| ADVFN III | Weekly FOREX Currency REVIEW | |
| Global Forex News from ADVFN |
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Friday, 28 September 2012
| Weekly Market analysis |
The Federal Reserve
quantitative easing will tend to keep the US dollar on the defensive
and also help underpin global risk appetite. There will be the
increasing threat of stresses between all major economies as they look
to resist currency gains and there will be also be continuing concerns
surrounding the global economy, especially with the potential for
Euro-zone stresses to intensify again over the next few weeks.
Key events for the forthcoming week
| Date | Time (GMT) | Data release/event |
| Tuesday October 2nd | 04.30 | Australia interest rate decision |
| Thursday October 4th | 11.00 | Bank of England interest rate decision |
| Thursday October 4th | 11.45 | ECB interest rate decision |
| Friday October 5th | 12.30 | US employment data |
Dollar:
There will be further uncertainties surrounding the US economic outlook,
especially after weaker than expected data this week. The Federal
Reserve will maintain a very expansionary monetary policy which will
have an important impact in curbing underlying dollar demand. There will
also be important fiscal uncertainty given that without any
congressional action, there will be sharp tax increases next year.
There is still the potential for the US economy to out-perform much of
Europe which should provide some degree of dollar support. There will
also still be protection from underlying fears surrounding the global
growth outlook as fear is liable to increase again.
The dollar strengthened
during the first half of the week before retreating as the Fed’s
quantitative easing programme was important in sapping underlying
currency support.
The latest US consumer confidence index
was stronger than expected with an increase to above the 70 level for
only the fourth time since early 2008 with a reading of 70.3 from a
revised 61.3 previously. There was a gain for the Richmond Fed index
and there was also a 1.2% annual increase in the Case-Shiller
house-price index. The data will maintain a generally stronger tone
surrounding the consumer sector and expectations that the US economy
will be able to out-perform Europe. There were, however, concerns
surrounding the US fiscal situation as Congress faces US$600bn in tax
increases and spending cuts in 2013 unless there is a political deal.
There
were a series of significant US economic release during the session.
The headline durable goods orders was much weaker than expected with a
decline of 13.2% for August following a revised 3.3% gain the previous
month and there was an underlying fall of 1.6%. Second-quarter GDP was
revised down to 1.3% from a provisional 1.7%, but the labour-market data
was more favourable as jobless claims fell to 359,000 from a revised
385,000 the previous week. The data overall maintained unease
surrounding the growth outlook and underpinned the dovish Fed case
| Euro |
There
will be expectations that Spain will apply for a bailout package in an
attempt to stabilise the economy and these expectations will provide
some initial Euro support, especially as it would help the ECB launch
its bond-buying programme. The short-term economic outlook remains
extremely weak which will maintain fears over underlying stability and
there will be aggressive political pressures for the a change of policy.
There will also be major fears that the austerity measures will push
the economy deeper into recession. There will also be major doubts
surrounding the Greece situation. There is a high risk that the Euro
will face another period of high turbulence and potential losses.
The Euro retreated to the lowest point since early September before recovering as key technical support levels near 1.2825 held firm.
There
was further uncertainty surrounding the Spanish economy and potential
request for an request package. The Catalan Premier also stated that it
would call early elections for November 25 which fuelled underlying
political uncertainty as Andalucia warned that it might seek a EUR4.9bn
central-government loan. In addition, there was a wider than expected
budget deficit for the first eight months of the year as revenue fell
4.5% to give a deficit of 4.8% of GDP. The violent protests in Spain
against austerity also had an important impact in undermining
confidence.
There were also expectations that the ECB bond-buying
plans could face a legal challenge which could disrupt the central bank
plans. The joint statement from Germany, Finland and the Netherlands
that ESM funds should be used for difficulties that occur under new
supervision, but that legacy assets were the responsibility of national
governments also had an important impact in undermining confidence.
There was also further uncertainty surrounding the Greek economy and
political conditions with reports that the government would formally
apply for a two-year extension for loan programme. There were further
concerns surrounding the Greek outlook as a 24-hour general strike took
place.
Economic fears also remained a key focus, especially with
the Bank of Spain’s monthly report warning that there was a further
significant economic contraction during the third quarter. Market
confidence quickly deteriorated as Spanish bond yields rose to around
the 6.0% level. There was a weaker than expected reading for Euro-zone
money supply growth and bank lending which maintained unease surrounding
a deepening recession.
Spain remained a very important
market focus as the government presented its 2013 budget proposals. The
administration is aiming to cut the deficit to 4.5% of GDP next year
from a projected 6.3% this year with EUR40bn of spending cuts. The
government also announced that the social security fund would be tapped
for around EUR3bn to underpin current spending.
There was an
initial negative market reaction to the proposals with a lack of
confidence in both the budget and economic outlook with the Euro
retreating to test key support in the 1.2825 region.
The Euro recovered
rapidly with speculation that the government was putting in place the
necessary structural framework for a sovereign aid package. There was
still uncertainty surrounding the banking sector with stress-test
results due to be presented on Friday. Political tensions also remained
high as the government pledged to block and independence referendum in
Catalonia
Yen:
There
are likely to be important concerns surrounding the growth outlook,
especially with the industrial sector facing renewed pressure. The Bank of Japan
will remain under strong pressure to enact even more quantitative
easing, especially with demands for the yen to be weakened. There will
be fears surrounding the global growth outlook and there will also be
potential capital inflows into Japan given a lack of confidence
surrounding the Euro-zone and US fundamentals. Given these pressures,
the yen can remain broadly resilient.
The yen proved
broadly resilient during the week as a lack of confidence in major
alternatives helped provide underlying support as the dollar dipped
below the 78 level.
The yen dipped weaker following a statement
from Bank of Japan member Sato that it won’t hesitate to ease monetary
policy further if necessary. There was also still underlying caution
over the potential for Bank of Japan intervention.
The latest industrial production data was weaker than expected with a 1.3% decline for August and the PMI manufacturing
index remained below the 50 level, although the latest retail sales
data was stronger than expected. The data overall maintained pressure
for further monetary action from the Bank of Japan. The dollar remained
on the defensive and dipped to test support below 77.50.
| Sterling |
There
will be expectations of an improved third-quarter economic performance,
but there will also be unease that the economy will falter again during
the fourth quarter, especially with weak Euro-zone conditions. There
will be speculation that the Bank of England will sanction
further quantitative easing in November. For now, in relative terms,
Sterling should be able to gain some protection from the aggressive
monetary action elsewhere. The latest balance of payments data is likely
to unsettle medium-term confidence and Sterling will still find it
difficult to gain strong support, especially with risk appetite liable
to fade.
Sterling held a firm tone during the week as it
challenged 5-month highs around 1.63 against the US currency. There were
reports that the UK could receive around GBP3bn in farming-related
subsidy payments this week which provided some underlying Sterling
support. There were still concerns surrounding the underlying UK
fundamentals, especially after the weaker than expected government
borrowing data.
The latest Bank of England credit
conditions survey reported an improvement in consumer conditions, but
there was also evidence of further deterioration in the business sector.
The CBI retail sales survey was marginally stronger than expected at +6
for September from -3 previously and there was an element of optimism
surrounding October, although the underlying impact was limited.
UK GDP
for the second quarter was revised to -0.4% from -0.5% previously which
provided some net support for Sterling. In contrast, the latest
current account data was substantially weaker than expected with a
shortfall of GBP20.8bn from a revised GBP15.4bn the previous quarter.
Although the immediate impact was limited, there will be unease
surrounding the medium-term currency implications.
Swiss franc:
The
expansionary monetary policies in the G7 area will maintain the
potential for defensive capital inflows into the Swiss franc and the
currency will also gain important support from fears surrounding the
medium-term Euro-zone outlook. Although the National Bank has
managed to push the Swiss currency away from the 1.20 minimum level,
there will be speculation that the minimum level could be subjected to
renewed pressure. There is, therefore, still the potential for capital
controls over the next few months.
The Euro managed to
find support in the 1.2080 area against the franc and rallied back to
the 1.21 area as wider selling pressure on the crosses eased. Erratic
trading was again a feature against the US dollar with the franc
eventually advancing towards the 0.9360 area.
The Spanish budget
will reinforce speculation over a bailout for the country, but is also
liable to reinforce longer-term fears surrounding the outlook which will
maintain the threat of defensive capital inflows into the Swiss franc.
|
| Australian dollar |
The Australian dollar
retreated to lows near 1.03 against the US dollar during the middle of
the week before rallying again as TH US currency was unable to hold
gains.
There were continuing fears surrounding the global growth
outlook which sapped demand for the Australian currency. These fears
were offset by monetary action already taken and by expectations that
there will be further measures to support global demand, especially from
China.
The domestic influences were relatively limited,
although there were expectations that the Reserve Bank of Australia
would cut interest rates during the fourth quarter.
Continuing
vulnerability in the Chinese economy is likely to undermine commodity
prices is curb any significant Australian dollar gains given domestic
vulnerability.
Canadian dollar:
The Canadian dollar
weakened during the week as a whole, although there was support in the
0.9850 region against the US currency. The Bank of Canada near-term
monetary stance continued to provide underlying support for the Canadian
currency, but there were underlying concerns over the housing sector.
The Canadian currency
was also hampered by general concerns surrounding the global growth
outlook and potential downward pressure on commodity prices.
It
will be difficult for the Canadian dollar to make significant gains
given persistent global growth doubts even with the Bank of Canada
holding policy steady.
Indian rupee:
The
rupee was able to maintain a firm tone during the week and pushed to
five-month highs beyond 53 against the US currency. There was a
significant boost to international confidence following the government
pledge to maintain the reform programme and capital inflows were robust
which provided important support.
The currency also continued to gain net support from the loose US monetary stance which curbed dollar demand.
Dollar
vulnerability and improved risk appetite will offer near-term rupee
protection with rising capital inflows, but it will be difficult to make
further gains.
|
| Hong Kong dollar |
The Hong Kong dollar
maintained a generally firm tone during the week and tested resistance
levels beyond 7.7520 before drifting slightly weaker. There was further
support from the Federal Reserve quantitative easing, especially with
medium-term inflation fears surrounding Hong Kong which would increase
pressure for the local currency to be revalued.
The very loose US monetary policy
will continue to underpin local asset prices and provide underlying
Hong Kong dollar backing despite the regional growth concerns.
Chinese yuan:
The yuan maintained a firmer tone during the week and held close to five-month highs against the dollar as the US currency
maintained a generally weaker tone. There was further evidence of weak
dollar demand as there was further dollar supplies from the corporate
sector which had an important impact.
The PBOC was very
aggressive in injecting funds into the money markets late in the week
with net inflows of CNY365bn ahead of the extended holiday period next
week.
There is still little scope for sustained yuan gains
given that economic fears are liable to increase again while demands for
exports to be protected are likely to increase.
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