Buck Still Well Bid; UK Inflation Data Soft; Euro/Swiss Eyes Fresh All-Time Lows

We have seen a potential shift in sentiment towards the major currencies after the Euro once again failed to break to fresh 2010 lows on Monday, stalling just shy of 1.3435 and reversing to close in positive territory on the day.





However currencies have come back under pressure into the North American open. The Greek bailout topic remains at the forefront of investor minds and many are now speculating as to whether or not Germany will in fact move to rescue Greece. Risk appetite had been weighed down early Monday on the back of some hard criticism from Greece’s deputy PM that Germany’s Merkel was allowing the local banks to make bets against Greece with the hopes for a weaker Euro. However, reassurances from ECB President Trichet that Greece would not be leaving the EMU, some upbeat comments from China’s Wen on US-China relations, and the passage of the Obama healthcare plan were all seen reinfusing investor appetite and helping to bolster the bid in currencies. The Euro has been showing some relative weakness in Tuesday trade thus far with many attributing the selling to the news that decisions on financial aid for Greece will not be on the agenda at the upcoming EU Summit.

Relative Performance Versus USD on Tuesday (As of 12:00GMT) –

1) CAD -0.14%
2) SWISSIE -0.17%
3) KIWI -0.23%
4) YEN -0.23%
5) AUSSIE -0.38%
6) EURO -0.39%
7) STERLING -0.75%

Elsewhere, the Bank of Japan Minutes were released and was less than clear on the central bank’s desire to adopt a more accommodative easing policy as had been vocalized by many officials in recent days. Nevertheless, the release failed to materially influence price action. The New Zealand Dollar has found some fresh bids over the past few hours after local think tank NZIER announced that it expects the local economy to grow at a faster pace. On the topic of reserve currencies, Fed Lockhart has come out with a rather neutral stance on the USD after saying that while the US has had the privilege of being the reserve currency of choice, this should not be taken as something permanent.

Fed Evans has also been out in recent hours with his outlook on the economy, saying that he expects the US economy to grow by 3-3.5% this year but also warns that the impact of the stimulus will ease in the second of 2010. Evans has come out on the dovish side after also saying that current market conditions still warrant substantial accommodation. Meanwhile, China’s Wen has been going to great efforts to try and defuse the possibility of a currency war as more pressure builds in the US on citing China as a currency manipulator.

Although all major currencies are down against the buck thus far on the day, the most interesting price action in European trade has come through Sterling and Swissie. Cable has come under some significant pressure following the softer than expected inflation print, with the market taking out stops below 1.5000, while the Swiss Franc continues to get attention, with the relative outperformance against the Euro leaving the cross rate just shy of its all-time lows from 2008.

Eur/Chf has come under some more pressure on Tuesday even following comments from SNB Hildebrand that the SNB will act decisively to counter an excessive rise in the Franc. It seems as though market participants are keen on testing the central bank which has failed to really do any damage with their intervention threats. Perhaps comments from Hildebrand that price stability is not in danger in the short-term have also helped to generate some fresh Swissie bids.

Looking ahead, Canada leading indicators (0.8% expected) kick things off at 12:30GMT, followed by US existing home sales (4.98M expected), the US house price index (-0.9% expected) and Richmond Fed manufacturing all at 14:00GMT. On the official circuit, Fed Yellen speaks in California at 19:35GMT. US equity futures point to a marginally higher open, while commodities are mixed with oil mildly bid and gold a touch lower.




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