Forex Market Update: Risk Currencies Back In Vogue, But For How Long?
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Asia has a moribund day on the currency front; Bourses in the red.
MAJOR HEADLINES – PREVIOUS SESSION
- CA May Building Permits out at -10.8% m/m vs. -2.0% expected and revised +5.9% prior
- US Jun. Non-manufacturing ISM out at 53.8 vs. 55.0 expected and 55.4 prior
- US Weekly ABC Consumer Confidence out at -42 vs. -43 expected and -41 prior
- AU Jun. AiG Performance of Construction Index out at 46.4 vs. 53.2 prior
THEMES TO WATCH – UPCOMING SESSION
- Sweden Budget Balance (0730)
- Norway IP (0800)
- EU Q1 Final Euro-zone GDP (0900)
- GE Factory Orders (1000)
- US Weekly MBA Mortgage Applications (1100)
- CA Ivey PMI (1400)
Market Comments
The turnaround in risk appetite that Asia saw yesterday afternoon continued throughout the overnight session, despite some disappointing US data. The positives that led he risk rally included talk of large infrastructure projects in Western China lifting Shanghai stocks (subsequently revealed to be old news with some projects already in progress), a successful Spanish bond auction and the hangover of the more upbeat comments from the RBA. GB was given an additional lift from the BCC survey showing the fastest UK services growth for 2 years and a prediction of strong 0.6-0.7% growth for Q2.
The bad news came from the US non-manufacturing ISM, which slid to 53.8 from 55.4 prior and well below expectations of 55.0. More depressingly the employment component fell back below 50 after May’s rise above the magic number for the first time since Dec. 2007. This was enough to pull Wall St off its highs but still managed positive closes after a late rebound.
It was another barren data slate for Asia today and this was reflected in the tight ranges seen during the session. Few clues form the equity side either with Asian bourses giving back some of yesterday’s gains (Shanghai down just 0.3%).
On the data front, Europe is not much busier. We see Sweden’s budget balance, Norway IP, the Euro-zone final Q1 GDP reading and German factory orders. We may hear some news on the EU bank stress test plans with The Committee of European Banking Supervisors possibly releasing the methodology to be used in the tests. There is still some discussion as to whether they will actually release the names of the banks that will undergo the stress test (selectivity at its best!). Certainly the regulators face the challenge of making the tests wide ranging and tough enough to garner the markets’ respect yet not making them so stringent that a lot of banks fail. Too lenient a test and we may see the EUR being knocked off its current bullish pedestal.
It is another quiet data session for the US with only the weekly mortgage applications data on tap. The only Canadian release is the Ivey PMI data for June. For the rest of the week, the focus shifts to the Australian employment data on Thursday along with the BoE and ECB meetings on that day as well. The week wraps up with the Canadian employment report for June, so we should know by the end of the week whether USDCAD can punch back through the 1.0680 area or if it the 200-day moving average can support the pair (currently around 1.0421). It is interesting that the fresh signs of a strong slowdown in the Canadian housing market in the form of yesterday’s very weak building permits was met with a wall of CAD buying – again, risk appetite reigns supreme for the moment for the commodity currencies as the fundamentals may have to wait.
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