Euro posted the first weekly gain in six weeks versus the dollar on massive short-covering as euro bears worried about European Central Bank may step in to support the single currency. In addition, both houses of Germany parliament's approval for a law allowing Berlin to contribute as much as 148 bln euros in guarantees to the 750 bln euro EU/IMF bailout package removed some political risks involving big contributors of funds needed by Greece to remain solvent. Furthermore, ECB President Jean-Claude Trichet calmed the market by declaring 'euro was not in danger'.
Although euro tumbled to a 4-year low of 1.2143 on Wednesday after German financial regulator announced a ban on naked short-selling of Germany's most important 10 financial institutions, the CDS on EU government bonds and EU government bonds and the ban would take effect from May 19 2010 to Mar 31, 2011. However, a huge wave of short-covering in NY session on Thursday due to talks of central bank intervention pushed euro to as high as 1.2673 in Asian afternoon on Friday. Despite a brief retreat fm said high to 1.2471 on initial weakness in European equities, the single currency was able to ratchet higher again in NY session supported by the ECB Trichet's hawkish comments n the Germany parliament's approval for the 148 bln euro bill together with the strong rebound in U.S. shares. Cross buying also helped euro to surge this week especially versus Swiss franc as although eur/chf cross pair resumed its LT decline to 1.3995 (EBS) on Wednesday, the pair rallied to 1.4457 on Thursday n then to 1.4589 on Friday on speculation of SNB's intervention. Eur/gbp also jumped fm Wednesday's 0.8490 low to as high as 0.8774 on Friday b4 retreating on profit taking.
Although the British pound tumbled to a 2010 low of 1.4228 on Thursday, the subsequent euro-led rebound pushed cable to as high as 1.4475 on Friday. Despite sterling's brief rise to 1.4475 after Britain's public sector posted a slightly smaller than expected deficit in April, the pound dropped briefly to 1.4317 b4 rebounding to 1.4497 in late NY session in tandem with euro. The Office for National Statistic said on Friday public sector net borrowing came in 9.95 bln pounds sightly below expectations of 11.00 bln. U.K. PSNCR came in at 8.847 bln pounds versus economists' forecast of 6.75 bln pounds.
Despite intra-day weakness to 89.03 in Australia on Friday following Thursday's sharp selloff to 89.95 in NY morning, the dollar jumped against the Japanese yen just ahead of Tokyo opening on bargain hunting by Japanese names. Then the greenback continued to edge higher to 90.49, however, the pair dropped sharply to 89.22 on the weakness in European equities n the initial 150-point selloff in DJI right after the open. Later, the dollar managed a strong rebound to 90.41 as DJI pared all the losses n rallied to a gain of 129 points. Earlier, BOJ ended its 2-day monetary policy meeting by keeping its key o/n call rate unchanged at 0.1% n reiterated their stance to maintain very easy monetary conditions. In other news, Japan FINMIN Kan said 'PM ordered him to monitor market conditions; govt. not considering any specific steps on economy at present n also no plan now for G7 phone talks this w/end.'
Although the Australian dollar tumbled to 0.8071 versus the greenback earlier, the pair then jumped to 0.8373 on speculation that the Reserve Bank of Australia may intervene the currency.
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On economic front, Germany's May IFO business confidence index fell slightly to 101.5.
The Eurozone May manufacturing PMI fell to 55.9 although the services PMI rose to 56. The
Eurozone current account surplus rose to 1.7B in March. UK Q1 business investment rose
by 6% q/q, while April budget deficit fell to 10 B pounds, a slightly better than
expected result. Canada's April CPI picked up to 1.8% y/y at the headline and 1.9% y/y at
the core rate and retail sales was reported at 2.1% versus forecast of 0.1%.
Economic data to be released next week include: Japan all industry index, BoJ monthly
report, US existing home sales on Monday, U.K. GDP, Import, Export, E.U. Industrial
order, U.S. Consumer confidence and house price index on Tuesday, Japan CSPI, Australia
leading economic index, Germany Gfk index, U.S. durable goods, new homes change and new
homes sale on Wednesday. N.Z. Trade balance, import, export, Japan export, import, trade
balance, Germany's ifo index, U.K. CBI distribution trade, U.S. PCE, GDP deflator, U.S.
jobless claims and Midwest manufacturing on Thursday. Japan household spending, National
CPI, Tokyo CPI, unemployment, retail sales, Germany CPI, HICP, import price, Swiss trade
balance, kof indicator, U.S. PCE, personal income, Chicago PMI, University of Michigan's
survey and Canada Current account on Friday.