Fundamental Report for the Week of June 20, 2010

Monday, June 21, 2010

Risk appetites increased significantly in the rolled over Asian session creating a USD selling frenzy almost across the board as China officially announced it is creating a true floating currency and unpinning the Yuan’s price from that of the USD.

The one notable exception was the USD/JPY which interestingly created a converse reaction to the news, strengthening to the JPY side of the pair rather than the usual weakening during the period of market confidence.  I’ve mentioned the possible decoupling of the Yen as a proxy for risk and we may be seeing more of that in the near future.

The biggest winners on the shift in Chinese sentiment were the commodity pairs with the CAD’s increase to near parity and the AUD and the NZD both retesting values that haven’t been hit since mid-May.  These will be the primary focus of my attention over the coming months as this week’s news supports last week’s news out of Russia to diversify more into commodity backed markets.

On a purely economic level, New Zealand did produce positive Visitor Arrivals in May, moving from -1.8% to 1%.  Combining that with their positive May Credit Card numbers there may be a bit of a surprise out of June’s Retail Sales that could further boost this pair out of its 2010 descent.

With no real news to further the rally, the New York session did not pick up where the European session left off, however, as the exchange market cooled off and returned to its end of week levels from Friday.

Tuesday, June 22, 2010

I can’t seem to find any news on what British Chancellor George Osborne actually said at his emergency budget meeting, but whatever it was it was enough to create a short term boost to the Cable, bringing it back to 1.48 after the Asian and European session sell off action.  The pair remains stuck there, by the end of NY session, mostly on what seems like overall market malaise after a somewhat uneventful news day.

There was a kick to the head coming out of the U.S. that led to some USD weakness for a little while in a surprising downturn in US Home Sales.  Normally, this announcement is not market moving, however when market expectations are expecting a 430K increase and is met with a decrease of 1 million the shock to the system can sway market sentiment, especially as it is still somewhat gun-shy when it comes to any sign of risk – or at least any sign that stabilization/growth aren’t going as well as hoped.  One more thing to note is the decrease of the Richmond Fed Manufacturing Survey decreased (predictably) from 26 to 23.  By itself, it doesn’t mean much…but it is the 2^nd of 6 similar announcements that I watch as clues to Gross Domestic Product (GDP) to decrease in June.  July may offer a bit of surprise in the production and manufacturing arena.

The Euro seemed to be making some strong, corrective measures away from its recent highs off of slow news and a decreasing Current Account.  That by itself isn’t any surprise, but I think the market was really moving more on news coming out of the European Commission who is touting the idea of an additional tax on funds being loaned to countries that violate the debt rule established by the Union.  While no clear decision has been made yet, the risk that the EU may be, yet again, in a state of flux was impetus enough to move the Euro short.

The EUR/JPY and GBP/JPY seem primed for a sell off as well and it will be interesting to see if the JPY side of that will re-coordinate with risk aversion which will be the first I’ve seen of it since Hatoyama resigned a couple weeks ago.

The NZD/USD seems to be seeing more positive signs than anyone since they’ve posted positive Credit Card Spending for the month of May.  Last week they increased in Visitor Arrivals as well which bodes well for their Retail Sales numbers.  Remember, they’ve also got a lot to gain from Russia and China’s new investment plans into commodity currencies and are still under pressure to increase rates. So the down trend on this pair may be finishing off for the time being.

Wednesday, June 23, 2010

A dissenting voice in the Bank of England’s meeting set the tone for the day as Andrew Sentence became the first within the institution itself to make a case for a rate increase citing the strengthening economy and inflationary pressure within the British economy as reason for flexibility.  Though the BoE sees more reason to remain cautious and has kept rates at .5% the GBP/USD rose past long held resistance near 1.4950 on the news.

Not the only surprise in today’s marketplace, the European Central Bank actually added stimulus, in the form of government and corporate treasury instruments, to the floundering economy which took back the Euro-session gains for the USD and boost the EUR/USD back up to 1.2300.  The Euro was in desperate need of this push, today in particular, since the entire Euro Session was comprised of negative Purchasing and Production news.

The Federal Reserve was quick to jump on the Euro-Zone’s troubled economic picture and coupled it with the US’s surprisingly low Home Sales news (-32.7% in May vs April’s 14.8%) to point to a stumbling point in global economic growth.  Speculation was enough to stall the markets for the remainder of the day.

The one notable exception to the stall was the CAD as it hit its own speed bump with lagging Retail Sales numbers (from 2.1% to -2%) as was telegraphed by last week’s Wholesale Numbers which slumped into negative territory as well. The USD/CAD climbed to 1.0420 level on the news.

Thursday, June 24, 2010

It was a slow day today with no real surprises. The USD managed to hold its ground even with an expected, but depleted Durable Goods number (from 2.8% to -1.8%).  It seems there was a little return to ‘normalcy’ in the market place as signs of global economic slowdown (dare I say turnaround) seemed to bring a hint of risk aversion back to currency prices across the board.  Even strengthening the JPY a bit on the fear injected from poor US and Euro news as both equities markets plummeted.

The Kiwi was able to hold its ground near recent highs however with a continued increase in Trade Balance, jumping to 767M in May over April’s 656M.  New Zealand has experienced an increasing Trade Balance every month this year further lending credit to the underlying fundamentals for the currency.

With no strong reports to move the Cable one direction or the other it stalled near 1.50 and pulled back slightly to 1.45 on what seems to be simple ‘wait and see’ kind of behavior.

Friday, June 25, 2010

Germany’s Import Price Index gave mixed data, MoM falling from 2% to .6% and YoY rising from 7.9% to 8.5%.  Without a clear picture regarding Europe’s biggest producer’s expenses the Euro merely consolidates while the markets seem to be unsure how to proceed before this weekend’s G-20 meeting.

Similarly, the GBP’s recent climb seems to be over as UK’s Prime Minister Cameron and his austerity measures (why can’t people just say tightening economic plan?!) prepare to take center stage this weekend as the big money waits in the wings to determine if the plan will strike the necessary balance between a sensible budget and room for growth.

Positive US GDP and a rise in the US equities market seemed to inject some late week confidence into the marketplace with a end of NY session USD selloff as the EUR, GBP and CAD climbed on the increased risk appetite.  The risk pairs, interestingly, merely consolidated and it will be interesting to see what happens on Sunday/Monday after the G-20 meeting results are reported.

Next Monday:

• EUR  Germany’s CPI
• USD  Personal Income
• USD  Personal Spending
• USD  Dallas Fed Manufacturing Activity

Next Tuesday:

• CAD Industrial PPI
• CAD Raw Materials Price Index
• CAD GDP

Next Wednesday:

• EUR Germany’s Unemployment
• GBP Gross Domestic Product
• USD Chicago PMI

Next Thursday:

• NZD ANZ Commodity Price
• EUR Germany’s Manufacturing PMI
• GBP Manufacturing PMI
• USD ISM Manufacturing PMI

Next Friday:

• EUR PPI
• USD NFP
• USD Factory Orders

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