Market review for 14 – 17. 06, 2010

CNY: People’s Bank of China announced on Saturday that it will relax its policy in regards to yuan/dollar exchange rate and although they later tried to play down message CNY: People’s Bank of China announced on Saturday that it will relax its policy in regards to yuan/dollar exchange rate and although they later tried to play down message, investors welcomed the sign that the peg to the US dollar may be released and the yuan jumped to its 5-year high in today’s trading in China. Many analysts connect this announcement with the G20 meeting starting in Toronto this week, such political move is likely to have positive impact on other G20 participants.

USD: The dollar came under pressure due to China’s announcement. It has created a positive sentiment in the markets and demand for the dollar was temporarily reduced. The USD$ is higher against the EUR -0.06% and JPY -0.31% and lower against the CHF +0.16% and GBP +0.30%.

EUR: The euro continues to advance thanks partially to the news from China and partially to the Greek President’s radio interview where he mentioned that the default by Greece “is not inevitable” and that Greece remains a credible partner to its creditors. Also speaking overnight ECB’s Provopoulos 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. There were no more fundamental data released recently which allowed the euro to continue its rally, however it is believed that 16 member eurozone may slip back into recession by the end of the year. The euro hit 1.2490 at one point today, but is currently trading around 1.2410.

AUD: The AUD managed to climb higher today after China indicated that they would allow the Yuan to appreciate, thus boosting demand for countries who sell products to the world’s third-largest economy. Earlier last week, comments from the RBA, who said that Europe’s debt crisis would ‘inevitably weigh’ on global growth, had fueled speculation that the RBA may keep rates unchanged until at least the end of the year. It seems that that ‘previous rate rises has given them flexibility to leave borrowing costs unchanged at next month’s meeting’. Last week, stronger domestic fundamentals aided the currency. Employment data added +26.9k new jobs vs. an expected +20k. It was the third consecutive month of job gains, emphasizing the RBA’s call that that economic growth will accelerate this year. This pushed dealers into increasing their bets that Governor Stevens will resume the country’s most aggressive round of monetary tightening. So far, it seems that the crisis in Europe has not had a material impact on the Australian economy.

Oil: Oil prices have rallied to a six week high in the Asian session on increased confidence in the global economic recovery after China signaled an end to the Yuan’s fixed rate policy. The big dollar has pared its gains vs. the EUR, thus boosting the appeals of commodities as an alternative investment. Earlier last week, the EIA report initially gave the market its bullish sentiment, however, weaker global economic releases managed to encourage some ‘risk-off’ trading strategies. The report was dominated by the drop in refinery capacity rates. US refineries operated at +87.9%, down -1.2% from the previous week. Direction is dictated by demand and with ample supply and growth worries to data has had speculators wanting to sell oil futures on rallies, however, confidence continues to provide the bid.

Gold: Gold continues to be a safe heaven attraction. The commodity’s prices remain robust on speculation that European’s Economic woes will be prolonged. With broader risk appetite becoming subjective, the market was capable of printing new record highs in the earlier session. Technically the ‘yellow metal’ is trading with a greater consideration of its safe heaven status. Gold as an asset is well sought. Year-to-date, gold has gained +16%. Generally, it has become the benefactor when all other currencies fail. Gold has broken the 1260 barrier today and is poised to rise higher in the next few weeks.