• Home ::
• Fundamental ::
• Market View ::
• FX Weekly

• Send
• Print
• Add To
• Rss

FX Weekly

33660ad0-c195-4b34-a232-650ee7ce6b6a

1

0

Currency Market Struggles for Direction

Wed, Jul 1 2009, 16:23 GMT
by Alpari (US) Analyst team

Alpari (US), LLC

Market Focus

• FED left interest rates on hold and reiterated that rates would remain low for an extended period of time.
• Final 1st Quarter US GDP was revised slightly higher to -5.5%, from its previous -5.7.
• The ECB injected liquidity in which over EUR 440 bn was lent in 1-year funds.
• The BIS’ annual meeting was held over the weekend.  China and Brazil discussed how to bypass the US dollar for trade.
• UBS, the world’s largest wealth manager raised $3.5 bn to strengthen its capital base.
• SNB intervention policies caused the Franc to move sharply to the downside against the Euro.

The Foreign Exchange market experienced a fluctuating week in which most of the major currency pairs remained range-bound.  The currency markets are still searching for clues from commodity pricing and treasury yields.  Crude prices continued to hold up despite weakened demand, while the 10-year treasury yield declined to 3.52%.  Meanwhile, the equity markets continued to drift upwards after entering into the summer months with volatility significantly declining. As the global economy continues to recover, central banking policies are in the midst of shifting from quantitative easing to tightening. In addition, as the process of timing a proper exit strategy is highly sensitive, it could be a catalyst for inflationary conditions. Pressured by negative comments from the Bank of China, the US dollar remained resilient.  The US Dollar Index has traded within a tight range near 80 throughout the last three weeks; the US economic data continued to be mixed.  Durable goods orders came in better than expected with a 1.8% monthly increase.  Existing home sales improved to an annual rate of 4.77 mn for May from 4.66 mn previously, suggesting that the sector may have finally bottomed out.  Jobless claims increased to 627,000 from 612,000 previously while continuing claims rose to 6.74 mn.  The US savings rate hit a 15-year high in May which will come as a drag for near term consumer spending. This trend will likely continue. The Federal Reserve left benchmark rates on hold, stating that rates will continue to be low for an extended period.  A lack of expansion of previous asset buying programs resulted in boosting the US dollar.

 The Euro-zone PMI manufacturing indexes were stronger than expected, rising to 42.4 from 40.7 the previous month.  However, the numbers from the service sector index were slightly lower than expectations. This caused some concern that improvements were exaggerated by inventory fluctuations, although the ECB’s Weber stated that it was essential to avoid premature tightening.  In the UK, mortgage lending declined to an 8-year low for May.  Bank Governor Mervyn King reiterated that the recovery was liable to be protracted while a high degree of uncertainty exists.  The German IFO index rose from 84.2 in May to 85.9 for June. IFO officials remained pessimistic and did not see the current improvements defining a turning point in the economy.  German inflation came in 0.4% higher than expected due to increases in energy costs.

 As of June 26, 2009, the S&P 500 closed at 918.90.  Gold and crude remained strong and closed at $939.00 per ounce and $68.54 per barrel, respectively.  Next week will be a shortened holiday week in the US.  The markets will be focusing on the US Nonfarm payroll report and the ECB meeting on Thursday.

• Download full FX Weekly with chart

Published on  Wed, Jul 1 2009, 16:30 GMT