Daily Market Commentary - Fundamental Outlook

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The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5655 level and was capped around the $1.5725 level. Liquidity was reduced on account of the U.S.'s Independent Day national holiday. Traders are still talking about yesterday's post-rate hike comments from European Central Bank President Trichet in which he acknowledged risks of higher inflation and lower economic growth, adding the central bank has no policy bias at this time. This dented expectations that elevated inflation costs would force ECB policymakers to raise interest rates further this year. ECB's Weber reported “Our decision yesterday to increase the key interest rates by 25 basis points will be a contribution to ensure price stability in the medium term." ECB's Liebscher added “We have no bias where future rate decisions are concerned. We have no pre-commitment; the analysis of incoming data will determine our actions. It's clear that current inflation is higher, and the high inflation will last longer, than we have previously assumed. My main concern is that there will be gruesome upward changes to the inflation outlook. Risks to price stability are clearly present, and they are more obvious than before. We see high risks of second-round effects - in some countries in the euro zone, we already see signs of second-round effects materializing.” Data released in the eurozone today saw German manufacturing orders decline for the sixth consecutive month in May, off 0.9%. Banco de Espana sees Q2 GDP growth slowing. Euro bids are cited around the $1.5645/ $1.5230 levels.

¥/ CNY

The yen depreciated appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥106.60 level and was capped around the ¥106.85 level. Today's intraday range was tight on account of the U.S. market holiday. Technically, today's intraday low was right around the 38.2% retracement of the move from ¥124.15 to ¥95.70. Bank of Japan released a consumer expectations survey overnight that indicates about 90% of those polled expect higher prices one year from now. Data released in Japan overnight saw the May leading index fall to 92.6 while May leading indicators came in at 40.0 with the coincident index at 33.3. Economy minister Ota said the global surge in crude oil prices and slowing U.S. economy are directly impacting Japan's economy. The Nikkei 225 stock index lost 0.21% to close at ¥13,237.89. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥167.10 level and was capped around the ¥168.05 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥211.25 and ¥103.85 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8589 in the over-the-counter market, up from CNY 6.8510.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9795 level and was capped around the $1.9845 level. Today's intraday was limited on account of the U.S. market holiday. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7930 level and was supported around the ₤0.7905 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0235 level and was capped around the CHF 1.0275 level. Today's range was extremely tight on account of the U.S. market holiday. U.S. dollar bids are cited around the CHF 1.0020 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6060 and 2.0285 levels, respectively.

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