(Reuters) - The Federal Reserve should consider buying more Treasury securities, instead of promising an extended period of low rates to support recovery, should inflation drift lower, a top Fed official said.
St. Louis Federal Reserve Bank President James Bullard said on Thursday he is worried about the risks the United States could fall into a Japan-style quagmire of falling prices and investment that is hard to get out of.
"The FOMC's extended period language may be increasing the probability of a Japanese-style outcome for the U.S., and on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome," he wrote in a research paper, referring to the central bank's policy setting group, the Federal Open Market Committee (FOMC).
"With a little bit weaker numbers on the economy and inflation a little bit low, people are starting to talk about the possibility of a Japanese-style outcome for the U.S.," he told reporters at a press conference on the research.
The Fed's long-running promise to hold benchmark rates exceptionally low for an extended period -- which is aimed at spurring growth -- could lead businesses and consumers to anticipate slight deflation ahead, the St. Louis Fed chief said.
"Of course, that isn't what we're trying to do with the extended period language, what we're trying to do is encourage output growth and production, and through that channel, get inflation to move higher," he said.
Bullard said he continues to views the most likely course for the U.S. economy as a gradual recovery and that more easing of financial conditions will not be necessary. But he said the Fed should be prepared for further actions if unexpected shocks materialize.
The St. Louis Fed leader, a voter this year on the Fed's policy-setting panel, said he does not plan to join Kansas City Fed President Thomas Hoenig in dissenting against the extended period language, even though research Bullard released on Thursday found the language to be problematic.
Bullard said he took the unusual step of publishing his research and holding a press conference about the topic to stimulate debate about the effectiveness of the extended period language in achieving the Fed's goal of restoring stronger economic growth.
The Fed lowered borrowing costs to near zero in December of 2008 and has already flooded the economy with more than $1 trillion of credit to boost growth after a painful recession.
The recovery has stumbled in recent weeks, and Fed Chairman Ben Bernanke said this week the economy faces unusually uncertain prospects. The Fed could take further steps to bolster growth if needed, he said.
(Reporting by Mark Felsenthal; Editing by Andrew Hay)
Markets are trading in a lethargic manner as participants continue to nervously take on risk-correlated trades. The move toward risk is logical because without the massive sovereign crisis fear hovering over the market like the Sword of Damocles, one needs to consider the fundamentals - particularly monetary policy, as the core driver. Overall, the rate at which central banks are mopping up excess liquidity has been slower-than-expected with the BoE and Fed still discussing the potential for further QE.
In this era of ultra-low policy rates, risk taking will be encouraged. In the past few days, we’ve seen Eurozone sovereign spreads narrow considerably, the VIX index is trending lower along with decreased FX volatilities and global equity markets have demonstrated a resilience to bearish news. If corporate earnings come out strong, this could be the start of a summer rally, however we’re not so sure. Our view is that the fears surrounding sovereign risk may have subsided for the time being, but will most likely return this fall.
Even with the recent stint of positive news, foreboding signs are on the horizon. The Fed’s Beige book released yesterday reported that the US recovery remained on track but has begun to actively slow. The notion of a US slowdown was reinforced by recent US data, including yesterday’s durable goods figures.
In New Zealand, the RBNZ raised its policy rate 25 bps to 3.00% as we had predicted and the accompanying statement asserted that future growth prospects had deteriorated considerably. Traders rapidly paired down their interest rate expectations which in turn weighed on the NZD.
Governor King’s comment seemed to slam into the sterling market, which was curious because his remarks were really nothing new or original. He recommended caution over reading too much into the strong Q2 GDP figures and reaffirmed that inflation remained finely in check. Paul Fisher stated that the global outlook had weakened and David Miles resonated with the most dovish view of all – that inflation would taper off and the current ultra-loose policy was correct.
The combination of all these comments hit the GBP value like a sledge hammer. It wasn’t until Sentance’s hawkish comments that the “current policy setting was extreme” that some sanity was regained in the FX market.
We are convinced that the market is now underestimating the strength of the UK recovery and that the current downtrend in inflation will flat line and then begin to move higher. The BoE interest rate path should give GBP a boost in the mid-term.
Otherwise, there’s a frenzy of data to be released during the European session today and after that it’s onto corporate earnings. We will continue to use equity market activity as a compass for FX directions. Correlation remains particularly high between the EURUSD and S&P and should thus be traded accordingly.
Today's Key Issues (time in GMT): 07:30 SEK Jun retail sales, +0.6% m/m EXP; prior +1.6% m/m, +2.7% y/y. 08:00 EUR GER Jul unemployment rate, 7.6% sa EXP; prior 7.7%. 08:00 EUR GER Jul unemployment, nsa and sa; prior 3.153 mln, 3.23 mln. 08:00 EUR GER Jul unemployment - change, -10k sa EXP; prior -21.0k. 08:00 EUR ITA Jun wages, +2.6% y/y EXP; prior +0.1% m/m, +2.5% y/y. 08:30 GBP Jun consumer credit, GBP300 mln EXP; prior GBP331 mln. 08:30 GBP Jun mortgage appl/loans, 49k/GBP1 bln EXP; prior 49.81k/GBP1.184 bln. 08:30 GBP Jun money supply; prior unch. 09:00 EUR Jul business climate index, 0.39 EXP; prior 0.37. 09:00 EUR Jul consumer sentiment index, -14.0 EXP; prior -17.0. 09:00 EUR Jul economic sentiment index, 99.1 EXP; prior 98.7. 09:00 EUR Jul industrial sentiment index, -5.0 EXP; prior -6.0. 09:00 EUR Jul services sentiment index; prior 4.0. 12:30 USD Initial jobless claims, thous (4wma) 24-Jul 23:01 GBP GfK consumer confidence survey, bal Jul
EurUsd We’ve had another day of tight range trading in EURUSD, and for the time being there is a ceiling of resistance at 1.3046 that is blocking the path higher. We are still playing the bullish break out of a symmetrical triangle pattern on the hourly chart, and based on the projected path of that triangle we are expecting a move to 1.3290 in the coming days. Once we clear 1.3046, the next resistance level is expected at 1.3093 (10 May high) with weak resistance also anticipated at 1.3213 and 1.3254 (14 and 13 May highs respectively). Support at 1.2950 is still valid, with trendline support just below at 1.2940 –should the pair drop below there we would have to concede the failure of the bullish triangle breakout, and would then eye technical levels below at 1.2793 (23 Jul low), 1.2733 (21 Jul low), 1.2683 (14 Jul low) and 1.2522 (13 Jul low).
GbpUsd There were a few hairy moments yesterday for GBPUSD as BoE’s King hit the newswires to downplay the significance of the latest GDP reading, but tellingly the temporary sell-off was met with eager buyers clambering to get in on this impressive GBPUSD recovery, and the pair has since pushed to fresh highs of 1.5655. As previously discussed, we feel that the UK GDP figures last Friday were a game changer, and from here we would relish any dips towards the lower edge of the current uptrend channel now seen at 1.5385 to get long. The way things have gone so far, we may not even get a correction that deep as decent support is also anticipated around the 200-day moving average at 1.5545, 1.5525 pivot, then again at 1.5443 (yesterday’s low). Really there is not much standing in the way of an assault on the 17 Feb high 1.5816 in the coming days, and beyond there we open up the possibility of re-testing the top of the 8-week uptrend channel (currently at 1.5950) before the psychologically significant 1.6000.
UsdJpy USDJPY may have slumped in a rather ungainly fashion back below 87.50 in the past few sessions, but the pair is at the very least continued carve out successively higher highs and higher lows since the double bottom around 86.25 levels. The last rally (which topped out at 88.11) was thwarted by a pretty formidable confluence of resistance levels (8-week downtrend resistance, top of 1-week uptrend channel and 88.00 pivot), but we still believe the bulls can overcome these barriers on a subsequent re-test now they are more comfortably spaced out. The 8-week downtrend has now crept down to 87.90 while the top of the current uptrend channel has climbed to 88.25; however thereafter few levels are discernible ahead of our triangle target 88.85. Should the rally have the momentum to continue beyond there, look for sellers at 89.15 (12 Jul high) and 89.50 (28-29 Jun high). The most convincing support level to try getting in on the long trade appears to be the lower edge of the 1-week uptrend which is now seen at 87.10-15 (already had one test of that area this morning), then further supports anticipated at 86.82 (Tuesday’s low) and 86.25 (recent range floor).
UsdChf Despite the bullish engulfing candlestick on Monday/Tuesday of this week AND the important break of the 1-month downtrend channel, the bulls have looked lacklustre in the past 24 hours and have sloppily allowed the 1-week uptrend to break down around 1.0560. This conclusively negates the bullish flag pattern we had proposed yesterday, and seems compelling argument to move to the sidelines for the time being on this one and wait for more favourable risk-reward trades to present themselves. Buyers should be able to catch the fall if it extends to 1.0450, and an extremely important support still remains at 1.0400 so we would look to resume buying down at those levels. Strong selling interest may once again cap rallies at 1.0640-47 (13 Jul & 27 Jul highs and 200-day moving average), and given the propensity of July/August markets to be directionless and range bound, we would actually look to sell at those levels rather than look for a continuation higher. IF the bulls manage to pull their fingers out and effect that break higher, a powerful resistance level around 1.0700 is backed up but the top of the 1-week uptrend at 1.0710.
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.
The Australian and Kiwi dollars were the big losers on Wednesday on the back of a weaker Australian CPI report and dovish interest rate decision from the Reserve Bank of New Zealand.
AUD/USD shed 92 pip on the back of yesterday’s weaker than expected CPI report. The Australian Bureau of Statistics reported a 0.6% quarter-over-quarter growth rate in second quarter CPI, despite calls for an increase to 1.0% from 0.9% in Q1. Annual CPI growth moved up to 3.1% from 2.9% in Q1, despite calls for 3.4%. The pair last traded down 88 pips at 0.8936.
Meanwhile, NZD remains under pressure after a dovish interest rate decision earlier on Thursday. Although the RBNZ hiked its benchmark interest rate by 25 bps to 3.00%, as expected, central bank Governor Alan Bollard said the pace of monetary policy expansion may slow. He added that the economic outlook for the region has softened, with domestic demand subdued, and the New Zealand dollar stronger than what is consistent with the fundamentals. NZD/USD last traded lower by 119 pips at 0.7213.
Meanwhile the USD remained on top, outperformed only by the yen after core durable goods unexpectedly fell by 0.6% despite calls for a 0.4% gain. Also, the Federal Reserve’s Beige Book Economic Report said that economic activity in the U.S. slowed in some areas.
Looking ahead, focus will be on a barrage of euro zone climate indicators as well as U.S. weekly jobless claims.
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) - Oil was steady around $77 on Thursday after falling in the past two sessions on weak durable goods data and the biggest weekly increase in crude inventories for nearly two years in the United States.
U.S. crude stocks surged 7.31 million barrels last week as imports jumped, government statistics showed on Wednesday, while the nation's gasoline and distillate stocks including diesel gained for the fifth and ninth consecutive weeks respectively.
Wall Street slipped on Wednesday and Asian shares slid on Thursday after new orders for long-lasting manufactured goods posted their largest decline since August, a fresh sign the U.S. economy slowed in the second quarter.
"The crude market has shown the economy is not absorbing the supply, nor is the motivation there for refiners to process those supplies," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. "The numbers in America are not that good."
U.S. crude for September advanced 13 cents to $77.12 a barrel at 12:57 a.m. ET, after dropping close to 0.7 percent on Wednesday, having touched $79.69 a day earlier, the highest price in almost 12 weeks. ICE Brent gained 5 cents to $76.11.
"We have tested $80 twice and failed. Now we are going to test lower into the range again," Barratt said, referring to the $70-$80 range within which oil has traded for nearly two months.
The Organization of the Petroleum Exporting Countries (OPEC) has for the past year and a half expressed a preference for oil to remain stable around $75 a barrel, saying that price encourages investment to sustain and increase production capacity and does not threaten the economic recovery.
"In a crisis situation you need stability," Barratt said. "Crude is very stable. This suggests to me that the forces of supply and demand are at ease with each other."
Oil analysts including Michael Wittner from Societe Generale pointed out that total U.S. product demand growth was robust at 3.4 percent over the past four weeks from a year earlier, according to EIA figures.
But supply accumulation is outpacing consumption at a time when the U.S. economy is recovering from the most severe recession of the post-war era.
The U.S. economy kept growing overall in recent weeks, but unevenly and it actually slowed in a few regions as housing markets softened after the end of a popular tax break, the Federal Reserve said on Wednesday.
Last week's gain in U.S. crude stockpiles was the biggest since October 2008, according to statistics from the U.S. Energy Information Administration, which published Wednesday's inventory report. U.S. weekly crude imports reached 11.12 million barrels last week, the highest level since August 2006.
(Reuters) - Gold bounced higher on Thursday as the U.S. dollar weakened and physical buying picked up, but gains are seen limited after holdings in the world's largest gold-backed ETF fell to the lowest since early June.
Premiums for gold bars edged up in Asia, but although jewelers were happy to buy at lower levels, uncertainties in the outlook for the U.S. economy and poor technicals weighed on sentiment. Other precious metals tracked bullion higher.
Spot gold added $4.10 an ounce to $1,166.65 an ounce by 0602 GMT after falling as low as $1,156.90 on Wednesday, its weakest since late April. Bullion hovered below the 50-day and 100-day moving averages.
For a 24-hour gold technical outlook, see:
here
"There's a lot of safe-haven positioning being unwound right now in the gold market. Potentially, it could unwind down $1,130-$1,120 pretty quickly," said Mark Pervan, senior commodities analyst at ANZ in Melbourne.
"A lot of the gold gains in the last six months were driven by euro weakness, and that was really safe haven buying. The trend doesn't look good. Potentially, it could move down toward the low $1,100s," said Pervan, referring to levels last seen in April.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), said its holdings fell to 1,282.279 tonnes by July 28 from 1,300.829 on July 27 -- their lowest since early June. The holdings hit a record at 1,320.436 tonnes on June 29.
Cash gold was nearly 8 percent below a lifetime high around $1,264 struck in June, when investors poured money into bullion on worries the euro zone debt crisis would spread. U.S. gold futures for August delivery rose $5.8 $1,166.2 an ounce.
Gold bars were offered at a $1.50 premium to the spot London prices in Hong Kong, up from $1.20 on Monday. In Singapore, premiums rose to $1.50 from between 80 cents and $1.20 earlier this week, while dealers in Tokyo pushed up the differentials to $1 from 50 cents.
"The premiums have gone up after prices dipped to the $1,160 mark. There are strong inquiries in the physical market, that's why we feel that we should push up the premiums," said a dealer in Tokyo.
The U.S. dollar slipped toward three-month lows against a basket of currencies on Thursday as investors cut their positions due to fresh evidence of a patchy recovery in the U.S.
"We're seeing a bit of short covering, so that's why the market has stabilized at current levels. A drop in the SPDR ETF may suggests investors think the euro zone is getting better," said a dealer in Hong Kong.
"Gold looks slightly bearish, although we see a mixture of buying from jewelers and other physical buyers."
The European Central Bank will likely wait until late 2011 before hiking interest rates, according to a Reuters poll of over 70 economists who stayed cautious in July despite some encouraging economic data.
The Nikkei ended down on Thursday as U.S. stocks slipped after weak durable goods figures and a downbeat assessment of the economy from the Fed's Beige Book kept the benchmark S&P 500 trapped below its 200-day moving average. .T .N
(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)
(Reuters) - New orders for long-lasting manufactured goods fell unexpectedly for a second straight month in June, posting the largest drop since August in a sign economic recovery cooled in the second quarter.
However, the Commerce Department report on Wednesday showed cash-flush businesses continued to invest in equipment. That implied underlying demand remained intact with firms exhibiting confidence in the moderate economic recovery.
"The bottom line is that the data show business investment had a very strong second quarter and, although the recovery in manufacturing may be losing a little momentum, it is hardly collapsing," said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto.
Durable goods orders dropped 1.0 percent after falling 0.8 percent in May, surprising financial markets that had expected a 1.0 percent increase. Durable goods include big-ticket items such as cars and planes.
But orders for non-defense capital goods excluding aircraft, a proxy for business spending, unexpectedly rose 0.6 percent after increasing by an upwardly revised 4.6 percent in May. Markets had expected a flat reading.
Stocks on Wall Street fell as investors focused on the overall decline in orders and a full-year earnings forecast from Boeing Co that was below market consensus.
The Standard & Poor's 500 Index fell for a second straight day, closing below its 200-day moving average, currently around 1,114.
Prices for safe-haven U.S. government debt rose and the dollar rallied against the euro but fell versus the yen.
Data from consumer spending to manufacturing have suggested the recovery from the longest and deepest recession since the 1930s took a step back in the past few months.
The government is expected to report on Friday that growth slowed to a 2.5 percent annual rate in the April-June period from a 2.7 percent pace in the first three months of the year.
A separate report from the Federal Reserve showed U.S. economic activity was still rising but at a subdued rate.
"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 in its Beige Book, which is based on conversations with business contacts across the nation.
BUSINESS INVESTMENT GROWING
Some analysts said there was a chance second-quarter growth could beat expectations given signs of strong business investment. With profits booming, companies have stepped up spending on equipment and software after aggressively cutting back during the recession.
"There has been a loss of momentum in the past two months. It's yet to be seen how much of the upward momentum from earlier this year has been reversed," said Jim O'Sullivan, chief economist at MF Global in New York. "(But) I think the trend toward improvement is still intact."
Durable goods orders are a leading indicator of manufacturing, which has benefited from businesses replenishing inventories drawn down to record lows during the recession. However, that effort appears to be running out of steam.
Economists had expected durable goods orders to rise last month because Boeing received 49 orders for civilian aircraft in June compared to only five in May.
But non-defense aircraft orders tumbled 25.6 percent after falling 30.2 percent in May. Analysts said most of Boeing's orders were too late in the month to be caught by the report.
The drag on orders also came from bookings for computers and electronic products, which saw their largest decline since October. Orders for machinery recorded their biggest decline in 14 months, while those for primary metals fell by the most since March 2009.
"We expect further moderation in durable goods orders as the inventory cycle fades over the second half of the year," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.
Durable goods shipments, which go into the calculation of gross domestic product, fell 0.3 percent after sliding 0.7 percent in May.
The Mortgage Bankers Association said on Wednesday that demand for loans to buy homes rose for the second straight week last week to the highest level since the end of June, but hovered just above 13-year lows.
(Reuters) - The economy kept growing overall in recent weeks, but unevenly and it actually slowed in a few regions as housing markets softened after the end of a popular tax break, the Federal Reserve said on Wednesday.
The U.S. central bank's latest Beige Book summary of national conditions, 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 Beige Book reports on conditions in all 12 districts that are part of the Federal Reserve system and carries a high degree of credibility because it is based on interviews and anecdotal information from coast to coast.
The latest report, compiled by the St. Louis Fed Bank, covers seven weeks from the previous Beige Book in early June and painted a picture of less-than-robust recovery.
While manufacturing continued to expand in most districts, activity had slowed or leveled off in New York, Cleveland, Kansas City, Chicago, Atlanta and Richmond.
That fit with a report issued earlier on Wednesday by the government showing that new orders for costly manufactured goods unexpectedly dropped in June -- a second straight monthly fall that pointed to waning momentum in the factory sector.
Retail sales -- a gauge of consumers' economic participation -- were generally higher but modestly so.
"Several districts cited apparel, food and other necessities as recent strong sellers, while big-ticket items were weak sellers," the Fed said.
Most districts said new-car sales were declining and housing markets were sagging.
"Activity in residential real estate markets was sluggish in most districts after the expiration of the April 30 deadline for the homebuyer tax credit," the Fed said, referring to a now-expired $8,000 credit offered as an encouragement for first-time home buyers.
There was a modest improvement in labor markets, with several reports of temporary hiring. Consumer prices held steady in most parts of the country while wage pressures were described as "contained."
(Reporting by Glenn Somerville; editing by Andrew Hay and Jan Paschal)
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.
Risk correlated trades had a strong showing yesterday as banking stocks rallied and concerns over the inadequacies of the Stress Test dissipated. The USD lost ground to both the GBP and EUR while longs in JPY and CHF were equally cut. Risky trades continued to benefit throughout the trading day in spite of US Consumer confidence data coming in negative. We especially like the appreciation we saw in sterling. We suspect there has been a fundamental shift in GBP prospects due to the sturdy GDP reading last Friday and we anticipate further upside to sterling in the near-to-mid term.
Asian equity markets are having a roaring day and the positive effects are spilling over into European indexes. We are seeing other encouraging signs as VIX dropped below its 200-day moving average and Gold continues to come under heavy selling pressure. There has been a noticeable lack of 1st tier economic data and we are cautious in accumulating too much risk just yet. These are the dog days of the trading summer – as such, low liquidly and inconsistent participants will continue to be as important as real data.
During the Asian session, the big news was the disappointing Australian Q2 CPI reading which came in well below markets expectations. The market was quick to shift rate hike expectations from August to later in the fall (ACM expects a November hike). The AUDUSD dropped like a rock to .8923 from .9020 in response to the release. With the inflation rate now within the RBA’s 2-3% target, markets now pricing in a late fall hike. The large AUD interest rate differential will further erode, which in turn will lend added support to currencies like CAD and NOK. Look for CAD & NOK to gain in the near term.
We are still highly constructive on the global economy and suspect commodities prices to trend higher which should give AUD a boost against the USD. With all the excitement around AUD, the CPI watchers will now be turning their gaze toward New Zealand.
In NZ, July business confidence and activity outlook surveys showed a significant deterioration from the June results. Analysts are in unanimous agreement that the RBNZ will raise the OCR 25 bps to 3.00% at its policy meeting tonight. Market and media interest will be focused on the accompanying statement released with the rate hike. Although recent NZ CPI readings have come in lower-than-expected, the markets are still pricing in roughly 75 bps worth of hikes between now and the year’s end.
We believe that the RBNZ statement will sound slightly more dovish, signaling a minor shift in interest rate trajectory as policy makers prepare for a global economic slowdown later this year. The sudden adjustment in rate path should translate into short-term NZD weakness, especially against the AUD.
As for today, US Durable Goods data is due to be released as investors continue to look for directional signals for the US recovery. The Fed’s Beige Book will likely reflect recent data softness.
Today's Key Issues (time in GMT): 00:00 EUR GER Jul HICP - prelim, +0.2% m/m, +1.1% y/y exp; prior unch, +0.8%. 07:00 EUR ESP Jun retail sales; prior -1.9% y/y. 08:45 GBP BoE Gov King, other MPC member testimony before Parliament. 10:00 GBP Jun Land Registry house prices. 12:30 USD Jun durable goods orders, +2.9% m/m exp; prior -0.6%. 12:30 USD Jun - ex-transport, +1.0% m/m exp; prior +1.6%. 18:00 USD Fed Beige Book release. 18:30 USD Senate vote on Fed nominees 21:00 NZD RBNZ interest rate announcement, % 3.00% exp, 2.75% prior
EurUsd The symmetrical triangle pattern on the hourly chart is still very much in play, and thus far we have seen a couple of nudges through the 20 Jul high at 1.3028. We are long from the original break above 1.2950 (there was even the re-test of that level yesterday which we suggested as a chance to add to longs) and expect the triangle to yield a target in the region of 1.3290. At present the bulls are steadying themselves above 1.3000 so further progress has been somewhat laboured; the next resistance level is expected at 1.3093 (10 May high) with weak resistance also anticipated at 1.3213 and 1.3254 (14 and 13 May highs respectively). Support at 1.2950 is still valid, with trendline support at 1.2905 –but should the pair drop below there we would have to concede the failure of the bullish triangle breakout, and would then expect technical levels below at 1.2793 (Friday’s low), 1.2733 (21 Jul low), 1.2683 (14 Jul low) and 1.2522 (13 Jul low).
GbpUsd GBPUSD continues to march unwaveringly higher, making easy work of the tangle of technical resistance levels between 1.5525-75 (15 April high, 200-day moving average and 23 Feb high) and going on to touch 1.5627 this morning. As previously discussed, we feel that the UK GDP figures last Friday were a game changer, and from here we would relish any dips towards the lower edge of the current uptrend channel now seen at 1.5350 (coinciding with a recent pivot level) to get long, and set a stop through 1.5300. Really there is not much standing in the way of an assault on the 17 Feb high 1.5816 in the coming days, then only uptrend resistance (currently at 1.5905) before the psychological significant 1.6000. Supports now seen below at 1.5525, 1.5450 and 1.5350.
UsdJpy Finally, a breakout from the 86.25 –87.75 range; and as expected, this has occurred on the topside –in the process activating a double bottom pattern we proposed earlier in the week. Given the depth of the two troughs we should therefore anticipate a target around 88.85, and after this morning’s break above the significant 88.00 pivot level, that now seems an extremely attainable goal. Sellers may still hinder progress up through the remaining trendline resistance around 88.45 but then the next discernable levels are all beyond our target; 89.15 (12 Jul high) and 89.50 (28-29 Jun high). Adding conviction to our view is the bullish engulfing candlestick carved out on the daily chart which suggests the bears have become overwhelmed and further upside is likely. Dips back towards the 87.75 breakout level will likely meet good bids, with the supports below there at 86.82 (yesterday’s low) and 86.25 (recent range floor).
UsdChf The bulls finally got a better grip on USDCHF yesterday, and not only managed to take out the stubborn 1.0565 resistance level, but then to print a bullish engulfing candlestick on the daily chart. We now see a fresh bullish flag pattern possible on the hourly chart which would suggest that on a break above 1.0620 we should go long and aim for a target around 1.0770. Standing in our way before that would be yesterday’s high 1.0640 (roughly coinciding with the 200-day moving average at 1.0644), the top of the 1-week uptrend channel at 1.0685, then the major 1.0700 level. Bidders are very likely to lurk around 1.0565 where the old resistance level once stood, then 1.0450and 1.0400.
(Reuters) - Gold steadied on Wednesday after falling 2 percent to a near three-month low the day before, when a bigger-than-expected drop in U.S. consumer confidence and an option expiry prompted heavy selling.
The position adjustment related to expiring COMEX August gold options pushed prices close to a key technical support, where the market was likely to hover before finding fresh clues for direction, traders said.
With increasing market scrutiny on nations' fiscal health and doubts over the effectiveness of ultra-low monetary policies in supporting the economy, governments around the world are facing difficulties finding fresh ways to stimulate the economy and beat deflationary pressures, said Koichiro Kamei, managing director at Tokyo-based researcher Market Strategy Institute Inc.
Expectations for rising inflation as a result of stimulative policies or concerns about a further deterioration in fiscal deficits as a result of more government spending have largely supported gold prices, which hit a record high in late June.
"Reasons supporting investor buying of gold have weakened recently, and options-related technical selling could undermine sentiment in the short-term as investors seek fresh clues for direction," Kamei said.
Spot gold was at $1,161.75 an ounce as of 0536 GMT, up 0.2 percent from late New York levels of $1,159.65 per ounce.
Spot gold could consolidate above $1,157.65 per ounce for a trading session before falling toward $1,140, as a rebound is expected after the previous session's sharp fall, according to Wang Tao, a Reuters market analyst for commodities and energy technicals.
Spot gold fell to a low of $1,157.65 an ounce on Tuesday, the cheapest price since May 5. Bullion also posted its biggest one-day decline since July 1.
Kamei said that the market was close to the support of its 200-day moving average, which on Wednesday stood at around $1,148.
Key events closely watched by investors include the U.S. Beige Book report due later in the day, as well as U.S. monthly jobs data due next week and the U.S. Federal Reserve policy decision next month, Kamei said.
U.S. gold futures for August delivery climbed 0.3 percent to $1,161 per ounce, after settling on COMEX at a three-month low of $1,158 an ounce.
Gold priced in euros and in sterling stayed defensive a day after falling to multi-month lows.
Euro-priced gold was at 893.15 euros after hitting an almost three-month low of 891.25 euros on Tuesday. Sterling-denominated gold briefly fell as low as 743.31 pounds per ounce, a new three-month low.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), said its holdings fell to 1,300.829 tonnes by July 27, down 0.913 tonnes from the previous business day.
Among other precious metals, spot platinum was at $1,537.50 per ounce, up 0.7 percent from late New York levels of 1,527.15. It stayed near a one-month high of $1,559.50 marked on Tuesday amid caution over supply disruptions.
The National Union of Mineworkers (NUM) of South Africa said on Tuesday that a strike planned for Monday at Impala Platinum (IMPJ.J), the world's No.2 platinum producer, will be delayed to allow further negotiations between management and the union.
(Additional reporting by Risa Maeda; Editing by Joseph Radford)
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 Japanese yen declined today against the U.S. dollar and the euro as the signs of the economic recovery in the U.S. prompted the investors to leave the safe currencies in favor of the higher-yielding ones.
The Dow Jones Industrial Average rose by 1 percent yesterday after FedEx Corp., the second-largest package-shipping company in the U.S., raised its earnings forecast for the quarter and for the year. The forecasts also suggest about improving consumer confidence in Germany and increasing number of the durable goods orders in the U.S.
USD/JPY went up from 87.37 to 87.36 today as of 9:19 GMT. EUR/JPY traded at 113.43 after it jumped as high as 113.70.
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.
