Both the U.K. and U.S. markets were closed on Monday due to Memorial Day; nevertheless, the greenback was supported by solid data released on Friday. Reports issued by the Commerce Department showed that New Homes Sales went up by 6.4 percent, following two months of declines. This reignited speculation that the Federal Reserve may move ahead with plans to wind down stimulus. Gold Prices ticked up slightly and Futures for August delivery traded at $1,293.20 a troy ounce on the Comex Division of the New York Mercantile Exchange. Traders remained cautious as they kept an eye on the Ukraine, where the Presidential elections produced a winner; billionaire, Petro Poroshenko. Mr. Poroshenko obtained 54 percent of the votes and following the vote count, Russian President, Vladimir Putin, indicated that he is willing to work with the newly elected President. The markets were buoyed by possibility that the crisis between the two nations could begin to ease up.
European Central Bank President, Mario Draghi, delivered a speech in which he indicated that timing is essential and policy makers are poised to take action in order to ensure low inflation does not severely affect the euro-region economy. Mr. Draghi suggested that the bank may opt for injecting liquidity to ensure that businesses and individuals have access to credit. Mr. Draghi’s comments weighed on the euro, causing it to drop to the lowest rate in three months against the greenback. The British pound rallied against the U.S. dollar on the likelihood the Bank of England may not raise the benchmark interest rate until 2015.
The yen fell to a one-week low against the U.S. dollar as comments by BOJ Deputy Governor, Kikuo Iwata, suggested that the yen’s rather quick appreciation could dampen exports. Meanwhile, the Bank of Japan’s governor, Haruhiko Kuroda, stated that the markets should not expect to see the yen rally any time soon.
Lastly, in New Zealand, the Trade Surplus contracted. Releases confirmed that Exports surpassed Imports. And following the publication of the news, the Reserve Bank’s governor spoke at a Dairy Farmers conference during which he stated that the Kiwi was overvalued, which is the main reason why the bank may decide to intervene in the market. Australia’s dollar inched slightly higher against the greenback even as the latter was supported by stellar U.S. Home Sales data.
EUR/USD: Liquidity Injection Possible
The EUR/USD touched a three-month low on signs that the ECB may finally take action to prevent the euro region’s economy from spiraling out of control due to current low levels of inflation. The pair was also impacted by news that many anti-euro political parties received a large number of votes in the recent Parliamentary elections. These parties, which originated in places like Greece and France, won an impressive number of votes, denoting high levels of government disapproval among people across the euro-zone. Analysts believe that given the results, the governments will have to take note of the results and must try to appease such voters, should they want to win an election in the future. In Italy, Prime Minister Matteo Renzi’s party won the election, causing the E.U.’s equities to reach the highest level since 2008.
GBP/USD: Deputy Governor Speaks
The GBP/USD edged higher following a statement by the Bank of England’s Deputy Governor, Charles Bean, who reiterated that the monetary authorities have no intentions of raising the interest rate until 2015. The pair was supported even though the greenback rose on news confirming that the real estate market saw more new home sales than expected. Trading was light as the U.K. market was closed on Monday.
USD/JPY: BOJ Minutes Pulbished
The USD/JPY flattened during morning hours of Monday after the Bank of Japan’s Governor, Haruhiko Kuroda, stated that the financial markets won’t see the yen rally further any time soon, even as the country is half-way towards accomplishing its economic targets. The pair was affected by other comments by the Deputy Governor Kikuo Iwata, who added that the yen’s surge hurt the Japanese export sector. The bank’s policy meeting minutes denoted that the recent increase in the sales tax impacted the economy in the manner policy makers anticipated.
NZD/USD: Exports Surpass Imports
The NZD/USD slumped subsequent to the announcement of government reports which showed that the Trade Surplus contracted in April. Official figures posted at NZD$534 million after they came in at NZD$920 million in the prior month, while economists predicted the surplus would only narrow to NZD$667 million. Other reports showed that Dairy Product Prices fell for a seventh consecutive time, bolstering speculation that Fonterra, the world’s largest dairy exporter, will lower the predicted payout to farmers. According to the ANZ Bank New Zealand, Fonterra may pay farmers less than $7 per kilogram of milk solids rather than the previously anticipated $8.65.
Daily Outlook: Today’s economic calendar shows that Switzerland will report on GDP. The U.K. will issue BBA Mortgage Approvals. The U.S. will publish Core Durable Goods Orders and Durable Goods Orders; the S & P/CS HPI Composite, and the CB Consumer Confidence. New Zealand will release ANZ Business Confidence and Construction Work Done.