Daily Forex Fundamentals | Written by Saxo Bank | Jun 04 09 06:17 GMT | | |
All eyes on the procession of central bank decisions today; no change in rates seen, but focus on QE headlines HEADLINES
THEMES TO WATCH - UPCOMING SESSION
Market Comments Fed Chairman Ben Bernanke's testimony before the House Budget Committee erred on the side of caution, stating that although the pace of economic contraction appears to be slowing and latest data suggesting the US consumer is gradually becoming more optimistic, there were still obstacles in the way of an economic rebound. These included a weak labour market, 'still tight' credit conditions and the psychological impact of equity and housing losses sustained by households over the last two years. He saw businesses still remaining 'very cautious' and still looking to trim staff and capital expenditure budgets. On fiscal issues he said that the federal budget would widen substantially this year, with the debt-to-GDP ratio set to reach 70% in 2011 from around 40% before the crisis began. He warned that there was a need to demonstrate a strong commitment to fiscal sustainability in the longer term, otherwise the US would have neither financial stability nor healthy economic growth. He attributed the recent rise in longer-term Treasury yields to growing concerns about large deficits, though some of the rise could be seen as reflecting a greater optimism about the economic outlook or related to technical factors (ie the hedging of mortgage portfolios). In the Q&A session, he outlined that the Fed had an exit strategy for its recent easing policy and reduce its balance sheet when appropriate. When asked if the Fed plans to 'monetize the debt', he assured that the Fed had no intention of doing so and when the Fed had completed its current Treasury-buying program it would reduce its holdings of Treasuries. Towards the end of his testimony he commented that the dollar does not face any risk of losing its reserve status in the foreseeable future. This theme had been a market-mover earlier in the session when officials from India, Japan and South Korea said there were no alternatives to the USD as a reserve currency. This gave the greenback a boost in early trade and set the tone for a dollar recovery for the rest of the session. Mornings reports in Asia that Malaysia and China were considering shifting bilateral trade settlement to their own respective currencies rather than the dollar were ignored to a large extent, and the dollar preserved its higher levels. Central bank meetings are all the rage today, with rate announcements from the BOE, ECB and ,later, the Bank of Canada. None of the meetings are expected to result in any rate cuts, though the ECB meeting is the one that has most potential to surprise. The BOE announcement will likely concentrate on its quantitative easing measures (recall last month the BOE upped the scale of its planned asset purchases to GBP125 bln from GBP75 bln). The downbeat inflation report for May could hint that the BOE will reveal another increase in its quantitative easing policy. This should be seen as another negative for GBP, piling on the pressure from the heavy sell-off yesterday. Watch also for news from the ECB as to whether they have been able to iron out a non-conventional program of measures to stimulate the economy. With eyes switching to Friday's non-farm payroll release, yesterday's ADP private hiring report has given us the first input for the data. While the headline number for May was not too far from expectations (-532k vs. -525k expected), there was a hefty downward revision to Aprils data to -545k from -491k initially. Initial jobless claims are next on the agenda this evening and consensus is for a barely changed number of 620k to May 31 compared to 623k the previous week Analysis Disclosure & Disclaimer SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis dnot occur as anticipated. 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Thursday, June 4, 2009
Forex Market Update: Bernanke's Testimony Causes Pause For Thought, USD Looks Set For A Period Of Correction
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