Weekly Forex Currency Review 28-05-2010

Watch us trade “Live”! Watch our Top Tier Traders make ($500 - $2000) a day
in “real time” and learn how to easily duplicate the process!  Click Here for more information -

The tensions surrounding sovereign debt and unease over the threat of renewed financial-sector turbulence will continue be an important near-term market focus. Immediate fears surrounding the Euro area could ease slightly given the relentless selling pressure seen over the past few weeks, especially given the market positioning. Risk appetite is, however, still likely to remain generally weaker in the short-term which will provide a significant degree of protection to the dollar and yen.                 

Key events for the forthcoming week

Our integrated pattern recognition technology identifies patterns in real-time. 

Download the free demo - Click Here

Underlying confidence in the Euro-zone economy and Euro will remain very fragile with fears of medium-term debt defaults by weaker member countries. There will also be important fears surrounding the potential contagion effect as other countries are infected. The Euro-zone governments will continue to support market stability and intervention may also have to be considered if volatility intensifies. From a longer-term perspective, the Euro is not under-valued which suggests the risk of further declines even with the potential for a near-term corrective recovery.

The Euro was subjected to heavy selling pressure at times during the week as underlying confidence remained very fragile. An improvement in risk conditions and a covering of short positions provided some relief later in the week with a move above 1.24 against the dollar and a recovery from 9-year lows against the yen.

There were renewed fears surrounding the banking sector during the week which undermined the Euro. In particular, there were fears over the Spanish banking sector with some speculation that a major institution would have difficulties in rolling-over its forthcoming debt maturities.

There was some speculation over a cut in ECB interest rates which also contributed to speculation that the Euro would be a prime candidate for being used as a funding currency. There were also media reports that the Chinese authorities were considering a reduction in European bond holdings. The Euro-zone industrial data provided some degree of relief with a strong gain for industrial orders in April.

Immediate fears over the Spanish debt situation eased slightly late in the week tended to curb further Euro selling pressure. There were also denials from Chinese authorities that they would look to reduce their Euro-zone debt holdings which helped stabilise sentiment towards the currency.

Yen:  

Trends in risk appetite will remain important and the Japanese currency will continue to gain some support if there is a sustained deterioration in confidence surrounding the global economy. In particular, increased strains within the European banking sector would trigger important yen support with the potential for capital repatriation. The yen will still tend to be vulnerable on yield grounds and the Finance Ministry will be very uneasy over the implications of domestic currency gains. Overall, the yen is not, therefore, well placed to sustain an advance even if there are further near-term gains.

The yen gained significant safe-haven support at times when risk appetite deteriorated, but was unable to sustain the gains as underlying currency remained weaker. The dollar found firm support close to 89 with evidence of semi-official dollar buying at lower levels.

There was an increase in tensions surrounding North and South Korea which had a negative impact on the yen.

The latest Japanese trade data recorded an annual increase in exports of just over 40% which should provide some degree of relief for the Finance Ministry while the Bank of Japan upgraded its economic assessment. Nevertheless, there was still evidence of official unease over yen gains.

If your looking for a high cash flow positive property with tens of thousands of pounds equity from the start, then Belgrave Group offers you a complete hands free ‘zero hassle’, investment package with yields upto 25% per annum from just £ 21,995 all in.  Click Here.

Measures to curb 2010 government deficit levels will have some positive impact on confidence and lessen fears over a near-term credit-rating downgrade. There will, however, be a high degree of doubts over medium-term growth trends and there will be pressure for the Bank of England to maintain very low interest rates which could compromise inflation control. Overall confidence is liable to remain very fragile given the debt profile and vulnerability will increase when there is a deterioration in global risk appetite. Overall, Sterling is liable to weaken further, although losses may be measured against the Euro. 

Sterling weakened to 10-month lows against the dollar close to 1.4250 before finding support and rallying back to near 1.46 on a wider European correction. The UK currency tested 11-month highs below 0.85 against the Euro.

The government announced spending cuts of just over GBP6bn, in line with previous indications. The targeted approach will help sustain confidence that the government can bring the huge budget deficit under control There were also expectations that the UK collation government would find it easier than the Euro-zone members to secure political support for the budget tightening while the UK economy also has a more favourable debt profile with less potential near-term funding pressures, although confidence was still fragile.

First-quarter GDP was revised up to 0.3% from the preliminary 0.2% estimate and this was in line with market expectations which had only a limited market impact. The latest lending data also suggested subdued growth which will curb GDP potential over the next few quarters.

The UK CBI retail sales data was significantly weaker than expected with a sharp decline to -18 from +13 the previous month and this was the lowest reading since March 2009. Retailers were also generally pessimistic over the outlook for June

There were reports that the Prudential Corporation would abandon its takeover attempt for the Asian operations of AIG. This speculation provided initial Sterling support, but the company later insisted that it would push ahead with the deal.

Swiss franc:

The Swiss currency will continue to gain defensive support from a general lack of confidence in the Euro and Euro-zone economy. The National Bank will face pressures to stem franc gains, although the impact will be offset by recent general dollar gains. The bank also appears sensitive to aggressive intervention. The Swiss currency could be vulnerable to some selling pressure if there are renewed fears over the domestic banking sector.

The dollar pushed to a high above 1.1650 against the Swiss franc before hitting significant selling pressure. The Euro was unable to sustain a position above 1.44 against the franc and was generally weaker, although there was some support below 1.4150 as volatility levels remained high. There was further speculation over National Bank intervention to stem franc gains.

The Euro came under fresh selling pressure against the Swiss currency on speculation that the central bank was looking to diversify its Euro holdings into dollars. This is a particularly important factor given that the National Bank has been intervening heavily to support the Euro over the past few weeks.

DO YOU OWN THE RIGHT STOCKS?

Analyze Your Stocks FREE! – Click Here

The Australian dollar was subjected to heavy selling pressure at times during the week, with lows below the 0.81 level against the US dollar. Selling pressure eased over the second half of the week and the currency secured a sharp recovery with a high to above the 0.85 level.

Trends in risk appetite dominated during the past few days and there the currency came under selling pressure when there was a decline in global stock markets as carry trades were liquidated and commodity prices fell.

The Australian dollar moves will be influenced strongly by trends in risk appetite. Volatility is liable to be higher and the currency may struggle to correct much further given underlying doubts over the global economy.

Canadian dollar:

The Canadian dollar dipped sharply weaker against the US currency early in the week with lows beyond 1.08 against the US currency. There was a tentative recovery in conditions later in the week while there was also a strong recovery on crude-oil futures which helped underpin the currency with a recovery to the 1.05 area.

There was underlying confidence in the domestic fundamentals, although there some doubts as to whether the Bank of Canada would decide on a June interest rate increase which curbed buying support for the currency.

Volatility levels are liable to remain higher in the short-term and the Canadian dollar will find it difficult to advance without a sustained improvement in risk appetite.

Indian rupee:

Volatility was again a key feature during the week as global markets remained under stress. The rupee at one point recorded its sharpest one-week loss for 14 years with lows beyond 47.70 against the US currency.

The rupee was undermined by sharp declines in global stock markets and Euro weakness. There were also estimates that outflows from the Indian market were close to US$2.0bn for May which also tended to undermine the currency.

There was some speculation of Reserve Bank intervention to stabilise the currency at lower levels and to stem volatility.

The rupee should be able to avoid heavy losses from current levels, but will find it difficult to make much of a near-term recovery unless risk appetite stabilises. 

Watch us trade “Live”! Watch our Top Tier Traders make ($500 - $2000) a day in “real time” and learn how to easily duplicate the process!  Click Here for more information

The Hong Kong dollar was subjected to very high volatility during Wednesday as global flows remained unstable. From lows beyond 7.80, the local currency spiked sharply stronger to around 7.765 before consolidating around 7.785.

The local currency was undermined by falling global stock markets and higher US money markets during the week before some recovery in conditions late in the week.

Volatility levels are liable to remain higher in the short-term and the Hong Kong dollar will find it difficult to secure strong near-term gains.

Chinese yuan:

The spot yuan rate drifted slightly weaker against the US currency over the week with the currency surrendering gains against the Euro. There were substantial moves in the NDF market with prices moving to price out yuan appreciation on a 3-month view.

There was further speculation that the current market turbulence, a weaker Euro and unease over economic trends would delay any move to sanction yuan flexibility.

The authorities commented that external noise would delay yuan reform measures which appeared to be a clear reference for the global community to stop criticising China over its economic policies.

Fears over further near-term volatility and a stronger US currency will continue to lessen the potential for a near-term move to adjust the yuan exchange rate system, although a limited move within the next few weeks remains a possibility.