Market Review – 26/05/2010 21:20 GMT
Euro weakens on European debt woes and China repositioning fearsThe euro declined across the board for 3 consecutive days on persistent European debt woes while a surprisingly poor demand for German bonds also pressured the single currency. In addition, a Financial Times (FT) report showed that China was reviewing its eurozone bond holdings added further bearish sentiment on euro.
Although the single currency rebounded strongly on Tuesday from 1.2177 and hit an intra-day high of 1.2388 in Australian morning session on Wednesday, euro tumbled from there and despite a minor recovery from 1.2262, renewed selling at 1.2345 sent the pair lower and euro picked up more downward momentum after the release of upbeat US data on durable goods and new home sales. The pair eventually fell below 1.2177 and sank to 1.2166 in NY afternoon after U.K.’s FT reported China’s officials of the country’s State Administration of Foreign Exchange (SAFE), which managed the reserves under China’s central bank, had been meeting with foreign bankers to discuss the eurozone bond holdings because of growing concern about gaping deficits in euro zone member countries including Greece and Portugal. Besides, Germany sold 5.45 billion euros of 5-year bonds on Wednesday but the auction was met with poor demand as it only drew demand of 1.1 times the amount on offer, decreasing from the previous results of 1.5 times. In addition, European Central Bank Governing Council member Erkki Liikanen said a ‘true recovery’ of the eurozone economy will only be possible when governments repair their finances.
Versus the Japanese yen, the greenback once sparked up to 90.51 in NZ/AUS session and retreated to 90.00 later. The pair then briefly rose to 90.68 after the release of better-than-expected U.S. new home sales which rose by 14.8% to 0.504 million in April versus the economists’ forecast of 0.430 million together with upwardly revised 0.439 million in March. However, the usd/jpy pair fell to 89.81 as DJI staged a late-day reversal despite early rise of 135.28 points and ended the day down by 0.69% at 9974.45 on the news that China would review holdings. DJI closed below 10000 points for the first time since Feb of 2010. In other news, U.S. durable good orders rose by 2.9% in April, much higher than the economists’ forecast of 1.3%.
The British pound rose to 1.4449 in Australian morning trading on Wednesday following overnight rebound from 1.4260. Although cable retreated to 1.4330 in European morning, the gbp/usd pair managed to edge up on cross-buying in sterling especially versus euro as the eur/gbp pair nosed-dived from 0.8575 to 0.8455 and cable finally ended the day at 1.4387.
Economic data to be released on Thursday include: N.Z. Trade balance, imports, exports, Japan exports, imports, trade balance, Germany’s ifo index, U.K. CBI distribution trade, U.S. PCE, GDP deflator, U.S. jobless claims and Midwest manufacturing.