Fundamental analysis – 19th June 2012
Risk appetite was temporally back to the market after pro-bailout party got the majority of votes in Greece’s Sunday elections, offsetting concerns about Grexit. Later, however, investors preferred the dollar more, returning back to safe-haven. Doubts that Greece would be able to form a strong government and concerns about Spanish debt situation bolstered the dollar, pushing it higher versus its major European opponents and the yen. On the data front were NAHB builder confidence, which soared to its five years highest in June and housing market index, which rose to 29, while forecasts predicted 28. Turning to today, economic calendar will cover situation in construction. May housing starts are likely to increase by 0.4% m/m to 720 K after the previous +2.6% m/m. Building permits are likely to register +1.0% m/m growth after the previous decline by -5.9% m/m in April. Taking into account current political problems, market won’t probably pay close attention to these data. In the spotlight will most likely discussions of a new Greek government and measures to solve Spanish debt problems as they remain the main driving factors, able to bring back positive sentiment towards the dollar.
Euro climbed at the beginning of the session, but then was placed under pressure as market doesn’t believe that Greece would manage to form adequate government, that will follow all bailout terms with the euro zone and international creditors. Besides, Spanish financial difficulties weighed on the euro too. European economic calendar was empty yesterday. Today traders will be looking at German ZEW institute report. Forecasts predict German economic sentiment will drop from 10.8 to 2.8 in June, current assessment is likely to slip to 39.0 after 44.1 earlier. Euro zone economic sentiment may slip even deeper, posting -5.7 after the prior -2.4. These data won’t definitely have any positive impact on investors, although Greece and Spain are still the major catalysts for the trades.
Pound strengthened versus the dollar at the beginning of the day after the news from Athens came in. Later, however, the currency slipped and registered losses against the back, not as big as those of the euro though. Looks like investors considered the pound as the best safe-haven European currency. UK economic data covered Rightmove housing prices index, which registered +1.0% m/m, +2.4% y/y in June after 0.0% m/m, +2.0% y/y in the previous period. Today traders will be looking at Consumer Price Index (CPI), expected to stabilize in May, posting +0.1% m/m, +3.0% y/y after +0.6% m/m, +3.0% y/y in April. Core CPI except food and energy may even register 2.2% y/y growth after the prior +2.1% y/y. Retail sales are expected at +0.2% m/m, +3.3% y/y. Such positive data may improve negative sentiment towards the pound, caused by the BoE announcement to proceed with its monetary policy easing.
Japanese yen was driven by the general market mood and dropped versus the dollar at the beginning of the session, then strengthened, but still ended up weakening. Today’s statistics indicate Japan’s ongoing economic recovery April leading and coincident indices increased to 95.6 from 95.1 and to 96.9 versus 96.5 respectively. As for the yen’s future outlook, risk appetite will be the most important factor. News, covering stabilizing situation in Europe will weaken the yen, while negative messages will, on the contrary, initiate its strengthening. US Fed interest rate decision, due tomorrow, will be another driving factor. Any hints on another QE will trigger better sentiment towards the yen.
Analysis prepared by: