All is quiet on the Western front…

The USD saw a mixed performance relative to other G10 currencies today, strengthening relative to the Euro and consequently the CHF & DKK as they are highly correlated to it, meanwhile weakening versus the NZD, JPY & AUD and largely unchanged relative to the GBP, CAD and SEK. Ultimately, when you witness price action (or lack thereof) such as this, it suggests these moves have less to do about the U.S dollar and more to do with individual currencies themselves. Case in point, the Euro traded lower today after the Finnish government popped the German balloon when they states they would seek, along with the Dutch, to block the European Stability Mechanism (ESM) from purchasing any bonds in the secondary market. The Netherlands later backed away from this, stating they would base their decision on a case-by-case basis, but the damage was already done. While their votes are not necessarily needed (only an 85% majority required), we must keep in mind this only further exaggerates the political disunity within the Eurozone. More importantly, it puts into serious question the time-horizon and/or responsiveness of a potential ESM/EFSF bailout to the Spanish and Italian markets.

Elsewhere, data out of the U.S. made a few headlines as ISM came out much worse than anticipated – June ISM Manufacturing was 49.7 vs. expected 52.0 & 53.5 in May and Prices Paid came in at 37.0 vs. consensus 45.8 & 47.5 prior. On a positive note, U.S. May Construction Spending printed higher by 0.9% vs. expected 0.2% and April figures were revised to 0.6% from 0.3%. This further reinforces the more upbeat housing data over the past few weeks. The mixed performance in data was also witnessed in price action today (as highlighted above with many FX pairs) and the same can be said of U.S. equities which finished mixed on the day – The Dow Jones Industrial Average1 finished lower by about -0.07% and S&P5001 rose by around +0.25%, as well as commodities – Gold & Silver were effectively flat today (-0.2% & +0.4% respectively), and US Oil1 (WTI) traded backed lower (-1.52% on the day) after testing the 23.6% retracement around $85.20 on Friday (using the March 1 high & June 28 low). Quiet a meager start to the second half of 2012.

Keep in mind the next few days could see price action grind to a halt, as the US sees the July 4th holiday (Independence Day) on Wednesday – Thus, traders may look to split early tomorrow, or take off Thursday and Friday to extend the holiday weekend. However, Thursday and Friday is packed with market moving data/decisions. Thursday sees the Bank of England (BoE) and European Central Bank (ECB) interest rate announcements whereby both are expected to take action (for a change) – BoE expected to increase QE by £50B and ECB is thought to cut rates by 25bps to 0.75%, as well as the June ADP Employment change (exp. 100K) and ISM non-Manufacturing. Then on Friday we have the all-important U.S. June Employment Report (Bloomberg consensus +90K & 8.2% u-rate). Any one of these key announcements has the potential to significantly impact the FX market and in a potentially reduced liquidity environment, it could lead to greater volatility before and after the releases.

On the data front for the upcoming Asia/Pacific session is the release of Japan June Monetary Base & May Labor Cash earnings, New Zealand June ANZ Commodity Prices, Australian May Building Approvals and lastly, the most important event the session, the Reserve Bank of Australia’s (RBA) interest rate announcement, whereby we expect rates to remain unchanged at 3.5%, but the accompanying statement should provide some insight to the bank’s future rate outlook.

Source: Forex.com

02.07.2012