By FXEmpire.com
Analysis and Recommendations:
The EUR/USD is trading at 1.2433 after the USD gained strength on the back of the services ISM report. The Institute for Supply Management’s index of nonmanufacturing businesses rose to 53.7% in May from 53.5% in April.
Equities are mixed today with indices in France and Spain higher, but Germany’s DAX is off by under a percentage point and Dow futures are lower. Currency markets are generally seek the USD safe haven with most major crosses pushing lower except for the yen (itself a safe haven). US 10s are flat at 1.52%, so are Canadian 10s at a spread advantage of 15bps, and 10 year bund yields have pushed a few basis points lower. Yields in Spain, Italy and Portugal are marginally higher. Commodities are broadly lower including small declines in oil and gold prices. There are few catalysts for this other than weak Eurozone data and uncertainty over the points of discussion in a G7 conference call.
Eurozone consumers pulled back in April and drove a larger (-1.0% m/m) than expected (-0.1%) drop in retail sales. Of the EU-27, the only countries where sales went up were Germany (+0.6% m/m) and Romania (+0.8%). Sales were flat in Bulgaria, and fell everywhere else. German factory orders fell -1.9% and by more than expected (consensus -1.2%) in April only because the prior month was revised up a full percentage point to +3.2 and thus posed a higher than expected jumping off point. On a level trend basis, new orders peaked in June of last year then swooned through to September and have been volatile within a tight range ever since.
The G7 phone conference yielded little results and was restricted to conversations regarding Spain. While Europe will be a focal point, no clear agenda is available and the outcome is likely to yield general statements or silence across It’s pure speculation whether the call is about a push toward some grand plan for Europe in advance of the bigger G20 Summit in Mexico on June 18th-19th, or (more likely in my opinion) quite the opposite in terms of preparing contingencies for worst case scenarios surrounding Greek elections on the 17th and Spain’s bank funding requirements.
The RBA cut interest rates from 3.75% to 3.5%. The 25bps cut was in line with both market estimates. AUD is fairly flat on the day, having appreciated going into the meeting as markets came to grips with the RBA only chopping 25bps off of its overnight rate (as opposed to the 50bps that some expected). The AUD has now cut its benchmark interest rate by 75bps in two meetings. The RBA cited the following rationales for its rate cut: a) global financial conditions have deteriorated; b) domestic financial conditions and particularly borrowing rates are only marginally below historical levels, c) the domestic economy and particularly the housing market is somewhat depressed, d) “households and businesses exhibit a degree of precautionary behavior,” e) slower Chinese growth poses a threat to commodity prices and the economy over all. All of these 3 conditions are likely to persist over the coming quarters except for the one that the RBA can control somewhat: domestic borrowing rates. That’s probably why OIS are pricing 2 more 25bps rate cuts by the end of September and a cumulative 75bps of rate cuts with a 50% probability of a further 25 over the next year. The RBA will make rate announcements in July, August, and September, so markets are looking for two more cuts over the course of the three meetings.
After a rather disappointing payrolls numbers from the US on Friday, market onlookers would be ardently looking forward to the Federal Reserve Chairman Bernanke’s testimony before the Congress on Thursday, where a possible hint of QE3 could be on cards. With Europe pulverized under severe strain of rising debts, all eyes would be on the European Central Bank (ECB) meeting on Wednesday, where President Draghi is expected to retain the rates at 1 percent but could initiate bond buying action amid spreading contagion. This evening, no major economic data are scheduled but events unfolding in Europe are likely to weigh on market mood, but hopes of a QE3 could rejuvenate market entities in coming days.
FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports
Economic Data for June 5, 2012 actual v. forecast
|
Date |
Currency |
Event |
Actual |
Forecast |
Previous |
|
Jun. 05 |
AUD |
Current Account |
-14.9B |
-14.8B |
-9.6B |
|
AUD |
Interest Rate Decision |
3.50% |
3.75% |
3.75% |
|
|
EUR |
Retail Sales (MoM) |
-1.0% |
-0.1% |
0.3% |
|
|
EUR |
German Factory Orders (MoM) |
-1.9% |
-1.0% |
3.2% |
|
|
Building Permits (MoM) |
-5.2% |
-2.0% |
4.9% |
||
|
CAD |
Interest Rate Decision |
1.00% |
1.00% |
1.00% |
|
|
USD |
ISM Non-Manufacturing Index |
53.7 |
53.5 |
53.5 |
Upcoming Economic Events that affect the CHF, EUR, GBP and USD
|
Date |
Time |
Currency |
Event |
Forecast |
Previous |
|
Jun 6 |
|||||
|
8:30 |
GBP |
55.8 |
|||
|
10:00 |
EUR |
2.8% |
|||
|
11:45 |
EUR |
1.00% |
1.00% |
||
|
12:30 |
EUR |
||||
|
14:30 |
USD |
||||
|
18:00 |
USD |
||||
|
23:01 |
GBP |
-3.3% |
|||
|
Jun 7 |
7:00 |
CHF |
235.6B |
||
|
7:15 |
CHF |
0.1% |
|||
|
8:30 |
GBP |
53.3 |
|||
|
11:00 |
GBP |
325B |
|||
|
11:00 |
GBP |
0.50% |
0.50% |
||
|
12:30 |
USD |
383K |
|||
|
14:00 |
USD |
||||
|
Jun 8 |
8:30 |
GBP |
-1.5% |
||
|
8:30 |
GBP |
3.5% |
|||
|
12:30 |
USD |
-51.8B |
|||
|
14:00 |
USD |
Government Bond Auctions
Date Time Country
Jun 06 09:30 Germany
Jun 06 09:30 Portugal
Jun 06 14:30 UK
Jun 07 00:30 Japan
Jun 07 08:30 Spain
Jun 07 08:50 France
Jun 07 09:10 Sweden
Jun 07 15:00 US
Jun 08 10:00 Belgium
Jun 08 15:30 Italy
Click here for further EUR/USD Forecast.
Originally posted here
