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EURUSD Higher Ahead at NY Open as Asia and Europe Digest NFPs

EURUSD Higher Ahead at NY Open as Asia and Europe Digest NFPs

Christopher Vecchio, CFA, Senior Strategist

Fundamental Headlines

- Growth Slowdown Seen for Third Year in U.S. Dodging a Recession – Bloomberg

- S&P 500 Valuation Slips 19% Below ’11 – Bloomberg

- Europe Mulls Major Step toward “Fiscal Union” – Reuters

- Feds Eye MF’s False Promise – WSJ

- Germany Signals Crisis Shift – WSJ

Asian/European Session Summary

The first full week of June brings about new opportunity after a dismal May, in which it is looking increasingly like that the Federal Reserve will be forced to implement another round of stimulus to spur the US economy. Nevertheless, the concerns over the Asian and European growth pictures remain at the forefront of global investors’ minds and the start of the week has been relatively bearish in terms of desire for higher yielding currencies and risk-correlated assets.

Although they’ve since bounced back, the Australian and New Zealand Dollars were leading losses among the majors through early Monday as Asian traders dumped the commodity-linked currencies amid the deteriorating growth picture for the world’s largest economy, the US. The downside pressure in the Asian-Oceanic currencies comes ahead of the Reserve Bank of Australia’s June meeting on Tuesday, in which basis swaps are suggesting another 50-basis point rate cut is coming down the pipe. Given the increasingly negative sentiment surrounding the Australian Dollar, there is capacity for the Aussie to rebound if the RBA only cuts by 25-bps instead.

The Japanese Yen also remains quite stronger, now one of the top performing currencies year-to-date behind the US Dollar and the British Pound. In the first quarter, the Yen depreciated by 10.08 percent against the majors covered by DailyFX (AUD, CAD, CHF, GBP, EUR, NZD, USD); but in the second quarter thus far, the Yen has appreciated by 11.13 percent against the same currencies. Indeed, the flight to safety (in this case, the more liquid currencies like the Japanese Yen and the US Dollar) has hampered efforts by the Bank of Japan and the Japanese Ministry of Finance to stem the Yen’s appreciation. Earlier today, BoJ Governor Masaaki Shirakawa said that the BoJ is monitoring “the recent appreciation of the Yen,” while also noting that “the bank carefully monitors the development of the foreign exchange rate from the viewpoint of how it affects the economy through its impact on business sentiment.” While the continued flight to safety will keep demand for the Yen high, it is likely that the BoJ steps in to halt the Yen’s strength, if only momentarily.

Taking a look at credit, US Treasuries have started to come off a bit, with the 10-year Note yield rising back to 1.514 percent ahead of the cash equity open. In Europe, peripheral yields have improved as well, led by Greece and Italy on the longer-end of the curve and by Italy and Portugal on the shorter-end. The Portuguese 2-year note yield dropped by 17.9-bps to 9.552 percent, while the Italian 2-year note yield fell back to 4.100 percent. Undoubtedly the positive developments have been in part due to the positive results of the European Troika’s fourth quarterly review of Portugal’s economic program.

EURUSD 5-min Chart: June 4, 2012

EURUSD_Higher_Ahead_at_NY_Open_as_Asia_and_Europe_Digest_NFPs_body_x0000_i1028.png, EURUSD Higher Ahead at NY Open as Asia and Europe Digest NFPs

Charts Created using Marketscope – Prepared by Christopher Vecchio

The New Zealand Dollar has been the top performer, gaining 0.62 percent against the US Dollar to start the week. The Japanese Yen has been the worst performer, with the USDJPY appreciating by 0.20 percent. The Euro’s rally has really picked up steam around the US cash equity open, and the EURUSD is now up 0.46 percent on the day. Quizzically, the Swiss Franc is the second best performer, up 0.49 percent.

24-Hour Price Action

EURUSD_Higher_Ahead_at_NY_Open_as_Asia_and_Europe_Digest_NFPs_body_Picture_7.png, EURUSD Higher Ahead at NY Open as Asia and Europe Digest NFPsEURUSD_Higher_Ahead_at_NY_Open_as_Asia_and_Europe_Digest_NFPs_body_Picture_1.png, EURUSD Higher Ahead at NY Open as Asia and Europe Digest NFPs

Key Levels: 12:45 GMT

EURUSD_Higher_Ahead_at_NY_Open_as_Asia_and_Europe_Digest_NFPs_body_Picture_4.png, EURUSD Higher Ahead at NY Open as Asia and Europe Digest NFPs

Thus far, on Monday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading lower, at 10211.64 at the time this report was written, after opening at 10257.60. The index has traded mostly lower, with the high at 10271.92 and the low at 10211.64.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.