Fundamental analysis – 15th June 2012
Traders continued correcting their positions on Thursday, so USD was slightly selling off, loosing against all its major opponents at the end of the session. Euro was the most attractive among investors, following rumors that European banks were getting ready to take coordinated action, if Greek elections end up with negative results. At the same time, rising Italian and Spanish bond yields didn’t hinder euro’s popularity, as well as messages that France’s rating had been cut by Egan-Jones. Turning to today, of interest should be US Net Long-term TIC Flows, expected to increase from 36.2 bn dollars in March to 45.3 billion dollars in April. Consumer confidence index, released by Michigan University, is likely to slip from 79.3 to 77.5 in June. Speaking of the dollar’s future outlook, the buck’s sell off should halt as investors will mute their trading activity ahead of the elections in Greece and concerns for the results.
Euro appreciated on the overnight session driven by the rumors that European banks were set to take coordinated measures in case bad news come from Greek elections. Even negative data from debt markets didn’t produce any influence on the euro, even though Italy’s bond yields almost doubled, posting 5.3% and 6.13% versus 3.91% and 5.33% earlier. EU data front wasn’t positive of the euro either – Consumer price index slipped below its annual low in May, posting 2.4% y/y versus 2.6% y/y in April, which increases the possibility of more economic stimulus from the ECB. As for the euro’s outlook, the biggest threat for the currency is uncertainty about the upcoming elections in Greece, scheduled on Wednesday. If there occurs another possibility that Greece will refuse to perform earlier obligations to international creditors, euro will recommence its decline. At the same time, even if new government sticks to the agreements with the euro zone, the euro’s future doesn’t seem positive anyway, although short-term growth is probable.
British pound climbed versus the dollar on the overnight session, although market sentiment towards the sterling wasn’t as positive as towards the euro. Dovish rhetoric from the Bank of England, which raised concerns about more stimulus of the economy, held back the pound’s growth. Nothing significant came out of the UK economy yesterday. Today’s data front won’t be rich in significant events either. British trade balance is the only index to be released. April figures are expected to come in with narrowing deficit, from -8.6 to -8.5 billion pounds.
Japanese yen attempted to strengthen on the overnight session and managed to register some growth against the dollar at the end of the trading day, despite the fact, that its ascension was hindered by the Bank of Japan’s warnings to take decisive measures in order to weaken the national currency if the situation requires. Looks like the yen was attractive as a safe haven asset on the back of increasing uncertainty. Today yen has already begun to appreciate and is now demonstrating growth against the dollar and its European opponents. BoJ has left its benchmark interest rate between 0 and 0.1% and asset purchase at 70 trillion yen, which might have sparked yen’s purchases. However, further yen’s growth is unlikely, taking into account growing BoJ intervention threat.
Analysis prepared by: