Foreign Exchange

Friday, July 15, 2011 - 15:49

FXWRAP: Dlr Flat, Unstressed By Stress Tests And Ratings Action

By Dennis Pettit

NEW YORK, July 15 (MNI) - The dollar was holding about unchanged
vs. the euro and the yen in afternoon dealings Friday, the currency
market Friday juggling various conflicting developments before retiring
for the weekend.

Euro-dollar was changing hands at $1.4140 in afternoon dealings
Friday, the euro about the middle of the day's $1.4092/1.4185 range of
the U.S. session and not far removed from its starting level of the day.

Similarly, dollar-yen was holding at Y79.07 in afternoon dealings
Friday, locked close to its Y79.05 early level of the session after
traversing a slender Y78.99/79.28 range during the U.S. session.

Afternoon dealings were at a slow tempo but currencies continued to
see some modest chop as markets settled back ahead of the weekend and
after a difficult trading week.

Euro-dollar, at $1.4140, had settled back from an early afternoon
high at $1.4185 seen as the euro scored modest gains in the wake of the
release of Eurozone bank stress test results that showed only 8 banks
out of 90 had failed the tests, signaling that those banks need to raise
more capital.

That outcome, modestly better than pre-release speculation which
held that anywhere from 10 to 26 banks may have failed the tests,
allowed the euro a modest, and short-lived, relief rally.

Ahead of the data, and amid quiet dealings, the euro had traversed
a wider range as the dollar clawed back some of the losses suffered
overnight as ratings agency S&P joined Moody's in warning that the U.S.
was in danger of seeing its credit rating downgraded due to
uncertainty's over the U.S. budget negotiations and debt ceiling

In morning dealings, euro-dollar slipped marginally under $1.4100
as the euro gave back overnight gains that came within a whisker of
$1.4200 after the S&P announcement.

Traders said that volumes on the day were mostly light, with most
players inclined to remain on the sidelines to digest the week's
developments after the euro traversed a wide, $1.3835/1.4281 range,
buffeted by the colliding developments surrounding the eurozone debt
crisis and the U.S. budget negotiations that pulled the dollar and the
euro seemingly every which-way this week.

While the deteriorating situation in the eurozone has served to
undermine the euro in recent weeks, a similarly disquieting scenario
surrounding the U.S. budget negotiations has acted to undermine the
greenback, traders remind.

At the same time, mediocre U.S. economic data has reminded of the
still shaky outlook for the U.S. economy even as eurozone growth appears
to be steady, but patchy.

Dollar-yen meantime was holding in the lower reaches of its narrow
U.S. hours range, the dollar underpinned by demand interest positioned
below Y78.80 and by the notion that Japanese officials remain vigilant
over recent yen strength and could act to weaken the yen if they see
unwarranted gains in the currency that could derail the economy.

In recent days, Finance minister Noda and chief cabinet secretary
Edano have commented on recent yen strength but both stopped short of
signaling whether Japan intends to intervene to head off further yen

Japan last intervened to weaken the yen on March 18, a week after
the earthquake and tsunami that devastated Japan's north-east coast,
Japan undertaking that intervention in concert with its partners in G7.

U.S. economic data released Friday reminded of the mixed outlook
for the U.S. economy.

The June Consumer price index fell -0.2% overall but core rose a
higher than expected +0.3%, though only +0.2545% unrounded, for +3.6%
year-on-year overall and +1.6% year-on-year core.

In core, apparel rose +1.4% in 2nd large gain and new vehicles rose
+0.6%, used cars rose +1.6% (biggest gain since December 2009) and
tobacco rose +0.4%.

Food rose +0.2% as cereals and dairy rose but meats and fruits
fell. Energy was -4.4% (largest drop since December 2008) as all areas
fell except natural gas at +0.4%

The July preliminary Reuters/University of Michigan consumer
sentiment index slid to 63.8 vs. 71.8 June reading, a softer outcome
than expected.

Within the report, current conditions slipped to 76.3 vs. 82.0 and
expectations dipped to 55.8 vs 64.8.

One year inflation expectations were 3.4% and 5 year at 2.8%.

The NY Fed Empire State Manufacturing Index rose to -3.76 in July
vs. -7.79 in June, still well below expectations for a rise to 7.0 in
the month.

The new orders index fell to -5.45 from -3.61, but the shipments
index rose to 2.22 from -8.02. In addition, the employment index fell to
1.11 from 10.20, while prices paid fell to 43.33 from 56.12.

The six month outlook index rebounded to 32.22 from 22.45.

June Industrial production showed weaker growth than expected at
+0.2% after -0.1% downwardly revised May reading, originally reported
+0.1%, and -0.1% April reading, originally flat.

The Fed noted Q2 supply chain disruptions following the earthquake
in Japan but says this mainly affected autos.

Capacity Utilization was 76.7% overall.


EURO SUMMARY: Opened at $1.4150 after $1.4094/1.4199 overnight

-- Euro had been underpinned by sovereign demand below $1.4100 but
conditions had calmed as markets awaited European bank stress test
results and after the S&P warning on US credit rating. Euro demand
around the ECB fixing provided lift to $1.4170 but gains evaporated
quickly with euro back near $1.4100 within an hour as risk appetites
were pared after disappointing U.S. data. Choppy trade around the option
cut saw euro dip to $1.4092 but with persistent chatter of sovereign
demand below $1.4100, euro recovered to $1.4130 awaiting stress test
outcome. News that only 8 banks failed the test compared well with
pre-release expectations, allowing euro bounce to $1.4180 area before
stalling in the face of supply layered atop that level, euro deflating
quickly to $1.4130. Later dealings were trapped inside $1.4130/55, euro
ending near $1.4145.

YEN SUMMARY: Opened at Y79.05/111.85 after Y78.87/79.27 and
Y111.62/112.34 overnight ranges.

-- Dollar pair had held tight range overnight as bids cushioned
above Y78.80 while exporter supply capped ahead of Y79.30, leaving
euro-yen to drift with the breezes in euro-dollar. Early action saw the
dollar lift to Y79.25 as euro-yen lifted to Y112.00 but both retreated,
to Y78.99/114.30 around the option expiry hour and as early US stock
gains fizzled in the wake of disappointing consumer confidence data.
From there, dollar recovery stalled shy of Y79.10 while euro-yen enjoyed
a brief foray above Y112.00 in the wake of eurozone bank stress test
results, only to deflate back to Y111.70 by mid afternoon.

Dollar Rates in New York Trade:

Eur-Dlr Dlr-Yen Eur-Yen Stg-Dlr Dlr-Swiss
15:05 p.m. Fri 1.4136 79.07 111.80 1.6122 0.8138
11:35 a.m. 1.4142 79.07 111.83 1.6149 0.8157
9:01 a.m. 1.4120 79.20 111.83 1.6100 0.8185
7:01 a.m. Fri 1.4150 79.05 111.85 1.6115 0.8160
3:16 p.m. Thu 1.4130 79.15 111.84 1.6125 0.8170
7:35 a.m. Thu 1.4196 79.00 112.15 1.6118 0.8158
7:36 a.m. Wed 1.4065 79.32 111.55 1.5946 0.8315
7:35 a.m. Tue 1.3918 79.65 110.86 1.5825 0.8325
7:33 a.m. Mon 1.4088 80.64 113.61 1.5962 0.8375
End 2010 1.3377 81.15 109.10 1.5599 0.9335

--email:, Tel: (212) 669-6436

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