Forex Intervention Rumors

May 21, 2010

Currency markets have become very sensitive to the possibility of central bank intervention.  A 1.4% recovery of the Aussie dollar against the greenback is being attributed to possible buying by the Reserve Bank of Australia, and the Swiss National Bank reportedly continued to sell francs against the euro.  There’s even talk of Japanese officials acting to cap yen strength.  Nowotny, a member of the ECB Governing Council, said forex volatility, not its level, concerns officials.  Markets are convinced Europe wants a weaker euro, with the $1.10 level being mooted.

The dollar is unchanged against the Canadian dollar and sterling and off 0.1% against the Swissy and euro.  The buck lost 0.9% against the kiwi.

Many stock markets were rocked again overnight, with losses of 2.5% in the Nikkei, which fell below the 10K level to 9785.  Equities dropped 2.6% in Indonesia, 2.5% in Taiwan, 1.9% in Singapore, 1.8% in South Korea, 1.4% in Malaysia, 1.1% in the Philippines, but just 0.3% in Australia.  In Europe, the German Dax, British Ftse, and Paris Cac have declined 0.9%, 0.5%, and 0.3%.

The yields on 10-year British gilts and German bunds fell by 10 and 9 basis points, while that on JGBs is off two basis points.

Oil prices retreated 1.1% to $70.01 per barrel.  Gold slid 0.5% to $1182.80 per ounce.

After a two-day meeting lasting six hours and four minutes, the Bank of Japan Policy Board again kept its key interest rate at 0.1%, where such has been since December 2008.  Details of a preliminary framework for providing one-year loans to private financial institutions against pooled collateral was published.  A statement from officials reiterated a baseline forecast that sees further economic recovery and moderation in the pace of on-year declines in core CPI inflation.

Flash purchasing manager reports for May were released for Euroland, Germany and France.

  • Euroland’s composite reading slid 1.1 points to 56.2, which was still greater than a 55.9 score in March and 53.7 in both January and February.  Services actually improved to 56.0 from 55.6, while manufacturing fell 0.8 points to 55.9 on account of a 4.5-point decline in manufacturing production.  The jobs component signaled positive growth for the first time since mid-2008.
  • Germany’s composite PMI printed at 55.5, a four-month low and down from 59.3 in April.  Manufacturing dropped 3.2 points to 58.3, and services fell 1.5 points to 53.7.  The month-to-month deterioration of the manufacturing index was the greatest since September 2008.
  • The French PMI showed greater resilience, firming 1.3 points to a composite score of 60.5, with a 2.7-point improvement in services to 61.9 outweighing a 0.4-point dip in manufacturing to 56.2.  The jobs index surpassed 50 after 23 straight sub-50 readings.

Germany’s IFO Institute released business climate data that were more upbeat than the country’s PMI readings.  The index dipped only a tenth to 101.5, as current conditions firmed a tenth to 99.4, and expectations slid three-tenths to 103.7.  The wholesale sub-index improved 2.5 points to 5.1 from 2.6 in April, minus 6.9 last December and minus 30.7 in April 2009.  IFO officials called Germany’s recovery robust.  A sister IFO index for services was steady with a reading of 15.  Such had risen 5.2 points in April from a 9.8 score in March.

German real GDP grew just 0.6% at an annualized rate last quarter, similar to growth of 0.7% in 4Q09 and 2.9% in 3Q09.  Consumption fell 0.8% not annualized, and net exports subtracted 1.1 percentage points from the growth in GDP.  Inventories were the main source of growth.  In on-year terms, GDP rose 1.6% on a calendar day adjusted basis after declines of 2.2% in 4Q09, 4.8% in 3Q09, and 6.7% in the year to 1Q09.

Britain reported a record Gbp 10 billion public sector net borrowing requirement in April, although it was not quite as bad as forecasts centered on Gbp 11 billion.  Debt had risen to 62.1% of GDP from 53.9% of GDP a year earlier.  U.K. M4 money rose only 3.3% in the year to April, slowest since September 1999.  British investment spending last quarter is now estimated to have risen 6.0% from 4Q09 but to have fallen 11.0% from a year before.  These results are much better than forecasts of a quarterly gain of less than 1% and an on-year drop of more than 16%.

Euroland’s current account recorded a EUR 1.7 billion surplus in March, best since last July.  The unadjusted current account deficit contracted to EUR 38.2 billion in the 12 months to March from EUR 155.2 billion in the prior twelve months.

Swiss M3 posted on-year growth of 5.4% in April, down from 5.7% in March.  Dutch consumer confidence printed at minus 16 in May versus minus 15 in April.

Japan’s index of leading economic indicators was revised down a tenth to 102.7 in March, still well above February’s 98.4 score.  The coincident index of 101.5 compared to 100 in February.

Malaysian consumer prices rose at a benign 1.5% rate in the year to April.

Canadian consumer prices firmed 0.1% seasonally adjusted last month.  That compares to a 0.1% dip in U.S. consumer prices.  In on-year terms, total consumer price inflation accelerated in Canada to 1.8% (versus a U.S. pace of 2.2) from 1.4% in March, while core inflation picked up to 1.1% from 1.1%.  U.S. core inflation stood at 0.9% last month.  Canada also reports retail sales data this month.

In his press conference, Bank of Japan Governor Shirakawa said the risks posed by the European sovereign debt crisis need to be watched. 

No major U.S. indicators are due today.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.


One Response to “Forex Intervention Rumors”

  1. JorgeCosta says:

    One of the more difficult pairs to trade, the EUR/USD has now become even more difficult. During this week it became clear that in the meeting 15 days ago, the G7 central banks have agreed to protect the euro by intervening when necessary. After having seen suspicious movements of 200-300 pips just based on rumors, the downward trend of the euro may have changed. In my opinion the previous strategy of letting up and put short trades no longer apply at this point, now it is best to let down and then put long trades. It is also necessary to stress that technical analysis may not apply to this pair, the news seems to be the most significant factor for such volatility, however the resistance and support levels have helped a lot. It’s just one more opinion about this pair.