Forex Forecast

Dollar Extends Rally The economic data flow from the US remained on the soft side, with jobless claims printing 387k to push the four-week moving average to 386k (the highest since December 2011), May existing home sales falling 1.5% m/m, and the June Philadelphia Fed manufacturing index plunging to -16.6 from -5.8 in May.

USDJPY Spurred by Fed FX markets were generally confined to tight ranges in the European session, though the initial read-through from yesterday’s FOMC was for a grind higher in USDJPY.

USD Advances, Slowly The dollar made some broad-based but tentative advances overnight in the wake of the Fed’s decision to continue its maturity extension program until the end of 2012. As before, it will purchase Treasury securities in the 6-30y segment of the curve and pay for these by selling Treasurys with a residual maturity […]

Fed Extends Twist The Fed decided to continue its maturity extension “Twist” program until the end of 2012. As before, it will purchase Treasury securities in the 6-30y segment of the curve and pay for these by selling Treasurys with a residual maturity of “approximately” 3 years or less.

GBP Ignores QE Threat Sterling was the big mover in the European session. As the US walked in, GBPUSD was largely flat on the day, but intraday volatility jumped with a 1-big figure move down to 1.5660 before a complete retracement.

Something Brewing? Three UK newspapers – the Guardian, the Telegraph and the Financial Times – all suggested that Germany is now less opposed to using the EFSF and its successor (the ESM) to purchase Spanish and Italian sovereign bonds in the secondary market.

Euro Looks Past Negatives Despite a flurry of negative developments in the Eurozone, the euro was well supported and pushed higher in the European session. The main driver of the support came from the sovereign debt markets where periphery spreads versus Germany tightened following the sharp sell-off yesterday.

RBA In No Rush The minutes from the RBA’s June 6 meeting showed no sign of panic, and the decision to cut 25 bp off the cash rate was described as “finely balanced”.

Euro Rally Reverses The euro gave back all its gains following the Greek elections as investors turned their attention to Spain. The Bank of Spain reported that deposits in the Spanish banking sector dropped by 2.52% in April from March and the bad loans ratio rose to 8.72%.

Rally Fades Quickly The optimism surrounding New Democracy’s victory in this weekend’s Greek election did not last long, with the euro paring its gains made in Asia as the fixed income markets in Europe came back under heavy pressure.

ND Wins Greek Election With over 99% of ballots now counted, New Democracy has won the Greek general election with the anti-bailout SYRIZA party coming in a close second.