Daily Report: EUR/USD, GBP/USD, USD/JPY And AUD/USD : July 04, 2013

The U.S. Dollar started off trading mixed against its peers following the release of economic data, however it later declined as market investors worldwide sought out safe havens after reports indicated the possibility of a military coup in Egypt. The better than anticipated data out of the U.S. increased risk appetite briefly, especially as it indicated that the private sector added 188,000 jobs in June, while economists only expected them to add 160,000. Furthermore, the Department of Labor revealed that the number of people who filed for Unemployment Benefits last week dipped by 5,000 down to 343.000. But not all the releases proved to be that positive. The Services sector showed growth though at a slower rate and the Trade Deficit widened in May as imports rose to the second-highest level up until today, suggesting the world’s biggest economy is grappling with high taxes and budget cuts. The Commerce Department showed that the gap grew by 12.1 percent from $40.1 to $45 billion. The different reports bolstered speculation the Federal Reserve may not be quick to cut back on the monthly asset purchases. Meanwhile, the civil unrest in Egypt which prompted the greenback’s decline helped boost Gold Prices. Gold Futures for August delivery settled at $1,251.85 a troy ounce on the Comex Division of the New York Mercantile Exchange.

The Euro remained more or less unchanged against the U.S. Dollar following mixed economic data out of the U.S. However, it dipped to five-week lows as investors began to worry yet again about the debt crisis, after Portugal’s bond yields rose dramatically above 8 percent as two of its Ministers tendered their resignation. The political crisis took a turn for the worse as the country’s Prime Minister, Pedro Passos Coelho, suggested in a televised speech that he’s trying to “hold the government together.” Speculators traded cautiously as the European Central Bank will be issuing today its decision on whether it will cut or leave the benchmark interest rate unchanged. The British Pound surged the most in one month against the U.S. currency after official releases revealed that the U.K.’s Services sector expanded at an accelerated pace last month, pointing to the fact that the economy is indeed strengthening.

The Yen advanced versus most of its counterparts on the possibility the Euro-zone’s sovereign debt crisis may be worsening, as Portugal’s political crisis increased speculation the country may not be able to honor its fiscal commitments. Concerns over the situation in Egypt also prompted investors to seek refuge, therefore benefitting the Yen versus the greenback. News reports indicating that Egyptian militia prepared to end Mohammed Morsi’s presidency with a coup fueled fear throughout world markets. The Yen rallied versus the Euro, but slumped against the British Pound.

Lastly in the South Pacific, Australia’s Dollar fell to the lowest since 2010 subsequent to comments by the Reserve Bank’s Governor, Glenn Stevens, in which he indicated that the currency has reached extremely high levels. The increased slightly after figures indicated that the country’s Trade Surplus for May posted ten times better than what analysts predicted. The Aussie declined to 4 ½-year lows versus the New Zealand Dollar as the Auckland-based company Fonterra, the biggest dairy exporter in the world, stated that the prices for powdered milk rose. Demand for the two monetary units ebbed upon the decline of Asian equities.

EUR/USD- Portugal May Not Honor Bailout
Despite recent events in the Euro-zone, the Euro was des cribed by investors as “resilient.” Its biggest decline came about after Portugal’s borrowing costs jumped, driving the region’s equities down. The crisis began as the leader of the Portuguese Junior Party resigned. This means that the government may have to opt for early elections. Analysts believe that the political situation combined with lackluster E.U. data and the overnight volatility of the foreign currency exchange may influence the tone of the speech to be delivered today by the President of the European Central Bank, Mario Draghi. To everyone’s surprise, the Euro rose slightly after a release indicated that Retail Sales climbed 1 percent in May and revised metrics denoted that the Purchasing Manager’s Index climbed from 47.2 to 48.3. The Euro continued to climb subsequent to the announcement of U.S. economic data.
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GBP/USD- Pound Rallies Most In Month
The British Pound rose the most in one month against the U.S. Dollar after official metrics confirmed that the U.K.’s Services Purchasing Manager’s Index reached a 27-month high. The Index climbed from 54.9 in May to 56.9 in June, denoting that the country’s economy is improving. The British currency rallied versus the remainder of the majors as the week’s releases confirmed that Manufacturing expanded at the quickest pace in over 24 months and Construction increased.
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USD/JPY-Egyptian Crisis Fuels Haven Demand
The U.S. Dollar plunged against the Yen as the political crisis escalated in Egypt, prompting world investors to seek safe havens. News reports suggesting a possible military coup bolstered volatility in the market. The Yen continued its upward climb following developments in Portugal, but trading lightened up in anticipation of the market holiday as the U.S. celebrates Independence Day.
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AUD/USD- Trade Surplus Bolsters Aussie
The Australian Dollar plunged to the lowest price since September of 2010 on comments by Reserve Bank Governor Stevens in which he suggested that the currency ticked up too high and the economy may need a currency with lower value. The Australian monetary unit has appreciated despite the slowdown in growth reported by China as well as comments issued by the Federal Reserve’s Chairman, Ben Bernanke, regarding the future of U.S. monetary policy. The Aussie managed to erase some of its losses following a release which indicated that the country’s Trade Surplus posted at A$670 million ($608 million) in May, up from a revised A$171 million the previous month. The metrics were better than forecast, but investors remain concerned about the currency. Other domestic reports showed that Retail Sales climbed 0.1 percent in May which is less than predicted.
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Today’s Outlook
Today’s economic calendar shows that the U.K. will report on the Halifax House Price Index, and the BOE will issue the Interest Rate Decision as well as QE Total. The Euro region will release the ECB’s Interest Rate Decision and GDP. Australia will issue the A/G Construction Index.