Intraday Market Thoughts

USD Firms Amid Faltering Hopes of EU Action, Ashraf w/ Tom Keene

by Patrik Urban
Jun 28, 2012 12:58

Expectations for a decisive action drop; European data deteriorate; German unemployment rate unchanged; UK GDP unrevised q/q but lower y/y; UK current account deficit wider; Italian auction. Focus on final GDP, jobless claims and EU summit. Ashraf will be with Tom Keene on Bloomberg Radio at 8:30 am EST (13:30 BST). Link provided below.

The USD moved higher across the board except JPY on reports from a German official who said that no decisive actions will be taken at the EU summit that starts today in Brussels. Market expectations for a solution of the ongoing crises have been declining so safe haven flows should underpin the buck if nothing concrete and decisive emerges from the summit that ends tomorrow. The first working session is scheduled to start shortly after 2:00 pm GMT (10:00 am ET).

Data reports continued on the deterioration path as Eurozone business climate declined in June to -0.94 from previous -0.79 and consumer confidence was revised lower to -19.8 from initial estimate -19.6. German unemployment rose 7K in June from May's 1K but at least the unemployment rate remained unchanged at 6.8%. EURUSD fell from 2520 to 2406 and currently trades around 1.2430.

UK current account deficit widened to GBP -11.18 bln from previous GBP -7.23 bln and the final Q1 GDP remained unrevised q/q at -0.3% but the annualized result was revised lower to -0.2% from initial estimate -0.1%.

UK nationwide HPI dropped 1.5% in June from previous -0.7% y/y which is the lowest result in nearly three years. GBPUSD trades around 1.5550.

Italy was able to sell 2017 and 2022 BTPs totaling EUR 4.79 bln vs. EUR 5.5 bln target. Average yields rose and cover was mixed. 10 year yield hit the highest level since January 6.284% while the Spanish 10 year yields 7%.

According to the ECB banks borrowed EUR 5.21 bln via the overnight facility yesterday, significantly more compared to yesterday's EUR 3.09bln. EUR 772.58 bln was deposited.

The US session starts at 8:30 am ET with third reading of Q1 GDP which is expected to remain unrevised at 1.9% y/y and jobless claims that are seen slightly lower this week at 385K from previous 387K.

Even though trading today is likely to be driven by headlines, rumors and unconfirmed reports, the market could also respond to speeches by FOMC member Sandra Pianalto at 11:30 am and MPC member Martin Weale at 1:00 pm.

Ashraf will be with Tom Keene on Bloomberg Radio at 8:30 am EST (13:30 BST). Link provided below


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