Forex: Daily Outlook – Traders bail out of greenback

on Jul 11, 2013
Listen Thursday July 11th:

The dollar sharply fell against major peers yesterday following release of the minutes of the US Fed’s FOMC meeting in June, indicating that fiscal stimulus via quantitative easing is likely to remain in place for an extended period of time, and this despite improving economic indicators out of the US.
The uptrend in the EUR/USD has continued today with the pair rising to 1.3205 early in Asian trading, an advance of more than 400 pips for the euro over the price at the beginning of yesterday’s European session.

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Ahead of today’s London opening, some retracement is evident but the pair remains far from yesterday’s lows, to be currently trading at 1.3117/20.
The FOMC minutes included the news that at the June meeting, “Some [committee members] added that they would … need to see more evidence that the projected acceleration in economic activity would occur, before reducing the pace of asset purchases.”

The European Central Bank is due to publish its monthly bulletin at 09:00 BST today, with an in-depth commentary on the bank’s economic outlook.
Germany’s Wholesale Price Index will be updated at 07:00 BST. In the US, the weekly government report on initial jobless claims and the Import and Export Price Index are due out at 13:30 BST.
Daniel K. Tarullo, a member of the Board of Governors of the Federal Reserve, is expected to speak further on US monetary policy at 16:00 BST.

And the Monthly Budget Statement for June will be released by the US Financial Management Service at 19:00 BST.

Sterling also firmed against the US dollar after release of the June FOMC minutes, with the pair rising more than 300 pips after the start of yesterday’s New York trading session.
Ahead of the European opening today, the quote had given up some of those gains to be trading closer to the 1.5100 barrier.

The pound had on Tuesday dropped to its lowest level against the USD after unexpectedly weak UK manufacturing data heightened prospects of further easing by the Bank of England. Last week the BoE indicated that interest rates are likely to remain at record low levels for the foreseeable future, given fragility in the UK’s economic recovery.
Yesterday though, sterling took some comfort from the International Monetary Fund increasing its 2013 growth forecast for the UK from 0.7 to 0.9 percent, bucking the fund’s projections of weaker global growth. There was also positive news in updates yesterday on UK business optimism and services sector growth.
The yen also strengthened against the dollar yesterday, falling from 100.00 around the time of the FOMC minutes release to be at 98.27 late in Asian trading today.
The FOMC minutes indicated that many of the committee’s members wanted to see ‘further improvement in the outlook for the labour market … before it would be appropriate to slow the pace of asset purchases’.
Speaking in Cambridge MA after the release, Fed chairman Ben Bernanke said that the accommodative monetary policy, with the Fed having committed $85 billion per annum to bond-buying, is needed in the near-term. While recent updates on the US labour market, manufacturing sector, housing and other key sectors of the economy have come in better than expected recently, Bernanke noted that the unemployment remains too high at 7.6 percent.
Market expectations had been high that the Fed would begin tapering its stimulus programme by September or October but it is apparent from the FOMC minutes that any scale-back is unlikely before December at the earliest.
Earlier today Japan’s core machinery orders were reported to have risen by 10.5 percent in May, a big turnaround on the 8.8 percent fall in April and easily exceeding expectations for a 1.3 percent increase.
But today’s advances for the yen have been much more on account of weakness in the USD.
The Bank of Japan commented earlier today during its regular meeting that the economy “is starting to recover moderately”, that consumer inflation “is likely to turn positive” but that manufacturing remains lacklustre though “gradually heading toward a pick-up”. The central bank has decided on no change for now to its cash rate at 0.1 percent and other aspects of its fiscal stimulus programme.
The Swiss franc has also gained against the USD but purely on the back of weakened demand for the dollar, with no influential data out of Switzerland for the whole of this week.
On Tuesday this week, the pair rose to a six-week high at 0.9752 following mediocre Swiss retail sales data for May y/y which at 1.8 percent growth was well down on the 3.1 percent gain in April and missed expectations for 1.9 percent.
Today, the pair was trading at 0.9406 in the Asian session, though retraced to 0.9488 ahead of the European opening.
The Australian dollar has also gained against the greenback today, rising to 0.9306 in Asian trading before easing to 0.9275 ahead of the European opening.
The AUD took support from positive labour data, released during the day’s Sydney session. The Australian Bureau of Statistics said that employers had added 10,300 jobs last month in a sizeable recovery from May’s 700 loss. The June reading confounded estimates that a further 2,500 jobs would disappear in June.
The country’s unemployment rate rose to 5.7 percent in June from 5.6 percent in May.
Westpac Banking Corporation reported yesterday on consumer sentiment for July, revealing a fall of 0.05 percent, as against June’s 4.70 percent increase the previous month.
The AUD has taken several recent hits from disappointing economic data out from China. And again yesterday, when Chinese exports were reported to have fallen unexpectedly in June y/y. Imports were also down, indicating continuing weakening in domestic demand.
Chinese New Loans for June, M2 Money Supply and Foreign Exchange Reserves are all for release today.
The Canadian dollar has also continued to strengthen against the USD, with the pair falling from above the 1.05 mark at release time for the FOMC minutes to be at 1.0326 late in Asian trading today.
The CAD also benefitted when crude oil, Canada’s biggest export, traded at almost its highest level in 14 months yesterday. And on Tuesday support came also from positive Canadian housing sector data, indicating housing starts were reported to have risen by 199,600 units in June, beating expectations for a 187,000 increase, and close to May’s 204,600 rise.
Canada’s New Housing Price Index is scheduled for release at 13:30 BST.


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