The FX Global Call covers the main talking points from an 1100 GMT
news meeting involving DJ FX Trader editors in New York, London and
Singapore, as well as other FX hot spots when warranted.
By Michael Casey
1. Relative calm prevails in foreign exchange markets as traders gear
up from some potentially critical central bank meeting policy
decisions from the Fed and the ECB on Wednesday and Thursday,
respectively, and for the equally important U.S. jobs report on
Friday. In general, markets continued to be buoyed by the comments
last week of ECB boss Mario Draghi, who left the impression that his
organization is preparing more aggressive action to ward off the euro
zone's debt crisis.
2. News out of the euro zone was consistent with rising expectations
for ECB action. The region's consumer confidence indicator dropped for
the fifth straight month, underscoring the economic argument for more
stimulus, while Spain's economic contraction accelerated in the second
quarter to show a minus 0.4% result. Meanwhile, Italy held a EUR5.479
billion auction of various maturity bonds and the market bought them
at lower yields than previously. That suggested that Draghi's verbal
interventions, which raised hopes for a new round of bond-buying by
the ECB, is driving investors back into the market for troubled
euro-zone sovereigns' bonds.
3. Meanwhile, the Swedish krona rose to its highest level since
September 2000 on news that Swedish GDP advanced more than expected.
The economy expanded by 2.3% on the year and by 1.6% on the quarter,
whereas economists had expected a quarter-on-quarter result of just
0.2%. Such a contrast to the euro-zone's gloomy outlook is boosting
expectations that Sweden's Riksbank will resist following the ECB into
more rate cuts, encouraging a rate differential play on the krona.
4. Another big winner in the current scenario is the Australian
dollar, which is now threatening to get above $1.05 again. The Aussie
wins for two reasons: it benefits from the pickup in risk-taking
whenever hopes are boosted that policymakers will address the euro
crisis, and because expectations for either lower rates and/or
quantitative easing from the Fed and the ECB will encourage traders to
seek to take advantage of its higher yields. This is not necessarily
good news for Australia itself, however. When the Aussie dollar was
marching to record heights last year, it did so because prices of its
commodities were also hitting new highs, which justified the move. But
those prices have since come off, which means that not only will
Australia's long-suffering manufacturing sector continue to be hurt by
the strong currency, but so too will its all-important mining
exporters.
5. China made more incremental moves to boost its housing sector, an
industry that's critical to the outlook for commodity prices around
the world. Regulators said they would expand preferential loans for
first-time home buyers. While they also vowed to keep up restrictions
on lending to developers, that was a reminder that China is
selectively trying to introduce enough stimulus to support its
softening economy while avoiding the kind of measures that might
revive the unwanted property bubble of a year or so ago.
6. In Japan, industrial production fell 0.1% versus an expected rise
of 1.6%. That prompted the government to downgrade its assessment of
industrial production for the full year and led to talk of Japan's
economy stalling again. But it will make it easier for the Bank of
Japan to take more easing measures when it next meets on Aug. 8 and 9.
7. In Latin America, investors are awaiting the release of the Chilean
central bank policy committee minutes from its July 12 meeting, when
it held rates steady. With Colombia's central bank having surprised
the market by initiating a rate cut on Friday afternoon, market
participants are looking to see whether similar inclinations toward
easing moves are arising other parts of Latin America, hitherto a
bastion of vigilance on inflation and rates.
8. Separately, central banks around the world are releasing their
latest six-month estimates of the level of foreign exchange trading in
their respective banking systems. So far, the data out of Australia
and Japan suggest there has been a drop in activity from the previous
six months, with blame being leveled on the euro crisis. But if that
trend continues, it could just as well have something to do with
trends in the industry. Some believe the surge in high-frequency is
now leveling off at the same time that the high frequency trading
phenomenon is scaring off more conventional traders. Until we hear
from London and New York later Monday, however, it is too early to
speculate on what's happening broadly to the industry.
9. In the U.S., the only data point of any note Monday is the Dallas
Fed manufacturing survey for July, which will be released at 10:30 am
EDT.
(Michael Casey is managing editor for the Americas at DJ FX Trader, a
foreign exchange news service jointly produced by Dow Jones Newswires
and The Wall Street Journal.)
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(END) Dow Jones Newswires
July 30, 2012 07:37 ET (11:37 GMT)
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