Currency Market Analysis

Jun 26, 2015 | Currency Market Analysis

Global Themes

The world’s safest and most liquid currencies flourished Friday as Greek moved a day closer to a potential market-rattling bankruptcy. America’s dollar gained against riskier, higher-yielding peers from Australia and Canada while it lost ground to traditional safe harbors like the yen and Swiss franc. Against the euro, the dollar barely budged as Greek uncertainty kept many off the market playing field and seated along the sidelines. For the week, the dollar was on track for a solid gain as signs of a strengthening U.S. economic backbone ratcheted up pressure on the Federal Reserve to raise interest rates. American home buying is up and consumers are spending at the fastest rate in years. The future looks bright, too, with the U.S. economy dispensing more and more paychecks while gas prices remain cheaper than last year. Greece and its creditors are expected to give their fruitless-to-date negotiations a final push over the weekend. Markets next week could get off to a really ugly, tumultuous start should the weekend debt talks fail to produce a tangible deal for Greece that avoids default. U.S. consumer sentiment data is due today at 10 a.m. EDT.


Customers that bought the franc when it had weakened Thursday deserve a congratulatory call with the Swissie on the rebound today. The franc’s inclusion in currency markets’ safe haven club helped it thrive as worries about a potentially imminent debt default by Greece weighed on investor psyche, causing them to seek shelter.


The calm before the proverbial market storm? The euro held steady against the dollar but weakened against safer peers from Japan and Switzerland. The high stakes talks between Greece and its creditors have heightened uncertainty so much that it’s forced most market plays to the sideline. It’s unclear whether a deal in the nick of time for Greece would spell relief or rout for the euro. Once the heightened focus on Greece diminishes, markets are expected to return their gaze on the bloc’s inferior fundamentals compared to the U.S., a chief source of weakness for the euro.


The dollar was on track to cross the finish line first for the week thanks to a solid week for the economy that bolstered confidence in the Fed boosting rates this year. America’s more superior fundamentals compared to counterparts in Europe and Asia seemingly have the dollar on the brink of embarking anew on a meaningful winning streak. A big catalyst looms for the dollar in the coming U.S. employment report on Thursday, July 2 that’s forecast to show the economy added 232,000 jobs in June. Unemployment is expected to fall a notch to 5.4%.


Sterling was flat on the session ahead of late morning (ET) remarks by the governor of the Bank of England, Mark Carney. Sterling has been generally flying higher as renewed optimism in the U.K. economy has brought forward expectations for the BOE to hike interest rates. Any tone from Mr. Carney that should validate those earlier rate hike views would support the pound. As it stands now, the pound is on course for a nearly 1% decline on the week against the perkier greenback.


Markets safety frame of mind weighed on the loonie as many sought cover in popular haven currencies like the U.S dollar, yen and Swiss franc. Weaker oil prices below $60 stiffened the headwind on the commodity-linked loonie. Canada’s calendar next week features wholesale inflation on Monday, monthly growth for April on Tuesday, and… wait for it … an off day Wednesday for Canada Day. Market volatility next week could kick into a higher gear with U.S. markets closed Friday, July 3 and America’s jobs report falling between the two North American off days. That spells bottom line risks for companies with unprotected or unhedged exposures.

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