BillyT's Forex Currency-Trading WEEKLY MARKET RECAP for w/e 1 JULY 2007

BillyT's Forex Currency-Trading WEEKLY MARKET RECAP for w/e 1 JULY 2007

EURO:

The euro appreciated vis-à-vis the U.S. dollar last week as the single currency tested offers around the $1.3520 level and was supported around the $1.3415 level. The pair gained about 40 pips last week. The ECB estimates the euro’s composition of FX reserves was 25.8% as of the end of 2006. Germany’s Ifo institute lifted its 2007 GDP forecast to 2.6% from 1.9%. ECB’s Ordondez reported EMU-13 GDP growth will remain “substantially above potential” while ECB’s Wellink said he foresees more tightening. The FOMC did not refer to core inflation as “elevated” in its policy statement after keeping the federal funds target rate unchanged at 5.25%. Core PCE is back within the Fed’s perceived comfort zone for the first time since February 2004. ECB’s Liebscher reiterated “strong vigilance” is needed on interest rates.

Data released in the U.S. last week saw May existing home sales fall 0.3% to an annualized 5.99 million units; the Chicago Fed National Activity Index improved to -0.22; May building permits were upwardly revised to +4.3% m/m; Redbook retail sales were off 1.0% m/m; June consumer confidence fell to 103.9 from 108.0 in May; May new home sales fell 1.6%; headline May durable goods orders were off 2.8% with core capital goods off 3.0%; Q1 GDP came in at +0.7%; the Q1 GDP chain price index was upwardly revised to 4.2%; the core PCE price index printed at +2.4%; weekly initial jobless claims were off 13,000 to 313,000; continuing jobless claims were off 27,000 to 2.49 million; core personal consumption expenditures fell to 1.9% y/y in May; May consumer spending was up 0.5%; May personal income was up 0.4%; the June Chicago PMI survey fell to 60.2 in June; May construction spending was up 0.9%; and the final June University of Michigan consumer sentiment index fell to 85.3.

Data released in the eurozone last week saw the German July Gfk consumer confidence index print at +8.4; the EMU-13 April current account balance was at -€4.0 billion; the EMU-13 money supply expanded 10.7% y/y in May; Germany’s June jobless tally fell 37,000; the EC’s economic sentiment indicator eased to 111.7 in June; the EC’s business climate indicator improved to 1.54 in June; and EMU-13 provisional June harmonized inflation was unchanged at 1.9%.

CNY-YEN:

The yen appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the ¥122.25 level and was capped around the ¥123.95 level. The pair lost about 40 pips last week. The Nikkei 225 stock index closed the week at ¥18,138.36. BIS characterized the yen’s weakness as “anomalous” and warned it can appreciate quickly. Former government minister Takenaka said the BoJ will raise rates by +50bps this year if the LDP wins next month’s parliamentary elections. Nikkei reported yen spokesman Watanabe is on the way out and the MoF’s FX policy has shifted with the government “carefully watching” the yen. BoJ Governor Fukui said rates should not be left low too long but added they will increase gradually. The MoF denied there are plans to manage FX reserves through a new public company like China is doing.

Data released in Japan last week saw May retail sales climb +0.5% m/m and 0.1% y/y; May industrial production was off 0.4% m/m; May core consumer price inflation fell 0.1% y/y; May household spending was up 0.4% y/y; May housing starts were off 10.7% y/y; and May construction orders were up 48.3% y/y.

CHINESE YUAN:

The Chinese yuan appreciated vis-à-vis the U.S. dollar last week as the greenback closed at CNY 7.6120 in the over-the-counter market, down from CNY 7.6255. PBOC’s Yi said it is “highly unlikely that there is going to be a serious reduction in China of its dollar reserves.” PBOC boss Zhou was quoted as saying the central bank will not rule out rate hikes.

BRITISH POUND:

The British pound appreciated vis-à-vis the U.S. dollar last week as cable tested offers around the US$ 2.0065 level and was supported around the $1.9925 level. The pair gained about 70 pips last week. Sterling reached the psychologically-important US$ 2.00 figure for the first time since 1 May. Former Chancellor of the Exchequer Brown became the new prime minister of the U.K. BoE boss King reported “The upside risks are that intended price pressures are the result of pressures on capacity, which surveys have suggested have built up over the past year, or higher inflation expectations. The MPC will continue to monitor closely these indicators of pricing intentions, as well as nominal developments in the economy more generally. There are the upside risks that perhaps inflation expectations, the pricing environment has changed, not massively, but just by enough to make us think that when volatility of energy prices has settled down me may see inflation above the target.” BoE’s Gieve was also hawkish in remarks about money supply growth. News of a thwarted terror attack in London on Friday jolted the markets. Most traders see the BOE MPC raising rates by +25bps on Thursday.

Data released in the U.K. last week saw the CBI’s monthly retail sales balance at +17% in June; BBA mortgage lending and mortgage approvals surged to six-month highs in May; Nationwide June house prices were up 1.1% m/m; Land Register May house prices were up 0.7% m/m in England and Wales; the final M4 May money supply was up 1.2% m/m and 13.9% y/y; the Q1 current account deficit narrowed to -₤12.2 billion from Q4’s level of -₤14.5 billion; the June GfK consumer confidence index slid to -3; and BoE mortgage approvals rose in May despite a pullback in lending.


CHF-SWISS FRANC:

The Swiss franc appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the CHF 1.2230 level and was capped around the CHF 1.2340 level. The pair lost about 50 pips last week. Most traders believe SNB will lift rates by at least +25bps in September.

Data released in Switzerland last week saw the May UBS private consumption index fall to 2.09 from 2.38 in May; and the June KOF leading indicator improved to +1.98.

CAD-CANADIAN DOLLAR:

The Canadian dollar appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the C$ 1.0470 level and was capped around the C$ 1.0735 level. The pair lost about 65 pips last week.

Data released in Canada last week saw weekly average earnings climb 0.2% m/m and 3.0% y/y; the May producer price index was off 0.5% m/m and was up 3.0% y/y; the raw materials price index was off 0.2% m/m and up 1.9% y/y; and April GDP was unchanged from March’s +0.3% level.

AUD-AUSTRALIAN DOLLAR:

The Australian dollar appreciated vis-à-vis the U.S. dollar last week as the Aussie tested offers around the US$ 0.8520 level and was supported around the US$ 0.8355 level. The pair gained about 20 pips last week.

Data released last week saw May new home sales off 4.4% m/m; May quarterly job vacancies were up 3.9% q/q; and May private sector credit growth was up 1.2% m/m and 14.6% y/y.
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