Forex report: Euro confusion

It’s hard for currency market investors to know exactly when to draw a line under the possibility of a Greek sovereign debt default. The story du jour is the fresh concern that before Greece can tap its €30 billion line of credit from the EU, parliamentarians must first vote in favor of granting the financial aid in Germany, France and Ireland. The Dutch vote today. Granted, such a hurdle might be small, but earlier in the week several large fixed income buyers said they were awaiting confirmation that a public backlash in the Eurozone would be avoided. To be blunt, we have no idea how high this hurdle is at this point, which is likely why additional pressure mounted on the euro overnight causing it to trade as low as $1.3522 from a midweek close of $1.3650.

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Euro – And so the saga continues amidst ongoing plans by officials at the Finance Ministry to launch a road show aimed at raising $1 billion from North American investors. The euro gave ground against most competing currencies this morning, easing to ¥126.30 against the Japanese unit.

Japanese yen –The eye popping pace of first quarter Chinese growth helped regional equity prices build on gains and boosted local currencies against the dollar. Against the yen the dollar is virtually unchanged at ¥93.21 while it strengthened against the euro and against the pound to ¥143.96 and it even fought back against a rallying Aussie dollar to reverse losses to ¥87.06.

U.S. Dollar – The dollar index is higher after the midweek votes of confidence in the economy from JPMorgan chide Jamie Dimon and Fed Chairman Bernanke. The raft of positive corporate earnings on Wednesday lifted the equity markets into a higher gear as stocks rose to 19-month highs. The Fed governor still sounded cautious, however, again ratifying the clear need for accommodative monetary policy, which is something that dollar bulls will be frustrated by as they continue to devise plans for a narrowing of the yield gap against the rest of the world. Today we have the Philly Fed survey of general economic conditions scheduled to show continued expansion. However, the latest initial jobless claims data, which we fully expected to drop again only disappointed with a 24,000 increase to 484,000. There are no excuses – this is a bad reading and one that ices Bernanke’s residual anxiety that this may be a slow and jobless recovery.

Aussie dollar – The Chinese economy, which rip-roared ahead at an 11.9% annualized pace set the Aussie unit off on a good footing in early trading and lifted it to 93.64 U.S. cents. It was possibly supported by a report reflecting a jump in inflation expectations, which grew from 3.2% in March to 4.1% for April. The data would support further monetary tightening. However, a broad U.S. dollar rally saw the Aussie later pare gains and it currently stands at 93.34 cents.

Canadian dollar –Dealers are wrestling with the notion of parity for the Canadian dollar a week before the central bank meets to discuss monetary policy. Of course there is always a chance they might surprise and lift interest rates in advance of a meeting in June, which would see them hold good a year-old promise to pin rates to the floor. However, don’t forget they are holding a get-out-of-jail-free card given that the inflation profile has changed markedly thanks to a faster than predicted resumption of global growth. The Canadian today buys $1.0011 U.S. dollars.

British pound – An opinion poll for the Daily Telegraph showed a widening lead for the opposition Conservative party to 12%. While it wouldn’t be fair to say the reading is biased from an essentially right-wing paper, it would be accurate to say that the poll doesn’t fit the mold of other surveys indicating a less robust lead. Nevertheless dealers are feeling less uncomfortable over the outcome of the May election and are happier to hold the pound, which sustained minimal losses on Thursday to $1.5431. Against the euro the pound rose with one euro buying 87.76 pence.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers.

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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