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Risk Aversion Helps Yen, But Greenback Slides on Chinese Reserve Currency Comments

Sun, Jun 28 2009, 23:09 GMT
by Nick Nasad

CMS Forex

EUR/USD - Greenback Slides On Comments From Chinese Official

The Euro-Dollar pair rose today despite weaker stocks in Europe and a drop in the Dow Jones index in the US. The pair extended its gains from yesterday as China reiterated its calls for a new global reserve currency that is “delinked” from sovereign nations, aka the Dollar and the US. That news weakened the greenback against its rivals and some better US data in NY trading gave the greenback a second jolt as risk appetite returned somewhat pressuring the dollar further. For the week, the pair is up about 130 pips.

German consumer prices climbed higher than expected in June, preliminary data showed. On the month prices were up 0.4%, rebounding from a 0.1% decline in May. On the year prices were up 0.1%.

The Pound-Dollar stuck to its range we have been following this week, rallying today to the 1.6560 area, paring the gains the greenback made in the previous two sessions. Traders continue to jostle for a direction for the pair as price action bounces between clearly defined support and resistance levels.

In New Zealand, the 1st quarter saw growth contract 1%, the 5th quarter in a row that the New Zealand economy shrank. The figure was worse than expectations, and follows a similar 1% slide in the 4th quarter. Manufacturing activity was down 7.2%, household consumption decline 1.4%, and business investment fell 7.3%.

The New Zealand Dollar slid against the Yen in the aftermath of its release and extended its losses throughout the rest of the session. It snaps a 3-session uptrend in the pair, and for the week the pair is now down though the Kiwi managed to regain most of its fall from earlier in the week.

Consumer spending rose for the first time in three months in May, climbing 0.3%, which met expectations. April's figure was revised upward to show flat growth compared to the 0.1% decrease originally reported. The boost was driven by a 1.4% increase in incomes which came as a result of tax cuts and Social Security payments from the Obama stimulus plan. Though spending is up, the savings rate hit a 15-year high.

Today's personal income and spending report includes an important measure of inflation that is closely watched by the Fed, the PCE price index. The core rate, which excludes food and fuel prices, rose 0.1% from a month earlier and was up 1.8% on the year. Both measures were lower than in April, reflecting that consumer inflation eased. Lower inflation will give the Fed leeway to keep rates low for longer.

US consumer confidence rose again in June, the 4th straight month it has done so. The UMich consumer sentiment index rose to 70.8 from 68.7 in May, and rose above the 69 mid-month reading.

The Dollar-Yen pair slid today to retest the lows seen in on Tuesday and Wednesday as the greenback was pressured against its key rivals, while the Yen was stronger. Most of the fall came during European trading as European stocks saw the worst declines today.

The US Dollar-Canadian Dollar pair slid in NY trading yesterday, and extended its losses overnight to the 1.1445 level. That was a 160 pip drop since the pair reached a 1-month high at 1.1630. The greenback rallied in NY trading.

Next week is a short week as US financial markets will be closed on Friday in observance of Independence Day, but the week is full of important fundamental releases. The US will release its nonfarm payroll data, the ISM manufacturing index, data on pending home sales and home prices, and consumer confidence.

Published on  Sun, Jun 28 2009, 23:13 GMT