Fundamental analysis – 22nd June 2012
Looks like investors turned their eyes on the dollar on Thursday. USD appreciated versus all its major currency competitors, bolstered by uncertainty about Greece and Spain, especially after Fed decided not to perform direct QE, but only to continue Operation Twist. European economic data indicated further weakening, which was supportive of the dollar too. Messages from Japan and from Britain bolstered the currency, where both regulators expressed their readiness to commence another round of quantitative easing. US economic statistics wasn’t rich in positive releases, although it didn’t produce any negative impact on the dollar. Turning to today, nothing significant will be coming out of the United State, so market will be mostly focused on the information from other world regions, especially from Europe, where European finance ministers will be holding ECOFIN meeting to discuss urgent economic issues.
Spanish debt concerns and uncertain situation with the new government in Greece together with fears that the European Central Bank could continue cutting its interest rates pressured the euro, especially on the back of recent FOMC decision not to increase the volumes of quantitative easing, although they had been expected to. As a result, euro slipped over 150 pips versus the dollar at the end of the session. European eco statistics left much to be desired as it came in with negative releases, that indicated further slowdown in business activity (Preliminary composite PMI was unchanged – at 46.0 in June, manufacturing PMI slipped from 45.1 to 44.8, Services PMI improved to 46.8, still being in a downtrend ). German figures came in at 48.5 (composite), 44.7 versus 45.2 earlier (manufacturing PMI) and 50.3 after 51.8 (services PMI), which upset market sentiment even more. Current Account surplus narrowed to 4.6 billion versus the prior +10.3 billion Euros in March. In the spotlight today will be Ifo report, expected to add negative moods towards the euro. Business climate should have slipped from 106.9 to 105.6 in June. Current situation may register 112.0 versus the prior 113.3, expectations will be down to 99.9 after 100.9 in May. Also, market will be looking closely at political events too, especially at the news from ECOFIN meeting.
Pound was pressured versus the dollar on the overnight session as investors become more and more assured that the Bank of England may commence another round of QE as soon as at the next meeting as more policymakers express the idea of increased emission mentioning, that lower inflation creates good conditions for further monetary easing. On the data front were some positive releases, but they didn’t support the pound anyway. Economic statistics came in with increasing retail sales, which registered +1.4% m/m,+2.4% y/y in May, which had been significantly better than expected +0.8% m/m, +1.7% y/y and the previous decline by 2.4% m/m, 1.1% y/y in April. CBI reported industrial production climbed from -3 in May to +7 in June, orders improved from -17 to -11, exports rose from -12 to -4. Today nothing significant will be published in the UK, so investors will stay under the influence of external data.
USD/JPY pair continued its growth on lack of rhetoric from the US regulator to commence one more round of quantitative easing. Also, dollar was bolstered versus the yen following comments from the Bank of Japan – the regulator considered current 70 trillion yen asset purchase volume not enough and called for its widening. As a result the yen found itself at the new local minimums versus the dollar. Nothing significant came out of Japan’s economy today except for supermarket sales, which registered some growth in May – -1.7% y/y after -1.9% y/y in April. As for the yen’s outlook, it’s decline looks to be more likely, although technical factors suggest to expect a stop taking into account strong resistance level on the way.
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