87.77 per Dollar from 87.90. The currency gained to 113.95 per EUR from 114.24 yesterday, when it reached 114.42, the weakest level since May 18.
Crude Oil - Oil Falls a 2nd Day after Consumer Confidence Drops Crude Oil declined for another day after an industry report showed U.S. crude inventories rose and the Conference Board said confidence among the nation's consumers fell, signaling growth and energy demand may falter. Rising oil production capacity in the Gulf of Mexico after Tropical Storm Bonnie fizzled over the weekend without damaging infrastructure also weighed on Oil prices, analysts said. Oil prices dropped the most in more than 3 weeks Tuesday as the U.S confidence index declined to the lowest level in 5 months. Traders mentioned that there was a sell-off in the crude market because of a fall in U.S. consumer confidence and the sentiment is still weak.
Technical News
EUR/USD Yesterday the pair pushed to its highest level in the past 3 months before falling backwards to finish almost unchanged, forming a spinning top candlestick formation. This may signal indecision on the part of traders and a lack of buyers in the current uptrend.
GBP/USD The pound was a big gainer in yesterday's trading as the cable breached and closed above the resistance level of 1.5520. The pair has been a strong performer as of recent, recording gains over the past 5 trading sessions. However, technical resistance is forming on the daily chart. The RSI (14) is dropping below the overbought zone while the Slow Stochastic oscillator is forming a bearish cross, indicating the next move may be to the downside. Traders may want to tighten their stops on any long positions.
USD/JPY The yen suffered during yesterday's trading, rising as high as 87.96 while closing above the 20-day simple moving average and the downward sloping trend line that began on June 14th. However, traders may be able to fade the trend as a bearish cross has formed on the 4-hour Slow Stochastic oscillator, indicating that the pair's next move may be lower. Traders can target the resistance level of 87.40 with an extended target at the year to date low of 86.25.
USD/CHF The pair may see a continuation of its recent downtrend in today's trading as the RSI for the pair floats in the overbought territory on the 2 hour and 8 hour charts with most other indicators floating in neutral territory. Traders may be advised to go short for the day.
The Wild Card GBP/NZD The pair may see some downward correction today as the RSI for the pair is floating in the overbought territory on the hourly and 2 hour charts while a bearish cross is evident on the 2 hour and 4 hour charts Slow Stochastic, indicating an imminent downward movement. Furthermore, a breach of the upper Bollinger Band is evident on the 2 hour chart. Forex traders may be advised to go short for the day.
