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Euro is the Currency to Watch Out for This Week

Tradervox (Dublin) - For the past few weeks, the 17-nation currency has been considerably subdued by other major currencies such as the yen and the greenback. This has been experienced as European leaders struggled to conjure up with a solution to the debt crisis in Italy, Spain, and the most difficult has been Greece. This week, however, is set to see some change. Euro traders have their eyes fixed on the upcoming euro area Finance Ministers meeting in Copenhagen which is expected to cause some volatility in the euro market. The meeting is aimed at setting a formidable financial firewall that had been suggested as something the European leaders needed to do in order for the single-currency block to safeguard against default.

There has been a heated debate with leaders split on whether a large firewall was necessary. However, two of the most vocal opposition to the establishment of a formidable financial firewall has indicated that they are now ready for such creation in order to avert the crisis in the region. Both Germany and Finland, which initially opposed the creation of a stronger firewall, have in recent times suggested that a major firewall might be necessary for European Union. According to Jyrki Katainen, Finland prime Minister, his country is ready to compromise in order to allow the region to recover from the debt crisis that might spread throughout the euro zone. These comments resonate with unofficial news from Germany showing that the country is also entertaining the idea of creation of a bigger firewall.

The development in the establishment of this major financial firewall has now left the European leaders with the task of establishing the mechanisms of combining the European Stability Mechanism and the European Financial Stability Facility. Combination of these two institutions would create a 750 billion firepower that excludes the 200 billion that has been approved for payment to already troubled nations. This would open the way for the region to get help from other countries such as Brazil, China and Russia through the IMF.

The Euro area finance ministers will meet at the end of the week, but traders will be eying comments from the region’s leaders. 1.33 and 1.35 technical resistances will be the main focus for traders leading up to the meeting.

Source: Euro is the Currency to Watch Out for This Week | Tradervox

 

Pound Falls to Five Week Low Against the Euro

Tradervox (Dublin) - A report from the Office for National Statistics showed that the UK economy shrunk more than it had been expected in the last quarter forcing the sterling pound to decrease against the euro to five month’s low. This has been construed to mean that the government will now be considering more seriously about another round of asset purchases to accelerate growth in the country.

The sterling pound fell against the euro and the dollar for the second day paring its gains since the start of the year. The statement also showed that the household disposable income also decreased over the last quarter indicating that the UK economy is struggling to recover from the aftershocks of the Euro crisis. The country is on the risk of losing its AAA credit and investment rating from Fitch and Moody’s respectively.

According to Mervy King, the Bank of England Governor, the economy might be in need of another quantitative easing operation in order to jump start economic recovery in the country. The BOE Governor indicated that he has an open mind about the prospect of another asset purchases program. Some analysts have talked about the disappointing report saying that this has put the sterling pound on the “back burner.”

The sterling pound weakened by 0.6 percent to trade at 83.95 pence per euro, this is registered as the biggest drop since February 22. The pound then dropped further to trade at 83.88 pence per euro which was 0.5 percent during the London session. The sterling pound also dropped against the dollar by 0.7 percent to trade at $1.5847; the pound had increased by 2.1 percent against the dollar over the last three months.

The Office for National Statistics indicated that the Gross Domestic Product (GDP) dropped by 0.3 percent in the last quarter which higher than what analysts were expecting, which was a 0.2 percent decline. This now marks a second successive decline in the UK economy putting more pressure on the BOE to take strong measures to put the economy back on track.

Source: Pound Falls to Five Week Low Against the Euro | Tradervox

 

Reserve Bank of Australia is likely to keet interest rates unchanged

Tradervox.com (Dublin) - The Reserve Bank of Australia is expected to leave the rates unchanged at its next meeting. The bank had reduced the interest rate in November and December but still remains the highest interest rate among the developed nations. However, according to Credit Suisse Group AG Index, traders are expecting a 0.74 percent cut on overnight swap rate.

The speculation about the interest rate remaining unchanged and the favorable factory data from US have led to an increase in the value of the Australian dollar ahead of the meeting. The Aussie gained against most major currencies. The Australian dollar registered its highest intraday rise against the dollar after the US factory data reported and expansion from 52.4 in February to 53.4 in March. This is a higher than expected expansion as most analysts were expecting an expansion to 53. The New Zealand dollar also rose against the US dollar after the US manufacturing data was released.

The Australian dollar rose by 0.7 percent to exchange at $1.0419 from its opening day trading level of $1.0418. The Aussie registered an increase of about 1.2 percent against the greenback yesterday, which is the highest intraday increase since January 25. The other south pacific dollar –the Kiwi, was gaining against the greenback adding 0.6 percent to sell at 82.34 US cents.

There is a discrepancy in the expectation of traders and analysts on whether the RBA will hold its interest rate or it is going to reduce it. Most analysts are saying that the RBA meeting will resolve to hold the interest rates while a survey on traders’ sentiments indicate that they expect the RBA to reduce the interest rate by 74 basis points.

The Australian dollar is almost to six months low against the New Zealand dollar as traders expect the result of the RBA meeting today. The Australian dollar fell by 0.1 percent against the kiwi to exchange at NZ$1.2641 at early trading in Sydney. The Aussie was weakened against the yen by 0.3 percent to trade at 85.30 yen. The Aussie has also continued with its advance against the greenback adding 0.1 percent to trade at $1.0425.

Source: Reserve Bank of Australia is likely to keet interest rates unchanged | Tradervox

 

Pound Advances Against Euro As Italian Bonds Fails to Impress

Tradervox.com (Dublin - Despite a trade report showing the trade deficit expanded more than it had been expected, the sterling pound gained against the yen and the euro. Sentiments from the Bank of Japan Governor stating that the bank is ready to make some “powerful easing” the yen has dropped against major peers including the pound. In Europe, economic reports released yesterday failed to make any meaningful impact with the ECB Monthly Report giving nothing unexpected. The euro-zone industrial production reports were mixed counseling their impacts in the market. In addition, investors were looking at the Italian auction which failed to impress hence farcing traders to buy the sterling pound as a safe haven currency.

Technical reports on GBP/USD cross are showing that the failure to generate fresh momentum above 1.6000 and the bearish reversal which have been seen in the recent days may suggest that the market could be looking for a decline in the following sessions. A break and close lower than the next support of 1.5800 would affirm a bearish trend over the next few sessions while a close of above 1.6065 would negate this bearish outlook.

Trade report showed that the trade deficit widened in February more than it had been expected registering 8.77 billion pound trade deficit from a 7.88 billion pounds trade deficit in January. Economists were expecting a trade deficit of about 7.65 billion pounds. The increase if the pound against the euro has been explained as a result of the pound being at a better position than the euro hence investors are looking at it as a safe haven.

The pound registered an increase of 0.1 percent against the euro to trade at 82.36 pence per euro during the London session. It had earlier advanced to 82.27 pence, which is the strongest it has been since January 9. The sterling pound increased by 0.3 percent against the dollar to trade at $1.5959 while it rose by 0.5 percent against the yen to settle at 129.22 yen.

Source: Pound Advances Against Euro As Italian Bonds Fails to Impress | Tradervox

 

Canadian Dollar Advances on Fed Officials’ Comments

Tradervox.com (Dublin) - The week started with Fed Chairman raising concerns about the economy saying that the accommodative monetary policy is necessary for the recovery process. These comments have been followed by similar comments by different Fed officials including the Federal Reserve Vice Chairwoman who Janet Yellen who said that the interest rates should remain low to support economic recovery. These comments have also been supported by New York Fed President William Dudley and the Atlanta Fed President Dennis Lockhart saying the accommodative monetary policy is necessary. These comments are some of the factors that have resulted to the loonie’s advance against the greenback.

The disappointing NFP data and the recent weekly jobless claim data have also added to the weakening of the dollar raising the prospects of the Canadian dollar. Further, investors are optimistic about the prospects of the Canadian economy expecting the BOC to review its outlook upwards in the coming meeting. According to Michael Woolfolk from New York Mellon Corp in New York, the larger than expected jobless claims figures will remind people of the NFP data, which will lead to a decreasing US dollar and concerns about the trend of the US economy.

The current speeches by Fed officials have been construed as a way of reminding the market what the Federal Reserve is doing to enhance the economic recovery. The recent series of negative reports from the US has solicited fears that the US economy may be changing its trend and concerns have returned of another round of quantitative easing if the trend changes. In the recent FOMC minutes, Fed official indicated that they would change their stance on monetary policy if something drastic happened. Traders and investors are checking the trend and the reports to see whether this is a drastic change in the economic trend.

These series of events and reports have led to an increase of the Canadian dollar by 0.5 percent against the US dollar to trade at 99.86 cents per dollar.

Source:Canadian Dollar Advances on Fed Officials’ Comments | Tradervox

 

Sterling Advances as Speculation Concerning QE Continues

Tradervox.com (Dublin) - The pound has been on demand as debt crisis in Europe aggravated to levels after Spain was degraded on Standard & Poor’s credit rating. Despite UK slipping back into recession, the demand for safety of the pound was high throughout the week. Moreover, speculation that Bank of England might pause its stimulus program has also boosted the demand for the sterling pound for the second week.

The pound is experiencing demand as reports of Spain demotion by Standard and Poor’s was released and reports from US showed that the US economy slowed in the last quarter. The Sterling Pound rose to 22-month high against the euro as traders sought for its safety. It is increased to the highest since September against the greenback after the report showing decline in growth was released.

Steven Barrow of Standard Bank Plc in London said explained the strong pound saying that despite the surprise in UK GDP, the monetary sentiments, and general economic reports from elsewhere seem to be weaker than those in UK hence leading to a demand of the euro. He predicted that if the data from UK stood out as weaker than in other areas, then the pound would have suffered.

The Bank of England meeting on May 9-10 will deliberate on whether to extend the QE program. In their last meeting, the Monetary Policy Committee members supported the current 325 billion-pound QE program and suggested that they first finish it before considering another one.

The pound advanced against the dollar by 0.8 percent on the previous week to trade at $1.6243, it had risen to the highest since December 1 when it touched $1.6258. The Great Britain Pound gained 0.5 percent against the euro to exchange at 81.59 pence per euro. It had earlier reached a high of 81.34 pence per euro, which is the strongest since June 2010.

Source: Sterling Advances as Speculation Concerning QE Continues | Tradervox

 

Contraction in The US Manufacturing Might Spell Doom

Tradervox.com (Dublin) – A report by Tempe, an Arizona-based group reported that the manufacturing in the US unexpectedly contracted in June. This is the first time a contraction has been registered since the US economy rose from recession in 2009. Most economists have indicated that the contraction is an indication of a faltering economy, which has raised speculations for third round of quantitative easing. The ISM index fell from 53.5 registered in May to 49.7 for June indicating a contraction. Any reading below 50 indicates a contraction; the index reflects measures of orders, export demand, and production in the country. After the release, investors showed concern that the Europe debt crisis is taking a toll on the world’s largest economy hurting manufacturers such as Steelcase Inc. and DuPont Co. Analysts are expecting to see more vigilante consumers while companies are expected to cut back on investment. This will have a ripple effect on the employment data and the unemployment claims will probably rise.

According to Neil Dutta, who is the Head of US Economics in New York at Renaissance Macro Research LLC, said that the manufacturing in US is contracting as uncertainty weighs down on business. Further, he added that the Europe crisis has weighed on exports. The recent report on the ISM index is the lowest since July 2009, indicating a downward trend in the US economy. The index averaged 57.3 and 55.2 in 2010 and 2011 respectively. It is expected that this year the average will be at 53.5 on average.

However, Nigel Gault, has indicated that the economy is not in recession. Gault is IHS Chief US Economist in Lexington Massachusetts. He said that recession is accompanied by ISM readings of lower 40s, where 42.6 is the level that generally shows an expansion in the whole economy. Another report from the Commerce Department showed an improvement in the housing sector where purchases of new houses rose by 7.6 percent in May which is the highest level since 2010.

Source: Contraction in The US Manufacturing Might Spell Doom | Tradervox

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Loonie Advances on Crude Oil Surge and ECB Rate Cut Speculations

Tradervox.com (Dublin) –The Canadian dollar rose against the US dollar the most in six weeks after crude oil climbed on speculation the European Central Bank may cut interest rate. The advance was also supported by the Chinese central bank decision to help the Euro region in dealing with the debt crisis. The loonie has advanced against most of its 16 major counterparts as commodity related currencies gain traction in the market. Risk appetite has emerged in the market since Friday, but it has been hampered by the recent opposition to the EU Summit decision.

Joe Manimbo of Western Union Business Solutions in Washington said that the current surge in commodity currencies is as a result of speculations that central banks around the world will offer stimulus to spur growth in the global economy. Shane Enright, an Executive Director at Canadian Imperial Bank of Commerce in Toronto said that the advance of the Canadian dollar will determined further by the US payrolls data expected on July 6. On the same day, the Canada’s Jobless report will be released and these two reports will determine how the Canadian dollar closes the week.

It is expected that jobless rate remained unchanged in June from May 7.3 percent; this report will be released by the Statistics Canada agency on July 6. Economists are also projecting an addition of 5000 jobs in the economy as compared to 7,700 jobs in May. In US, a government report is set to show that employers added less than 100,000 jobs in June.

However, the Canadian dollar added 0.5 percent against the dollar to trade at C$1.0122 as crude oil climbed by 5.1 percent to trade at $88.04 a barrel in New York. Further, the currency advanced as economists predict the European Central Bank will cut interest rate by 0.25 percent to set a new interest rate at 0.75 percent when they meet later this week.

Source: Loonie Advances on Crude Oil Surge and ECB Rate Cut Speculations | Tradervox

 

EUR/JPY and EUR/USD Drop as Spanish Borrowing Rises at Auction

Tradervox.com (Dublin) – The Spanish bonds yields were not as promising as the market would have hoped and being the first one since the June 28-29 EU Summit meeting, the yield of the 10 year benchmark bonds rose to a high of 6.505 percent. The average yield was at 6.43 percent in an auction where Spain raised a 3 billion Euros. In the previous auction, the resultant yield was at 6.04 percent showing and increase in yield which is not good for the country. In the secondary market, the Spanish yield rose to 7.28 percent before receding later in the day.

Prior to the release of the results from the Spanish bond auction, the euro had slid lower on concerns about the implementation of the EU Summit decision as some euro region members opposed the decision. The EUR/USD pair was trading at 1.2522 before the results and dropped to 1.2514 after the release of the results. The 17-nation currency also dropped 0.4 percent against the yen to exchange at 99.71 percent. The euro had increased to the highest when the EU Leaders’ Summit gave its decision on Friday June 29 which also resulted to the Spanish 10-year yield to drop. However, concerns about implementation of the decision and the unfavorable economic data from the region have led to the weakening of the euro.

The euro is trading low against the yen and the dollar prior to the anticipated rate cut by the ECB later today. According to Neville Hill, the temptation to act is great due to the continued decline in the region’s economy. In addition to rate cut, the European Central Bank is taking other measures to spur growth in the region. Some of these measures include the establishment of a program to spur credit companies, households, and activating sterling liquidity facility for financial institutions in the region.

Source: EUR/JPY and EUR/USD Drop as Spanish Borrowing Rises at Auction | Tradervox

 

Italy Set for Bailout as Economic Conditions Worsens

Tradervox.com (Dublin) - Economists are predicting that Italy will become the sixth country in the euro region to seek international bailout. Italy is the third largest economy in the euro area and it is a member of the G7 nations. However, the country has the third largest debt market with its debt-to-GDP ratio standing at 120 percent which is the goal set for Greece for 2020. Most of the economists are saying that Italy has escaped the spotlight only because investors are looking at Spain; but warned that with the ECB rate decision pending, Italy can easily slip into the limelight.

Italy’s efforts at the EU Summit indicate that the Prime Minister Mario Monti is worried about the state of the economy in his own country. Monti inherited a government in huge economic turmoil from Silvio Berlusconi in 2011 and embarked on a series of reforms that created some market confidence.

However, the country’s economy has since contracted by 0.8 percent in the first quarter as compared to stagnation of the euro zero. In addition, purchasing manager’s indicators in the country have shown a contraction in all sectors in the second quarter. In the past two months, the retail sales for the country have been below the expectation coming in at negative 0.8 and negative 1.6 respectively.

The country’s economy is slowing down as global economy worsens and the austerity measures in the region take effect. It is evident that the public is not supportive of Mario Monti’s actions and neither is the market. This is coming amidst great pressure as 10-year bonds shoot past 6 percent which is unsustainable given the growing contraction and the high debt-to-GPD ratio.

With these conditions, it is clear that Italy cannot meet its debt repayment obligations hence may request for bailout making it the sixth country in the region to do so. While Monti has some political support from parties in parliament, it will be hard for lawmakers to support further reforms which are needed to give Italy some relief from the market. Some of the reforms that are needed involve pension and labor reforms.

Source: Italy Set for Bailout as Economic Conditions Worsens | Tradervox

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