Forex Forecast

Lower Expectations The euro remains heavy, receiving little encouragement from the barrage of official jawboning ahead of the ‘informal’ EU Summit. Any hopes for positive surprises on such critical issues as common-issuance eurobonds, deposit guarantees and bank recapitalisation options were dampened by the uncompromising stance of German officials.

Long Wait To EU Summit Conviction was generally lacking during the Asia session with still over a day to go before the EU Summit gets underway. The rather muted EURUSD reaction yesterday to French President Hollande’s attempt to put common-issuance Eurozone bonds back on the table suggests markets are adopting a ‘seeing is believing’ stance […]

Maybe Wednesday The rather muted EURUSD reaction to French President Hollande’s attempt to put common-issuance Eurozone bonds back on the table and Chinese Premier Wen Jiabao’s reported call for a greater focus on growth suggests markets are adopting a ‘seeing is believing’ stance and will only react to specific policy initiatives or significantly better data.

Investors Torn FX markets traded sideways on Monday morning, with investors caught between adding cautious short-term risk positions and using the better levels to add to their structural short positions. Equity markets ground higher and the dollar was slightly softer versus risk assets.

G8 Opportunity Squandered The G8 communiqué affirmed an “interest in Greece remaining in the Eurozone while respecting its commitments” but there was no sign of compromise on either side of the austerity-growth debate – all sides merely restated their existing positions and US President Obama summed up the mood admitting there is still “more work […]

G8 Procrastinates Again In the absence of any fresh guidance out of the G8 Summit in Camp David, the euro has managed to stabilise in generally quiet, albeit nervous, trading. Canada’s CPI was the only data release of note on Friday, with the higher than expected April inflation prints (2.0% y/y headline, 2.1% core) serving […]

Stabilisation in Europe After a further escalation in risk aversion in Asia, markets stabilized in Europe though there were limited fundamental drivers behind the moves. A flurry of headlines hit the newswires from a German Finance Ministry spokeswoman who said that Germany has a responsibility to be prepared for any eventuality in the Eurozone, that […]

Risk Aversion Still Rising Risk appetite continued to wane during the Asia trading session. With no economic data releases to provide a distraction, investors continued to fret about the escalating Eurozone sovereign debt crisis.

A Stronger Yen Yen bulls have reasserted themselves, with USDJPY losing its footing in the face of the surprise deterioration in the Philadelphia Fed manufacturing index to -5.8 in May from 8.5 in April. Details were broadly weaker, featuring declines in new orders and employment.

No Respite In Europe Despite limited news flow, risk assets came under further pressure in the European session after some consolidation in Europe. After a reasonably strong auction in Spain, periphery spreads widened again triggering some USD buying in the FX space.

Sterling Still Struggling There were no further headlines of a euro-negative variety overnight, which allowed risk appetite to stabilize somewhat. Both the euro and the Australian dollar recovered a little, and Asian stocks even managed to eke out some gains.