IFX Market Report for 03/07/2012

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    Sterling strengthened for the first time in 4 days against the euro as investors sought the pound as a safe haven from the big data releases coming out in the Eurozone later this week. GBPEUR got as high as 1.2489 before settling just above 1.2450. Against the dollar, sterling continued to try and push above the 1.57 level and reached a high of 1.5720 in the evening before settling at around 1.568. If the pound continues to rise further it will find resistance at 1.5746 and 1.5786.

    The UK’s manufacturing sector continued to remain vulnerable as demand was declining and job losses continued. Though the index was at 48.6 in June, up from 45.9 in May and above expectations, it remained below the 50 mark for the second consecutive month, which is a sign of contraction.

    More emergency cash is expected to be pumped into Britain’s economy this week as policymakers seek to cushion the UK from a worsening Eurozone crisis. The BoE Monetary Policy Committee is widely predicted to boost its Quantitative Easing programme by another £50 billion to £375 billion when it announces the outcome of its latest monthly meeting on Thursday.


    The euro lost some of its gains following the positive outcome from the EU summit after Finland joined the Netherlands in saying it opposed granting the European Stability Mechanism. Currently trading at 1.2585, EURUSD is now almost 1% below where it opened after the weekend.

    The euro also suffered against commidity currencies and hit a 4 month low against the Australian dollar of 1.2309, EURAUD is currently trading at 1.2350.

    As investors turn their attention to the ECB monetary policy meeting on Thursday, the general consensus being priced into the markets is of a 0.25% rate cut. We need to see either a 0.5% rate cut or deposit rates to move from 0.25% to 0% to really see any significant change in EURUSD.

    With Independence Day tomorrow in the US, Europe’s rate decision on Thursday and the much-anticipated Non-Farm Payrolls data due to be released on Friday may prompt investors to trade currencies in a narrow-range for most of this week.

    Eurozone unemployment rate hit a new record high of 11.1%, from 11% in April. On a yearly basis, unemployment surged by 1.82 million. Strangely however, official figures also showed that Italy’s unemployment rate fell for the first time in sixteen months to 10.1% in May.

    The Eurozone Purchasing Managers’ Index for the manufacturing sector remained unchanged in June at 45.1 from the prior month, but stayed slightly above the flash estimate of 44.8, although this had little impact on the Euro.

    Activity in the US manufacturing sector unexpectedly contracted in the month of June, the ISM said its purchasing managers index dropped to 49.7 in June from 53.5 in May, with a reading below 50 indicating a contraction in manufacturing activity. Economists had expected the index to show a much more modest decrease to a reading of 52.0.

    Following the ISM report the Yen was the top performer, moving from USDJPY 76.75 to 76.37. This suggests that traders were not only seeking safety, but also moving away from the USD. This could be a reaction to signs the Fed may embrace a more accomodative monetry policy in the future.

    US construction spending increased by more than expected in May even as revised figures showed stronger than initially reported construction spending growth in April. The initial estimate for construction spending in May came in at a seasonally adjusted annual rate of $830bn, a 0.9% increase from revised April estimates.

    Down under the Aussie spiked slightly, up about 45 pips since finding a session bottom at 1.0230 against the USD. The bullish momentum has been driven by an impressive AUD building permits release, which has increased by over 27% in May (exp 5.1%) compared to a revised fall of 7.6 in April.

    Australia’s central bank decided to keep the key interest rate unchanged as it awaits the pass through of the effects of the two consecutive rates cuts implemented this year aimed at shielding the economy from the worsening situation in Europe. The RBA held the benchmark cash rate steady at 3.5%

    Daniel Fountain / 02.07.2012

    Editor, Hotel Designs


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