Much of the direction of the forex market today has again been influenced by the perceived direction of monetary policy of the major central banks, particularly the substantial easing measures introduced by the ECB which should act to debase the euro.
By Peter Martin
Wednesday, June 11, 2014
The euro slid 0.4% against the dollar on Tuesday, following similar losses on Monday, taking EUR/USD down to 1.3538. The euro’s decline came in spite of evidence that industrial production recently picked up in two major eurozone countries. French industrial production advanced by 0.3% in April, beating the consensus estimate of 02%, while March was upwardly revised from -07% to -0.4%, and Italy’s industrial production gained 0.7% in April, also beating estimates.
The Japanese yen, meanwhile, advanced against most major currencies, as traders look ahead to this week’s meeting of the Bank of Japan. Expectations are for the central bank to produce a ‘no change’ decision, maintaining stimulus measures at their current levels with monthly bond purchases of around 7 trillion yen ($68.4 billion). Bank of Japan Governor Haruhiko Kuroda will hold a press conference following the announcement this Friday, and with strong signs of recovery in the US jobs market and in Chinese exports, there is a case to be made that demand for Japanese exports is expected to grow along with the improvement of the state of the global economy. Such an outcome would help to remedy the drag of a recent sales tax rise in Japan. Perhaps most interesting of all will be to hear what the Governor has to say about the ECB’s recent action. USD/JPY was down 0.15% by mid-afternoon in New York.
Before today, it’s been a succession of gains, and hence record highs, for the US stock markets, but we’ve seen a slight pull back in trading on Tuesday, as finally the high price of equities starts to deter buying. The declines have been slight, though, with the Dow Jones Industrial Average slipping back just 0.04% to 19,936 and the S&P 500 dropping 0.09% to 1949.6, with both benchmarks remaining very close to their record closes.
US economic data released on Tuesday showed solid signs of improvement. The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) registered 4.455 million job openings at the end of April, a promising upturn from the 4.166 million at the end of March (originally reported lower at 4.014 million), and coming in comfortably above expectations. Most of the rise was driven by the private sector and coming hot on the heels of Friday’s robust showing by the non-farm payrolls report, this is another confirmation that the labor market is on an upward trend, though the magnitude of the gains are most likely insufficient to alter the Fed’s path of steady reductions in stimulus while embracing an extended period of accommodative policy.
The wholesale trade report, which measures the dollar value of sales and inventories at wholesalers, was also released today and showed a month-on-month rise of 1.1% in inventories alongside sales growth of 1.3%. Stock-to-sales stayed at a trim ratio of 1.18. Auto inventories fell in April and, judging by the strong auto sales reported by manufacturers last week for May, we might expect stocks to fall further at wholesalers in next month’s report. A high stock-to-sales ratio is an unhealthy sign, meaning sales are too slow to stop stock accumulating, whereas a low ratio may lead to demand for manufacturers to ramp up production.
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