Forex Exchange Morning Report (18/07/2012)

USD

The dollar strengthened on Tuesday following Fed Chairman Ben Bernanke's testimony to the Senate, in which he restated his 'stimulus-if-required' stance to monetary policy as well as underscoring the need for 'fiscal balance' from lawmakers. This upset expectations for more stimulus and led to a rise in the dollar. On the data front, CPI in June remained at 1.7% yoy when it had been expected to moderate to 1.6% whilst CPI Ex Food & Energy showed a basis point fall in line with expectations. Industrial Production in June rose by 0.4% which was just above the 0.3% expected. Demand for U.S securities showed a rise with Net Long-Term TIC Flows in May beating expectations to rise to $55.0bn compared to $41.3bn expected and $27.2bn previous. Total Net TIC flows showed a $101.7bn surplus compared to the -$8.2bn previously.

EUR

The euro fell after Bernanke's testimony to Senate in which he reiterated a 'wait-and-see' stance upsetting expectations that he would announce further QE. The euro fell rapidly despite strengthening in the first half of the day when yields on Spanish short-term bills fell at auction. The yield on the 12-month fell from just over 5% to 3.92% previous and to 4.24% vs 5.11% on the 18-month bill. Longer-dated debt however didn't fare as well as the yield on the 10-year Spanish bond rose to 6.79% - up 5.7bps whilst the Italian 10-year rose to 6.01% up 1.8pbs. On the data front, the ZEW Sentiment survey fell, but not as deeply as expected. The German version of the ZEW in July fell to -19.6 when it had been expected to fall to -20.0 and was -16.9 previously. The Euro-zone version showed an even more dramatic fall in Economic Sentiment to -22.3 versus -20.1 previously. The German Current Situation survey fell to 21.1 versus 30.0 expected and 33.2 previous.

GBP

The pound fell after the release of softer-than-expected inflationary data on Tuesday increased the possibility the BOE might use more stimulus to boost growth. Overall the stats indicated a fall in inflation with CPI dropping to 2.4% in June yoy versus 2.8% expected and 2.8% previous. Core CPI fell to 2.1% versus an expected rise of 4pbs. Mom CPI fell by -0.4% compared to -0.1% expected and -0.1% previous. RPI fell to 2.8% versus 3.0% expected and 3.1% previous. Sterling fell against the dollar after the Chairman of the Fed Ben Bernanke made a speech to the Senate in which he maintained his wait-and-see stance despite a more doveish tone having been expected. The absence of any hints of more QE led to a rise in the dollar. The pound was stronger versus the euro, however, and briefly hit a three and a half year high following comments from the Italian PM Mario Monti about the dire economic problems in Sicily.

JPY

The yen traded mixed at the time of writing on Tuesday, rising against the riskier currencies like the euro and the pound but falling to the dollar which strengthened after expectations of more easing were dealt a blow by Fed Chairman Bernanke who failed to hint at more QE in his testimony to Senate, an outcome which surprised many investors expecting the opposite. There was no economic data for the yen but there was commentary from the Finance Minister Jen Azumi who threatened to weaken the yen if speculators continued to push it higher. It is possible the currency may moderate at its current position as a result of the threat, however, the currency remains vulnerable to safe-haven flows as a result of investor fears over contagion from the crisis hit euro-zone and there does not seem to be any sign that the problems in that region are close to a solution yet, which leaves the outlook for the yen still quite bullish overall.

Market will open today (17/07/2012)

USDINR- Will open down 


EURINR- Will open up


GBPINR- Will open up


JPYINR- Will open down

Forex Exchange Morning Report(17/07/2012)

Sentiment was initially hurt by European news and US data but rebounded late NY. The WSJ revealed a hardline shift in stance by the ECB where it advocated investor losses on impaired Spanish bank bonds at the 9 July Eurogroup meeting (ultimately rejected by politicians), and the German court is unlikely to decide on the ESM until 12 September. US retail sales disappointed but business inventory and NY regional manufacturing reports softened the blow, and indeed, the former was seen as supportive of QE3. Later on, expectations of Bernanke, extending to chatter in the blogosphere that the Fed could consider BOE-style targeted lending or eventually cut rates to below zero, helped sentiment. The S&P500 recovered by around 0.5% to be currently unchanged. The CRB commodities index is up 0.7% (oil +1.1%, copper and gold unchanged). US 10yr treasury yields fell from 1.48% to 1.44% (matching the record low) before rebounding to 1.47% late NY.

The US dollar index (DXY) fell 0.7% in NY. EUR fell to 1.2176 during the London morning but then bounced to 1.2290. USD/JPY fell from 79.10 to 78.70 on QE3 hopes following the retail sales report but stabilised in NY to 78.85. AUD made a midday London low of 1.0202 and then rose to 1.0260. NZD similarly fell to 0.7937 before rallying to 0.7988. AUD/NZD remained rangebound, between 1.2830 and 1.2860.

Economic wrap

US retail sales fall 0.5% in June, even weaker than Westpac's well below consensus –0.2% forecast. The detail included a 0.6% fall in auto sales and a 1.8% fall in gasoline which would be due to lower prices. Core retail sales excluding those two components fell 0.2%, their third monthly decline; the last time we saw core retail sales down three months running was in the dark days of Q4 2008. Furniture, electronics, building materials, health and personal care, sporting goods, department stores and restaurants all recorded June declines. In all cases the falls were either large enough to more than wipe out the prior month's gain or followed declines in May. With back revisions (especially steep in April) the quarterly annualised sales pace in Q2 was –0.2% for the core, down from 6.6% in Q1 and the first fall since Q2 2009. That represents only part of the broader private consumption component of GDP, but is consistent with our forecast that consumption growth slows from over 2% annualised in Q4 and Q1 to just 0.9% in Q2.

US NY Fed factory index rises from 2.3 to 7.4 in July, reversing part of the 15 pt drop it recorded in June, and contrasting with the neighbouring Philly and Richmond Fed factory indices which both dipped below 0 back in June. The NY detail showed orders down 4 pts to –2.7 (first negative for the year) but shipments and jobs both jumped around 6 pts to 10.3 and 18.5 respectively. US business inventories rose 0.3% in May, with a retail stocks surge of 1.0% offsetting a (previously reported) fall in factory stocks and modest 0.3% gain at wholesalers.

Euroland core inflation steady at 1.6% yr in June, indeed it has been steady at 1.5-1.6% since September last year. The headline rate was unrevised from the flash estimate of 2.4% yr. Meanwhile the trade surplus rose from €4.5bn to €6.3bn in May as exports edged up 0.3% (after falling 1.4% in April) but imports continued to decline, down 0.9% on top of April's 1.5% fall.

UK house prices fell 1.7% in July but were up 2.3% yr, according to Rightmove's survey of asking prices (note that most indices of selling prices are flat or slightly lower in annual terms).

IMF leaves global growth forecast unchanged at 3.5% yr in 2012 but next year's forecast was cut from April's 4.1% to 3.9%. Those forecasts compare to our 2.8% and 3.8% for this year and next. The IMF did lower the forward growth trajectory reflecting the moderating US recovery and the impact of European weakness on emerging economies but Q1 data for Germany and Japan were stronger than they had assumed leaving the full year 2012 forecast pace unchanged after rounding. Also their numbers assume (optimistically) that appropriate policies are put in place to prevent risks such as aggressive fiscal tightening in the US and ongoing/deepening sovereign debt market tensions from crystallising.

Forex Exchange Morning Report(16/07/2012)

Markets closed the week on an optimistic note, shrugging off Friday's weaker China data and Italy downgrade. Possible catalysts were JP Morgan's Q2 earnings (a positive surprise, even after its US$5.8b trading loss), significant buying of EUR by Austrian banks, an advisory firm's report expecting the ECB to cut the deposit rate to below zero and engage in quantitative easing, higher than expected US PPI and Fed centrist Lockhart's dovish comments (although that has been his bias recently). US consumer confidence disappointed but was ignored. The S&P500 closed 1.7% higher. The CRB commodities index closed 1.3% higher (oil +1.3%, copper +2.6%, gold +1.1%). US 10yr treasury yields rose from 1.46% to 1.52% during the London session and closed at 1.49%. Eurozone peripherals were only modestly changed apart from Italy which gained 15bp.

The US dollar index (DXY) fell sharply around midday London. That was mainly due to a sharp rise in EUR, from 1.2163 to 1.2257, although it was directionless during the NY session. USD/JPY was directionless throughout, stuck between 79.07 and 79.33. AUD followed equities and the EUR higher, from 1.0148 to 1.0230. NZD rose from 0.7904 to 0.7966. Both AUD and NZD speculative futures positioning increased last week, according to the latest CFTC report. AUD/NZD rose from 1.2825 to 1.2870

Economic wrap

US PPI rises 0.1% in June. Possibly due to survey timing, the PPI output did not capture last month's decline in energy prices to anywhere near the extent we expected. Crude energy prices fell 5.1%, but finished energy prices were down just 0.9% (and gasoline up 1.9% after falling 12% in the previous three months). That was offset by food up 0.5% (due to higher meat prices, and next month's data may see drought impact on fresh fruit and veg) and the core rate as expected up 0.2%. Within the core, car prices fell 0.2% but ever volatile light truck prices jumped 1.4%. The headline PPI annual rate was unchanged at 0.7% yr, its lowest since the 2008-2009 recession, and the core rate slowed to 2.6% yr from the cycle high of 3.1% in January this year.

US consumer sentiment fell to 72.0 in the preliminary July University of Michigan report, exactly in line with our low end of the range forecast. That is the most pessimistic reading for the year so far, and reflected a 3 pt drop in the outlook index which offset a 1.7 pt rise in current conditions. One year ahead inflation expectations also fell, down 0.3 pt to 2.8%, the lowest since late 2010.