Euro, British Pound Rally Overnight as China Resumes Currency Appreciation

Talking Points
•    Japanese Yen: Tumbles on Risk Appetite
•    Pound: Rises to the Highest Level Since May 13th
•    Euro: Greek Prime Minister Says Cuts Will Overcome Skepticism
•    U.S. Dollar: Loses Ground Against Most Major Currencies Amid PBOC Decision

Euro, British Pound Rally Overnight as China Resumes Currency Appreciation 

Ahead of the G-20 meeting next week, the recent conclusion by China looks to have buoyed investor confidence as market participants take this move as a sign that policymakers have faith in the global economic recovery despite the European debt crisis. Looking ahead, the single currency may continue to push higher throughout the day as investors increased their appetite for risk.

Moreover, during a radio interview with Bloomberg on the Economy, Greek Prime Minister George Papandreou said that default by Greece “is not inevitable” and “we are a credible partner to our creditors.” He later went onto add that “this is not only our commitment but it is a commitment by our European partners.” Also speaking overnight was ECB’s Provopoulos, and the Governor stated that the notion of a possible breakup in the 11 year old euro is “absurd.” At the same time,   Mr. Provopoulos announced that the Greek banking sector has sound fundamentals. Away from the news wire, there were no major data releases during the European session; however, going forwward, we may see a short term rally in the euro as European leaders aim to reinstate confidence in the single currency. As of late, policy makers have agreed to publish the results of bank stress tests by the second half of July. However, it is noteworthy that the 16-member euro area may slip back into recession by the end of the year as governments scale back stimulus measures in order to battle ballooning budget deficits. 

The British pound pared Friday’s decline, with the exchange rate reaching its highest level since May 13th, and the single currency is likely to face increased volatility leading up to tomorrow’s emergency budget. Ahead of tomorrow’s highly anticipated announcement, Chancellor of the Exchequer George Osborne recently stated that banks should expect a levy. It is unclear what the levy will be used for as of yet, however, it seems that the government may use it to fill its fiscal deficit. The budget may also propose an increase in employee national insurance contributions. It is also worth noting that the budget precedes the Bank of England minutes of the meeting which will be published on Wednesday June 23rd. Meanwhile, the economic docket overnight showed that U.K.’s Rightmove house prices in June rose 0.3 percent after climbing 0.7 percent the previous month, while the annualized rate jumped 5.0 percent.

The U.S. dollar traded lower against all major currencies except for the Japanese yen overnight, while the USD/JPY pared Friday’s decline to break above the 200-day SMA and reach an intraday high of 91.030. With a quiet economic docket going into the North American trade, risk trends are likely to dictate price action throughout the rest of the day.


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Forex Weekly Trading Forecast – 06.21.10

Written by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical's, Weekly Spotlight, and Forex Trading Weekly Forecast