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Market Brief

Usd was stable but with a weaker tone in the Asian Session as higher oil prices and weak equity markets carried over from Friday’s close. EurUsd trended upwards to 1.5798 from Friday’s 1.5730 close. UsdJpy slipped to 105.77 from 106.40 while GbpUsd bounced around the 1.9940 level. With the Jpy gaining strength, volatility on the rise and risk appetite declining carry trades have come under pressure in recent sessions. In Asian trading, AudJpy fell to 101.80 from 102.50 while EurJpy collapsed to 167.04 from 168.11. With the Dow dropping roughly 9% on the back of new record high oil prices (Usd $142.99) and Trsy yields falling as traders paired down inflation expectations (due to steady PCE figures) on Friday, we expect the Usd to continue to come under pressure as the growth side of the story comes back into play. Given our base scenario we expect EurUsd to make another attempt at 1.6000 this week.

US stock markets closed lower on Friday as higher energy prices scared investors. Asia stocks continued the sell off with Nikkei down -.45% mid day. However, European futures are trading slightly in the green and look to open above fair value. WTI is still holding safely above 140.00 at 141.66bll.

With markets focused on growth in the US there is no data this week that will the Usd’s cause. We are expecting both ISM to fall below the 50 threshold (after prior indication of stability) while NFP could come out as low as -100k. In addition, with Friday’s core PCE deflator holding steady and lower than market expectations at 2.1% yoy inflation is less of an immediate concern. Also, we expect the ECB to hike rates on Thursday to 4.25% (ECB Starks comments on Friday were decidedly hawkish, warning that inflation was rising and second round effect from energy prices were increasing) while in whole of the Euro zone exhibits resilient economic activity. Given these expectations we believe Usd will stay weak against Eur and to a lesser extent Jpy.

In New Zealand Business Sentiment June improved to -38.7 from -49.7; However, expectations remained weak -4.0 from -4.4 (looks like Q2 GDP will go negative). While inflation levels remain elevated and worrisome for the RBNZ in the near term, a sharp turn in economic prospects will help easy pressure and we expect the central bank to being easing in Sept.

In Europe we expect CPI inflation to increase to 3.8%. This insight will only amplified the ECBs resolution to tighten rates on Thursday.

In the UK April’s Index of Services will be the first official look at at the well-being of the UK economy in Q2. With national accounts being revised down we can expected service to follow the trend downwards. With Mortgage Approvals collapsing there is always a risk of an unexpected spike upwards as opportunity seekers look for a bottom. But baring this unseen event, we see slightly lower figures (note levels are below 1990s so downside is limited).

ACM FOREX

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