USD - Dollar Moves on ISM Non-Manufacturing PMI Publication
The Dollar went bullish in early trading yesterday, as U.S. equities dropped.
However, the U.S. ISM Non-Manufacturing PMI publication pushed the USD closer to its opening levels. This release is significant as it measures a large portion of economic activity in the U.S. Optimism returned to the U.S. equity markets later in the day after the index's better-than-forecast results. Thus, risk aversion dissipated as the day dragged on, despite financial turmoil threatening the EUR and GBP, as the economies of the Euro-Zone and Britain face a possible long-term financial crisis.
The Dollar hit a 1-month high vs. the GBP before losing these gains to finish almost level for the day at 1.6261. The greenback hit a 5-week high against the EUR, before also finishing virtually unchanged at 1.3964. Monday's volatility in the forex market may have been due to slightly lower than usual trading volume, coming on the back of the U.S. Independence bank holiday. The factor that also played into investor's minds was the dire unemployment figures that came out of the U.S. last week. This led to sharp movements in the forex market on Monday.
As for today, there is a lack of primary economic news, which will be coming out of the U.S. The US Building Permits figures will be published at 12:30 GMT and the Ivey PMI will be released at 14:00 GMT. A wide set of economic results will be published from Britain and Japan though, meaning the GBP and Yen may be the most vulnerable currencies as today's trading gets under way.
EUR - EUR Hits 5-Week Low vs. USD
The EUR hit a 5-week low against the USD, before recovering in late-day trading. This behavior was due to a variety of factors, such as fears about the prolonged economic crisis, as unemployment continues to grow. Furthermore, Joaqin Almunia, the EU Economic Commissioner stated that the Euro-Zone is likely to be constrained by low economic growth for the foreseeable future. The reasons for these remarks were due to the nations of Europe spending very heavily on the financial crisis. In turn, this has resulted in mounting debt that may cripple their recovery in the long-run.
The EUR/USD pair hit the 1.3875 level before recovering back towards 1.3964. Analysts are now left wondering on the state of Britain too as the island economy faces losing its AAA debt rating. If it does indeed end up losing this, then Britain's economy would be in permanent retreat, meaning the GBP will be put on life-support. However, the recent worsening of the banking situation in Germany and the threat of collapse in other Euro-Zone currencies may mean even more dire consequences for the EUR in the long-run.
Looking ahead to today, there is plenty of news that is set to determine the EUR and GBP crosses for today's trading. At 10:00 GMT German Factory Orders are set to be published. From Britain, we can expect the Manufacturing Production figures and Industrial Production figures at 8:30 GMT and Consumer Confidence at 23:01 GMT. Positive results from Britain and the Euro-Zone may lead the way for the rest of the week. This could lead to lessening risk aversion, as traders ditch the USD and JPY, in favor of the EUR and GBP.
JPY - Yen Continues its Bullishness vs. Major Currencies
The Yen continued its bullishness against the major currencies on Monday on increased risk aversion. Yesterday saw traders ditch currencies such as the USD, EUR, and GBP in favor of the JPY. Additionally, the JPY benefited from reports from the Japanese government that the worst of the economic crisis in Japan may be over. The reason for yesterday's risk aversion was due to reports that the recession is set to be prolonged. This was compounded by the dire forecasts of the economic future of both Britain and the Euro-Zone.
Today, there are many economic releases that are set to be released out of Japan in late trading. These include the Core Machinery Orders, Bank Lending, and Current Account figures that will be released simultaneously at 23:50 GMT. Leading up to these releases, forex traders are advised to follow plans from the Obama administration regarding the rising unemployment in the U.S. If his administration fails to provide answers, then the JPY is likely to continue its winning streak.
Crude Oil - Oil Tumbles on Dismal Global Economic Outlook
The price of Crude slid to a 5-week low due to a dismal global economic outlook in yesterday's trading. The price of Crude hit $63.35 a barrel before recovering slightly to $64.20 by day's end. Monday's bearish behavior was exasperated by concerns of falling fuel consumption, pushing down Crude Oil even further. These fears are likely to continue as global unemployment continues to rise, which in turns is taking its toll on falling demand for Oil.
The 6th straight trading session fall in Crude Oil prices has also led to concern amongst OPEC ministers, who would prefer to see Crude at a healthier $75 a barrel. It's important to take into account that Crude prices also fell due to the bullish Dollar throughout much of Monday's trading. The thing which is likely to continue dominating the price of Crude is news surrounding the upcoming G8 Meeting in L'Aquila, Italy on July 8th.
Article Source - Risk Aversion Subsides as Data Boosts Confidence
Key Overnight Developments
• New Zealand Business Sentiment Rebounded From Record Low, Says NZIER
• Australia Keeps Interest Rates at 3% but RBA Sees ‘Scope’ For Further Easing
The Euro slipped -0.2% against the US Dollar in overnight trading, while the British Pound slumped 0.4% against the greenback. Commodities and related stocks traded lower in Asian trading, boosting demand for the Dollar as a safe haven asset.
Asia Session Highlights
As we speculated in our weekly New Zealand Dollar forecast, the second-quarter edition of the NZIER Business Opinion Survey ticked higher to register at -25, meaning that a net 25% of the companies polled for the report believe the economy will deteriorate over the next six months. A record 65% of respondents were expecting worse conditions in the three months to March. Leading indicators were telegraphing a relative improvement, with the monthly NBNZ measure of business confidence rising steadily through the second quarter, swinging into positive territory in May for the first time since September 2008. Still, it remains to be seen if positive momentum can be maintained considering the soaring public deficit has seen Prime Minister John Key’s government abandon a hefty portion of the fiscal stimulus measures that had been included in the latest budget. Indeed, additional monetary easing may be in the cards in the weeks ahead despite RBNZ Governor Alan Bollard’s forecast that that economic growth will pick up by the end of this year.
The Reserve Bank of Australia kept interest rates on hold at 3%, as expected. In the statement accompanying the announcement, Governor Glenn Stevens sounded notably more aloof compared to recent months, saying that “credit conditions remain tight and the effects of economic weakness on asset quality present a challenge.” Stevens added that the bank sees “the outlook for inflation allows some scope for further easing of monetary policy, if needed…[and will] monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity.” The RBA chief also noted that firmer growth in China has helped Australia and noted tentative evidence the US is approaching a “turning point”, though Europe is “still weakening”. Stevens concluded that a durable recovery is contingent on “continued progress in restoring balance sheets.”
Euro Session: What to Expect
UK Industrial Production is expected to grow for the second consecutive month in May, adding 0.2%. In annual terms, the rate of decline is expected to ease to -11.3%, extending a moderation that began after the metric hit a record low at -12.8% in February. Still, output is still at the lowest levels in 17 years and unlikely to mount much of a recovery beyond smaller negative numbers in the headline figure as firms adjust inventories to lower levels of global demand. Manufacturing is the UK’s chief export sector, and the International Monetary Fund reckons world trade volumes will shrink -11% this year and rebound by a meager 0.6% in 2010, pointing to lackluster overseas demand and weak output growth for the time being.
Written by Ilya Spivak, Currency Analyst
Article Source - Australia Keeps Interest Rates at 3% but RBA Sees 'Scope' For Further Easing (Euro Open)
What is Forex?
The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.
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