Fundamental analysis – 21 June 2012
Most currency pairs traded within narrow ranges ahead of FOMC decision. USD was slightly pressured at the beginning of the day as traders were still hoping to see further QE from Fed and new coalition government to be created in Greece. Fed decision and Bernanke’s press-conference disappointed the market as the regulator decided to leave the rates without any changes and continue Operation Twist, which had been already included in the market price. Dollar rose versus its major opponents, bolstered by the absence of particular rhetoric concerning another round of quantitative easing, mentioning only that Fed will be vigilant and ready to take additional stimulus measures anytime, if the situation in the labor market doesn’t get better. On the data front today will be initial jobless claims for the last week, expected to slip by 1 K to 385 K. Preliminary manufacturing PMI is likely to post a slowdown in June, 53.7 versus 54.0 earlier. Existing home sales are likely to slip -1.1% m/m in May after the prior +3.4%. Philadelphia Fed business activity should improve from -5.8 to 1.3 in June. Taking into current market development, Fed announcement didn’t trigger any change of sentiment and investors seem to be now analyzing the information. Therefore, further consolidation within previously formed ranges in most likely.
European currency consolidated closed to its maximums and registered some profit versus the dollar at the end of the trading day. Messages from Europe and the US triggered mixed volatility. Euro was bolstered on the news that Greek politicians were about to form new coalition and on expectations of more quantitative easing in the US. As for today, quite a batch of data are scheduled to come out of the EU, most of them are likely to turn out negative. Europe’s Preliminary manufacturing PMI is expected to slip from 45 to 44.9 in June. Services PMI is expected to decline from 46.7 to 46.5. Composite PMI is likely to drop to 45.5 after the prior 45.9 in May. Euro zone Consumer confidence index leaves much to be desired too, plunging further down from -19.3 to -19.8. Current account surplus narrowed to 7.3 bln euros in April after +9.1 billion earlier. Looks like the market is now considering the results of FOMC meeting, so euro will most probably keep on trading within the ranges.
British pound sterling traded sideways on the overnight session too, but it was much more volatile versus the dollar, than the euro, most likely as there were quite a lot of significant catalysts, which triggered abrupt changes in market sentiment. Bank of England decided by unanimous vote to leave its benchmark interest rate unchanged, at 0.5% minimum. As for asset purchase, 4 of 9 member voted in favor of increasing the volumes, 5 were against. Ð’Ð¾Ð• Chairman Mervyn King had a dovish position. As a result, sterling slipped as market began to get ready for more quantitative easing a soon as in July. Fed decisions bolstered the euro, as well as positive data from the UK labor market, where the number of working population rose to its 3 year highest in the month of April. Today British economic calendar will cover retail sales index, expected to slow down on a monthly basis and with decline on an annual to +0.8% m/m, -2.3% m/m in May versus the previous +1.7% y/y, -1.1% y/y/ . CBI industrial orders is likely to slip further down to -19 after -17 earlier. As for the pound’s future outlook, economic statistics begins to produce quite a big impact on the pound’s positions taking into account the BoE’s recent information, indicating further possible softening. Currently strengthening negative trends may place the pound under pressure.
Japanese yen slipped versus the dollar on Wednesday – most likely on the back of the Bank of Japan chairman Shirakawa’s comments, that the Central Bank will take all necessary steps to ensure the country’s financial stability, which had been considered by the market as another intervention threat. Japan’s economic data, released today, indicated ongoing negative processes – machinery orders decreased by -3.0% y/y in May versus the previous -2.9% y/y. As for the yen’s outlook, further slack range trading looks to be the most popular scenario, taking into account current uncertainty in the market. On the other hand, yen may become attractive as a funding currency and then will be placed under pressure as Fed didn’t mention any further quantitative easing.
Analysis prepared by: