CurrencyShares :: Currency Weekly Commentary

Home | Research & Tools | Currency Weekly Commentary

Commentary for the week of 06/22/2012

Disappointment the Fed did not undertake more QE at the FOMC meeting and a broad dismissal of the Spanish bank bailout plan by markets as effectual, saw risk assets and FX weaken and left the AUD down 0.2% against the USD for the week. Moreover, commodity prices were lower as concern over a global economic slowdown is seen taking raw material prices lower. Additionally concerns over China's ability to avert a hard landing remain elevated. Merchandise imports rose 4% in May from April. Housing starts fell 12.6% in Q1 from Q4. Minutes from the RBA's June meeting showed the decision to cut rates 25 basis points was a close call which provided some support for the AUD.
In the coming week Australia releases data on private sector credit. RBA Deputy Governor Debelle speaks. We expect the AUD to end next week lower against the USD on a bounce in risk aversion as a bailout for Spain's banks and the Greek election are not seen fixing the Euro Zone crisis and the EU heads of state summit falls short of a convincing policy response to contain the crisis in Europe. Also we think China economic weakness and the broader decline on commodity prices should take a toll on the AUD ahead.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

Disappointment the Fed did not embark on more quantitative easing and belief among market participants the bailout of Spanish banks by the EU and a pro-Euro Zone government in Greece are not sufficient to bring the crisis under control sent the British down 0.8% against the US dollar for the week. Many also were inclined to sell the GBP after minutes from the BOE Monetary Policy Committee meeting showed a 5-4 vote for refraining from more QE with Governor King voting for more QE and being overruled. Still the case for QE is strengthening and more QE at the July meeting is now seen as a foregone conclusion and arguably a negative for the GBP. Confederation of British Industry reported industrial orders (index) rose to -11 in June from -17 in May. Retail sales in May rose 1.4% month-over-month after a 2.4% dive in April. Jobless claims rose 8,100 in May after falling 12,800 in April. The unemployment rate for February-April fell to 8.2% from 8.4% in November-January. Inflation slowed in May to 2.8% year-over-year from 3% in April suggesting scope for more BOE QE.
In the coming week the UK releases data on government borrowing, retail sales, GDP, current account and consumer confidence. We expect the GBP to end next week lower against the USD reflecting a resumption of anxiety over Span's banking and fiscal crisis and on the realization that no political shade of Greek government can dig itself out of the hole no matter how verbally committed to austerity as growth declines and borrowing costs stay elevated. Also look for markets to be disappointed in the EU heads of state summit Thursday and Friday as the gathering is unlikely to come up with any substantive policy announcement capable of arresting the Euro Zone crisis we think and this should see risk FX broadly lower against the USD and JPY.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

The Canadian dollar ended the week down 0.3% against the US dollar on disappointment the Fed did not announce more QE after Wednesday's FOMC meeting concluded. Still the Fed did extend Operation Twist (selling short-dated Treasuries for long-dated ones) and Bernanke made it clear that QE was an option open for the Fed should conditions warrant ahead. CAD was also under pressure as many saw the weekend announcement of a bailout for Spain's banks as ineffectual - EU to give Spain a loan to recapitalize banks but also boosted the government's debt burden and led to downgrade. Weaker commodity prices also proved a detriment for the CAD. Annual inflation fell to 1.2% in May from 2% in April while the BOC core measure fell to 1.8% from 2.1% in April suggesting any plan for the BOC to remove extraordinary accommodation ahead is likely to be delayed. Retail sales fell 0.5% month-over-month in April after April sales fell 0.8% from March suggesting household spending is slowing. Wholesale trade rose 1.5% in April from March, the largest monthly gain since May 2011.
In the coming week Canada economic releases include figures on GDP and PPI. We expect the CAD to end next week lower against the USD reflecting elevated risk aversion as markets dismiss results of Greek election as problem is beyond repair absent growth and Spain's bank bailout proves insufficient, even at E100bln. Also look too for disappointment to follow Friday's conclusion to the EU heads of state summit as officials are likely to come up short on substantive measures to contain the Euro Zone crisis. Weak global growth too should see commodity prices decline more as well and this too should check CAD upside.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

The Chinese yuan ended the week unchanged against the US dollar with the government continuing its policy of keeping the yuan steady to weaker against the USD in light of weakening exports and sluggish domestic demand. Data from China continued to support the idea of a harder landing for the economy with HSBC's preliminary PMI falling to 48.1 in June from 48.4 in May, the eighth straight reading under 50.
In the coming week in China there are no major economic releases. We expect the yuan to continue its modest decline against the USD as China's monetary authorities seek to support exports by tolerating a lower yuan. Also we think pressure to ease more should see the yuan remain weak versus the USD ahead.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

The euro ended the week down 0.5% against the US dollar after markets largely wrote off the Spanish bank bailout agreement from the weekend and the new Greek (pro-Euro Zone) government as sufficient to contain the crisis. Market participants were also disappointed that G20 leaders meeting in Mexico were unable to announce any major new effort to stabilize the Euro Zone crisis. The bank bailout loan to Spain from the EU could be as much as E100bln which left many wondering if Spain's government debt burden would require it to receive a bailout ahead (led to rating downgrade). The euro also suffered in the wake of the Fed's decision to leave QE in reserve for possible later deployment. German officials also urged Greece to live up the bailout conditions and suggest little scope beyond lengthening terms of the condition targets as open for renegotiation. Germany reported a decline in June Ifo business index to 105.3 from 106.9 in May marking the second straight decline. Euro Zone composite PMI in June was unchanged from May at 46. Germany and France saw PMI's slip in June from May. The current account surplus narrowed in April to EUR4.6bln from EUR10.3bln in March. Consumer confidence was unchanged at -19.6 in June from May.
Economic releases from the Euro Zone next week include data on economic sentiment, inflation and money supply. We expect the EUR to end next week lower against the USD reflecting a resumption of concern over Spain's banks and fiscal balances as austerity pushes the nation deeper into a hole and growth remains elusive. Also we think the Greek election result, even if favorable to pro-euro forces, will do little to change the dynamics of ever deeper deficit and recession making bailout conditions impossible to meet. Moreover we have low expectations for Thursday-Friday's EU heads of state summit for anything substantive on the policy response that can contain the crisis. This too should weigh on the euro we think and aid "risk free" FX - namely the dollar and yen.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

The Japanese yen ended the week down 2.1% against the US dollar reflecting rising US Treasury yields and expectations the BOJ will ease policy more ahead assuming the government can agree to passing a large hike in the consumption tax in coming days. But that effort hit a snag as the governing party is split over the hike in the Value Added Tax or VAT. Japan's corporate mood fell to -3 in June from +2 in May according to the Reuters Tankan survey of firms. Japan's trade balance was in JPY907.26bln deficit in May almost twice what was expected due mainly to energy imports in light of the reduced domestic nuclear energy output due to the quake and tsunami.
In the week ahead Japan releases data on retail sales, household spending, CPI, unemployment rate, housing starts and industrial production. We look for the yen to end next higher against the US dollar as risk aversion soars on disappointment after the upcoming EU heads of state summit as officials likely fail to take decisive action. Look too for the US Treasury market to rally taking yields down and this too should help the yen recover versus the dollar. Also failure of the government in passing VAT hike would undermine expectations of scope for the BOJ to ease more and this risk (no VAT passed and government crisis, snap election) seems to be rising.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

Disappointment over the failure of the Fed to announce more QE and renewed worries over the Euro Zone's inability to arrest contagion sent the Swedish krona down 0.3% against the US dollar for the week. Swedish economic think tank urged the Riksbank and government to pursue more stimulatory policies ahead. Consumer confidence fell to 3.1 in June from 5.9 in May while business confidence fell to -4 from -1 in May. The unemployment rate rose to 8.1% in May from 7.8% in April.
In the coming week Sweden releases economic data on retail sales. We look for the SEK to end next week lower against the USD as markets second guess the capacity of Spain bank bailout and a pro-euro Greek election outcome to provide a sustainable path out of crisis as growth remains elusive and making bailout conditions impossible to meet which should drive risk aversion up. Also look for the EU Summit to disappoint market expectations Friday adding to the exit from risk assets and FX and into USD.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

The Swiss franc finished the week down 0.6% against the US dollar reflecting disappointment in markets in the wake of the EU bailout of Spain's banks totaling EUR100bln and the formation of a new pro-euro government in Greece led by New Democracy. Swiss exports fell 3.7% year-over-year but rose 1.8% from April reflecting weak Euro Zone demand. Imports were down 2.0% year-over-year in may in nominal terms and down 1.0% in real terms. Investor sentiment fell to -43.4 in June from -4.0 in May.
In the coming week Switzerland sees the release of KOF business activity index. We look for the CHF to end next week lower against the USD reflecting a rebound in risk aversion as markets second guess the capacity of a Spanish bank bailout and new (pro-euro expected) government to contain the Euro Zone crisis. Look too for the EU Summit to fall short o expectations in finding a more permanent policy mix to stem contagion.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

Disappointment the FOMC meeting which stopped short of launching QE3 and resumed concerns about the Euro Zone solvency for the peripheries and Spain's banking system saw the US dollar index end the week up 0.8% partially reversing last week's decline. Fed Chairman Bernanke painted a rather dark picture of the US economy with inflation falling and unemployment elevated. He did indicate that QE is an option the Fed may resort to ahead if conditions warranted more accommodation. The Fed did agree to extend Operation Twist (selling of short dated Treasuries for long-dated ones) but few think this effort at supporting growth is very effective. G20 heads of state met in Mexico early in the week but failed to announce any new measures to contain the Euro Zone crisis. Moreover, the bailout for Spain's banks (up to EUR100bln) agreed over the weekend was decided to take the form of a loan to the Spanish government which will add to the debt burden of the government and this led rating agencies to begin downgrading Spanish debt. The ECB responded to the escalating crisis by broadening collateral it will accept from banks for funds. It was clear early in the week the Spanish bank bailout plan was not having a stabilizing effect on the financial system, though Spanish yields did decline and bank stocks rallied from depressed levels. German officials meanwhile insisted Greece live up to its bailout conditions and hinted at some scope to lengthen the terms of the bailout agreements. Greece formed a government led by center right New Democracy head Samaras. US economic data on balance pointed to slowing in activity. US manufacturing index from Markit fell to 52.9 in June from 54 in May. Jobless claims for the week ending June 16 fell 2,000 to 387,000, while the trend remained up and the 4-week moving average elevated. The Philadelphia Fed business index fell in June for the second straight month. Existing home sales fell 1.5% in May from April but followed a 3.4% April gain from March and median home prices rose for the fourth straight month. In May the index of leading indicators rose 0.3% from April.
In the week ahead the US releases data on new home sales, home prices, consumer confidence, durable goods orders, GDP, jobless claims, personal income and expenditures and Chicago PMI. Much focus will be on Thursday-Friday's EU heads of state summit as markets look for a more substantive policy response to the crisis, though expectations of convincing action should be low given Germany's resistance to underwriting the Euro Zone and its belief in austerity first as a path to growth. Despite a dovish Fed, we think the USD index will finish next week higher as markets look beyond a likely pro-euro government in Greece and the recent Spanish bank bailout and question where is the growth? Without growth, bailout package conditions won't be met and the crisis will continue to brew. Moreover, we see EU summit disappointing markets and triggering a fresh sell-off in risk assets and FX.

Subscribe to Currency Weekly Commentary Get notification delivered to your inbox or RSS reader as soon as new commentary is available.
Email \| \| What is RSS?

Glossary of Terms

Past Performance is no guarantee of future results.

All currency commentary and data have been prepared by Foreign Exchange Analytics (FXA). The opinions and forecasts expressed herein are solely those of FXA, and in no way represent the advice, opinion or recommendations of Rydex Investments, its affiliates or related companies. Although Rydex Investments believes the information from FXA is reliable, because of the possibility of human or mechanical error, Rydex Investments cannot, and does not guarantee or warrant the accuracy, adequacy, completeness or suitability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Nothing contained herein should be construed as a solicitation to by or sell any securities. This information is subject to change at any time, based on market and other conditions. FXA and Rydex Investments are not affiliated.

CurrencyShares are subject to risks similar to those of stocks and may not be suitable for all investors. The value of the shares of each CurrencyShares Trust relates directly to the value of the foreign currency held by the particular Trust. This creates a concentration risk associated with fluctuations in the price of the applicable foreign currency. Accordingly, a decline in the price of that currency will have an adverse effect on the value of the shares of the particular CurrencyShares Trust. Factors that may have the effect of causing a decline in the price of a foreign currency include national debt levels and trade deficits, domestic and foreign interest rates, investment and trading activities of institutions and global or regional political, economic or financial events and situations. Investors should consider the investment objectives, risks, charges and expenses of these products carefully before investing. The prospectus pertaining to each product contains this and other information about the product. Please read the applicable prospectus, including the Risk Factors section, carefully before you invest.

Shares can be bought and sold through a broker and the purchasers or sellers may have to pay brokerage commissions in connection with the transaction. Investment returns and principal value will fluctuate so that shares may be worth more or less than original cost. Shares may only be redeemed directly from the Trust by Authorized Participants via baskets (as defined in the prospectus). There can be no assurance that an active trading market for the shares will develop or be maintained.

The CurrencyShares Trusts are not investment companies registered under the Investment Company Act of 1940.

The CurrencyShares Trusts are distributed by Rydex Distributors, LLC. Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC (“GP”), which includes Security Investors, LLC (“SI”). Guggenheim Specialized Products, LLC (“GSP”), the Sponsor for the CurrencyShares Trusts, is a wholly owned subsidiary of SI. Rydex Distributors, LLC, is affiliated with GP, SI and GSP.

© 2012 Rydex Distributors, LLC. All Rights Reserved.