Market Rumours

2010/07/19 17:13DJ IMF Breakdown Whacks Hungarian Forint, Pressures Region
LONDON -The Hungarian forint has lurched sharply lower, dragging other currencies in the region down with it, after Hungary failed over the weekend to reach a funding deal with the International Monetary Fund and the European Union. The euro shot almost 3% higher against the forint at the start of European trading hours to reach just over HUF290, taking the forint back down to its lowest levels in over a year, as talks broke down over Hungary's access to the remainder of its existing EUR20 billion standby credit line. Meanwhile, the Polish zloty and Czech koruna also suffered some regional contagion, though declines for these currencies were much more modest. Further losses are seen ahead for the forint, with analysts predicting that the breakdown in IMF/EU talks will hit investors' confidence in Hungary for the long term. 'The market has drawn a clear conclusion: without additional IMF and EU support, Hungary will be hard pressed not to default,' said analysts at Commerzbank in Frankfurt in a note to clients. 'In this situation, the central bank will doubtless not cut its key rates today, even though the government wants it to.' The IMF walked away from the talks as Hungary had failed to present sustainable plans to attain this year's budget deficit target of 3.8% of gross domestic product, as set in its IMF/EU agreement.

2010/07/19 16:41DJ BOJ May Consider Easing If Dollar Stays Around Y85 - Source
TOKYO -The Bank of Japan may consider taking additional easing steps to prevent the economy from worsening if the yen stays around Y85 to the U.S. dollar for a month or two, people familiar with BOJ thinking said. In recent weeks, with Europe's sovereign debt troubles still unsettling financial markets and concern growing that the global recovery is stalling, the yen has gained from about Y89 against the dollar. On Friday the greenback briefly dropped to a seven-month low of Y86.27, and stayed around Y86.65 on Monday. The BOJ's view is that as long as the yen doesn't rise much from its current levels Japan's economy should remain on the recovery track, a person familiar with the central bank's thinking told Dow Jones Newswires. 'But if the yen comes to stay around Y85 against the dollar for one or two months, that could have an adverse effect on the economy,' said the person, who declined to be identified. If that happens, the BOJ 'may do something.' Financial market participants speculate that the BOJ may act whenever the yen rises strongly, but the central bank has not indicated a clear level at which it starts considering action. This is the first time persons familiar with the BOJ's strategy have suggested a concrete level, which could become a guideline for anticipating future monetary policy changes in Japan. Just what the BOJ might do isn't clear. Japanese authorities have stayed out of the currency market since March 2004, and few observers expect actual intervention now. But the BOJ could provide the financial sector with extra funds by boosting the amount of Japanese government bonds it buys, increasing the amount of low-interest loans to the money market or lengthening the duration of such loans, BOJ watchers said. 'Recently, the yen has been on an upward trend again as the dollar and the euro are being sold due to growing fears about the outlook for the U.S. and European economies,' the person added. 'If the yen keeps rising, BOJ officials may become more concerned over whether exports will really continue to grow and prop up the economy.' There is precedent for a surging yen to prompt BOJ action. Last Nov. 27, when the dollar fell to a 14-year low of Y84.82, the BOJ conducted a rate check, which involves asking commercial banks for details of their currency transaction plans. The practice is seen by currency players as a form of verbal intervention, and is sometimes followed up by actual foreign-exchange buying. Just four days later the BOJ held an emergency meeting and announced a new Y10 trillion loan facility to increase market liquidity. The bank's willingness to act briefly helped push the dollar back to about Y91--and suggested that Y85 was a key level for monetary policy action. The renewed yen strength comes at a bad time for Japan's economy, which is struggling to solidify its recovery and claw its way out of persistent deflation. A stronger yen generally hurts exports, which account for around 15% of Japan's gross domestic product. A weaker dollar makes Japanese products more expensive in the U.S., stifling demand, and reduces the value of Japanese companies' sales revenue in yen terms. According to the BOJ's latest tankan survey, Japanese firms' profit forecasts for this fiscal year are based on an average dollar value of Y90.18. A dollar trading more than five yen below the expected rate could deal a sharp blow to corporate profits. A strong yen also would push down the import price of oil, food, metals and other commodities that Japan buys overseas, feeding deflation at home. It might also add to political pressure on the BOJ to do more to boost the economy. The BOJ hasn't changed its overnight call rate since December 2008, but in March it added another Y10 trillion to the emergency loan facility, which offers three-month loans at the overnight interest rate. That move, too, is credited with helping prevent the yen from rising further against the dollar. The BOJ also increased its JGB buying to Y1.8 trillion a month starting in March 2009 but has resisted boosting this even more, to avoid funding government deficits. Some say buying more JGBs from the market now could lower long-term yields. That could help drive the yen back down against the dollar, as markets conclude that the interest-rate gap between the U.S. and Japan would widen, analysts say.

2010/07/19 16:38=DJ DATA SNAP: Euro-Zone May Current Account Deficit Widens
FRANKFURT -The current account deficit of the euro area widened slightly in May, the European Central Bank said Monday, despite another robust rise in exports. Exports rose 5.8% from April to EUR131.6 billion, their highest level since September 2008, when the collapse of U.S. investment bank Lehman Brothers triggered the most intense phase of the financial crisis. However, the current account deficit edged wider to EUR5.8 billion from EUR5.6 billion in April, due to deficits in income and in current transfers, the ECB said. Over the 12 months through May, the cumulative current account deficit was EUR43.9 billion, or some 0.5% of euro-area gross domestic product. On the financial account, the ECB said the euro area recorded net portfolio inflows of EUR63.9 billion, due largely to inflows of EUR42 billion in debt securities, mainly from purchases of euro-area bonds by non-residents. Website: http://www.ecb.int

2010/07/19 16:37=DJ Forex Focus: Euro Set To Run Out Of Steam
LONDON -The euro's rise won't be sustained. Sure, the single currency visited $1.30 for the first time in nearly three months. In fact, given the current momentum $1.31 or more could well be possible, especially if next Friday's stress tests boost confidence in European banks as so many politicians insist they will. The problem for the longer-term euro performance, however, is the same as it has been for the last few months--the euro-zone recovery and euro-zone interest rates aren't going to rise any faster than those in the U.S. On the contrary, with euro-zone governments pursuing tighter fiscal policies while the U.S. authorities continue to spend, chances are that the U.S. recovery will eventually pull well clear of the euro zone's. Any sign of this and recent euro gains will be quickly unwound. For the moment, the single currency is still benefitting, not only from a sharp outflow of funds from U.S. markets but also from covering of previously extreme short euro positions. Disappointing U.S. employment data, signs of floundering in the manufacturing industry and confirmation from the Fed's minutes last week that further monetary easing could still be needed all encouraged a wholesale selloff in the U.S. currency. This coincided with successful auctions by several peripheral euro-zone debtors, including Greece, and endless reassurance that European banks will pass their stress tests with flying colors. Little wonder then that the euro became a popular destination as investors moved out of the U.S. China also helped, with its leaders using a Beijing visit by German Chancellor Angela Merkel to talk up the euro, insisting that the currency remains an important investment vehicle for them. But as the euro tests resistance at $1.30, the currency is no longer undervalued. It could be argued that at these levels it is overvalued and will soon start posing a risk to the euro-zone recovery by hurting exports. This is certainly not what European politicians will want to see at a time when global growth is slowing, in line with China's carefully orchestrated deceleration of its own economy, and when fiscal tightening means that domestic demand is hardly likely to take up the slack. This Friday's stress test results may well provide another reason for the euro to have at least a last hurrah. The results will no doubt be polished to a shine to ensure that the health of European banks isn't put in doubt. But, as details have shown, the tests aren't as strong as those for U.S. banks and they are unlikely to resolve the basic sovereign debt concerns that will continue to undermine the euro zone--there are still no serious sanctions that will stop another euro-zone debtor from defaulting. In time, this will take its toll on both business and consumer confidence, ensuring that while investors worry about the pace of the U.S. recovery now, they will soon return to worrying about whether the euro zone can avoid another slide back into recession. As Morgan Stanley reported last Friday, the time has come to start increasing short euro positions once again. Around 0645 GMT, the euro was on the slide after rating agency Moody's downgraded Ireland's sovereign bond rating to Aa2 from Aa1 with a stable outlook. Moody's cited weakened growth prospects as the main driver of the downgrade. The euro currently trades at $1.2875, down from $1.2927 in late U.S. trade Friday. Elsewhere, the major currencies are little changed with the pound trading at $1.5284, down a tad from $1.5298 and the dollar fetching Y86.66 from Y86.61 in late New York trade Friday. Looking ahead, a light data calendar on both sides of the Atlantic will likely see the market looking to equities for guidance, with U.S. titan IBM delivering its second-quarter results Monday.

2010/07/19 16:00*DJ Euro-Zone May Adj Current Account Deficit EUR5.8B
2010/07/19 16:00*DJ Euro-Zone Deficit Was EUR5.6B Apr

2010/07/19 15:22DJ German Economic Recovery To Continue In 2H - Finance Ministry
BERLIN -The German economy will continue to grow in the second half of the year, Finance Ministry officials said in their monthly report for July published Monday. 'In view of the upward trend in industrial demand and business optimism, the economic recovery should become more solid,' the report said. The report added further evidence to a change in the composition of growth in Europe. Export-heavy Germany, which lagged many of its partners in the years before the 2007-2008 financial crisis, has profited in two ways from the debt crisis that hit its partners earlier this year. The fall in the euro that ensued has made German exports much more attractive, while capital has flowed from higher-risk countries and into Germany, reducing interest rates for corporate borrowers. The Ministry cited momentum from a strong second quarter and said that robust growth elsewhere in the world looks likely to sustain a further rise in German exports, particularly of capital goods. At the same time, it said that neither incoming orders nor industrial output levels had reached the level seen before the crisis and that the country's productive capacity remains underused. It said private consumption, by contrast, remained weak in the second quarter but expressed optimism for the second half, based on the continuing ability of the labor market to yield positive surprises. The seasonally adjusted number of unemployed fell by over 130,000 in the spring quarter, according to data from the Federal Labor Office. The Ministry said the ongoing recovery ensured that tax revenues were ahead of year-earlier levels for the third month in a row, the combined tax take of the federal and state governments rising 2.4% from June 2009 to EUR48.4 billion. Owing to a weak first quarter, however, the overall tax take in the first half of the year was down 0.9% at EUR235.02 billion. The federal government last week published new forecasts for its budget over the next three years. It now expects to bring its budget deficit back under the threshold allowed by the EU in 2012, a year earlier than it had estimated originally. The government of Chancellor Angela Merkel has put intense pressure on its neighbors in the euro zone this year to match its own fiscal rigor, warning of a crisis in the euro if they failed to reduce their own deficits. Ministry Web site: http://www.bundesfinanzministerium.de

2010/07/19 15:22DJ Moody's Downgrades Ireland To Aa2 As Debt Level Rises
LONDON -Moody's Investor Services Inc. Monday cut Ireland's credit rating, citing a rising debt burden, a weak growth outlook and the high cost of rebuilding a shattered banking system.The ratings agency lowered Ireland's credit rating to Aa2 from Aa1, with a stable outlook, indicating that it is not likely to consider a further downgrade soon.The Irish economy was the first in the euro zone to enter a recession, from which it only emerged in the first quarter of this year. It was hit particularly hard because excessive bank lending drove a construction boom that came to an abrupt end in 2008 when the banks ran into difficulty.With tax revenues plummeting and the costs of bailing out the banks mounting, the government's debt rose to 64% of gross domestic product at the end of last year from 25% of GDP before the financial crisis.'Today's downgrade is primarily driven by the Irish government's gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,' said Dietmar Hornung, Moody's lead analyst for Ireland.The downgrade led to an immediate rise in borrowing costs, as the spread between Irish and German government bonds with a maturity of two years, rose by 8 basis points to 193 basis points.The Irish government responded earlier and more decisively to the rise in its budget deficit than other euro zone members, and that has helped limit the rise in its borrowing costs during the currency area's debt crisis.However, the Moody's downgrade comes on top of the publication last week of a negative report from the International Monetary Fund, which said the government won't be able to meet its target of cutting the budget deficit to 3% of GDP in 2014 without further spending cuts and tax hikes.

2010/07/19 14:28=DJ FED WATCH: Let Inflation Run Wild? Some Say Bring It On
YORK -Early in the last decade, now-retired St. Louis Federal Reserve President William Poole liked to say his preferred level of inflation was zero, properly measured.And so it was for most central bankers. While difficult to achieve in the real world, it was accepted that absolutely stable prices were the ideal monetary policy should aim to achieve.Then came the deflation scare of the last decade. It forced a rethink of inflation's optimal level: many central bankers came to believe the damage caused by falling prices argued for tolerating a certain amount of inflation. Policy makers wanted a buffer zone between deflation and unacceptable price gains. The sweet spot, most now believe, is an annualized change in prices, stripped of food and energy costs, of around 1.5% to 2%.Inflation is now below where policy makers want it to be. Friday's consumer price report showed the core June price index up 0.9% from a year ago. That's largely because weak growth and high levels of unemployment are together conspiring to produce very low levels of price increases.Most central bankers doubt that deflation looms. But in forecasts released this week, the Federal Reserve said its central tendency forecast sees core prices staying low for a long time. It's only in 2012 when policy makers project core prices rising between 1% to 1.5%, still a modest performance by any reckoning.The Federal Reserve itself seems to have little ability to create inflation. A massive wave of asset buying and over a year and a half of near-zero percent interest rates may have kept prices from falling outright, but that's about it.As a result, policy makers are in a pickle. Some would prefer to have short-term interest rates at higher levels if only to give them more flexibility for future contingencies. But even with both an overall balance sheet and bank reserves at near historic high levels, money supply growth is tepid. There is scant evidence inflation is fixing to break higher.The result is a rare environment in which a breakout in inflation would actually be welcome as a sign the economy is generating some heat again. It would also allow the Fed to get rates back toward a more traditional stance.Rising price pressures 'are the only game in town right now,' and the central bank would do well to let that happen, said David Blanchflower, economics professor at Dartmouth College and a former member of Bank of England's rate-setting Monetary Policy Committee.He argued that the benefit of the recent decades' low inflation rates are most likely overstated given the deep trouble of our times. What's more, officials who continue to fret about future inflation have altered the debate in the U.S. for the worse, so that 'we'll be in a long recession' because monetary policy won't be allowed to be truly stimulative.Blanchflower believes the Fed should engineer as best it can, or tolerate what would look like, a big jump in price pressures relative to what's been seen for many years. Then, the central bank could tighten policy, damping inflation while at the same time getting rate policy back to a spot where it can once again be wielded.It's hard to imagine the professor's path being followed. Central bankers have invested so much of their credibility in keeping prices as stable as possible. Perhaps the most potent path to generate a real move upward in prices is through huge Fed purchases of Treasury debt. That would be a shock to the nation's inflationary psychology and would likely drive prices up, but it would also run right into the Fed's repeated promises never to monetize government debt.That said, fresh economic troubles and a move back into recession may drive the Fed to make unprecedented choices, much as it did during the darkest days of the financial crisis.

2010/07/19 14:18=DJ WORLD FOREX: Euro Slips Vs Yen, Dollar On Bank Worries -3-
SINGAPORE -The euro fell against the U.S. dollar and the yen Monday in Asian trade, hit by some profit-taking after it rose to a two-month high Friday, amid concerns on the health of the euro-zone's bank sector ahead of the release of key stress-test results later this week. The single currency briefly rose Friday above the psychologically key $1.30 mark as the market focus switched to growing signs that the U.S. recovery could be slowing. Still, it faces significant hurdles to extend its rally from the four-year low hit last month, and analysts say the prospect of comatose economic growth and further losses for European banks should drive the euro lower again. In addition, news that negotiators for the International Monetary Fund and European Union walked away from talks with Hungary over the weekend, over differences on government budget cuts, may weigh further on the euro, as Hungary is expected to join the euro zone in coming years. 'The big question in forex markets is whether the euro can hold onto its recent gains and whether the dollar will be punished further amidst growing double-dip worries,' said Mitul Kotecha, a foreign exchange strategist with Credit Agricole. 'The bigger risk this week is to the euro.' Kotecha added the euro may come under selling pressure as the European Union authorities Friday will release test results for 91 banks--accounting for around 65% of assets in the EU banking sector--and markets will focus on the thoroughness of tests regarding issues such as the effect of possible restructuring of sovereign debt holdings. At 0457 GMT, the euro was at $1.2902 compared with $1.2927 late Friday, and at Y111.81 compared with Y111.95. Meanwhile, the dollar traded at Y86.66, up from Y86.61, but still within striking distance of a fresh seven-month low hit Friday. Japanese markets are closed Monday for Marine Day. The yen may resume its recent downtrend in coming days, said Emmanuel Ng, an economist with Singapore bank OCBC, noting low U.S. bond yields--the result of talk of quantitative easing, and the prospect of Fed rates staying very low longer than anticipated--may drag the pair further. 'We continue to expect the pair to attempt a test of our previously mentioned target of Y86.00,' Ng said. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.653, up from 82.535 in New York late Friday.

2010/07/19 13:48*DJ IMF Wanted Prompt Launch Of Strict Structural Reforms-Matolcsy

2010/07/19 13:43=DJ WORLD FOREX: Euro Slips Vs Yen, Dollar On Bank Worries -2-
SINGAPORE -The euro fell against the U.S. dollar and the yen Monday in Asian trade, hit by some profit-taking after it rose to a two-month high Friday, amid concerns on the health of the euro-zone's bank sector ahead of the release of key stress-test results later this week. The single currency briefly rose Friday above the psychologically key $1.30 mark as the market focus switched to growing signs that the U.S. recovery could be slowing. Still, it faces significant hurdles to extend its rally from the four-year low hit last month, and analysts say the prospect of comatose economic growth and further losses for European banks should drive the euro lower again. In addition, news that negotiators for the International Monetary Fund and European Union walked away from talks with Hungary over the weekend, over differences on government budget cuts, may weigh further on the euro, as Hungary is expected to join the euro zone in coming years. 'The big question in forex markets is whether the euro can hold onto its recent gains and whether the dollar will be punished further amidst growing double-dip worries,' said Mitul Kotecha, a foreign exchange strategist with Credit Agricole. 'The bigger risk this week is to the euro.' Kotecha added the euro may come under selling pressure as the European Union authorities Friday will release test results for 91 banks--accounting for around 65% of assets in the EU banking sector--and markets will focus on the thoroughness of tests regarding issues such as the effect of possible restructuring of sovereign debt holdings. At 0457 GMT, the euro was at $1.2902 compared with $1.2927 late Friday, and at Y111.81 compared with Y111.95. Meanwhile, the dollar traded at Y86.66, up from Y86.61, but still within striking distance of a fresh seven-month low hit Friday. Japanese markets are closed Monday for Marine Day. The yen may resume its recent downtrend in coming days, said Emmanuel Ng, an economist with Singapore bank OCBC, noting low U.S. bond yields--the result of talk of quantitative easing, and the prospect of Fed rates staying very low longer than anticipated--may drag the pair further. 'We continue to expect the pair to attempt a test of our previously mentioned target of Y86.00,' Ng said. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.653, up from 82.535 in New York late Friday.

2010/07/19 13:41=DJ WORLD FOREX: Euro Slips Vs Yen, Dollar On Bank Worries
SINGAPORE -The euro fell against the U.S. dollar and the yen Monday in Asian trade, hit by some profit-taking after it rose to a two-month high Friday, amid concerns on the health of the euro-zone's bank sector ahead of the release of key stress-test results later this week.The single currency briefly rose Friday above the psychologically key $1.30 mark as the market focus switched to growing signs that the U.S. recovery could be slowing. Still, it faces significant hurdles to extend its rally from the four-year low hit last month, and analysts say the prospect of comatose economic growth and further losses for European banks should drive the euro lower again.In addition, news that negotiators for the International Monetary Fund and European Union walked away from talks with Hungary over the weekend, over differences on government budget cuts, may weigh further on the euro, as Hungary is expected to join the euro zone in coming years.'The big question in forex markets is whether the euro can hold onto its recent gains and whether the dollar will be punished further amidst growing double-dip worries,' said Mitul Kotecha, a foreign exchange strategist with Credit Agricole. 'The bigger risk this week is to the euro.'Kotecha added the euro may come under selling pressure as the European Union authorities Friday will release test results for 91 banks--accounting for around 65% of assets in the EU banking sector--and markets will focus on the thoroughness of tests regarding issues such as the effect of possible restructuring of sovereign debt holdings.At 0457 GMT, the euro was at $1.2902 compared with $1.2927 late Friday, and at Y111.81 compared with Y111.95. Meanwhile, the dollar traded at Y86.66, up from Y86.61, but still within striking distance of a fresh seven-month low hit Friday. Japanese markets are closed Monday for Marine Day.The yen may resume its recent downtrend in coming days, said Emmanuel Ng, an economist with Singapore bank OCBC, noting low U.S. bond yields--the result of talk of quantitative easing, and the prospect of Fed rates staying very low longer than anticipated--may drag the pair further.'We continue to expect the pair to attempt a test of our previously mentioned target of Y86.00,' Ng said.The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.653, up from 82.535 in New York late Friday.

2010/07/19 10:03=DJ Investor Risk In Hungary Up After Talks With IMF Break Down
BUDAPEST -Investors' reaction will be negative to Hungary's failure over the weekend to reach a deal with the International Monetary Fund and the European Union that would allow it to draw on the remainder of its existing EUR20 billion IMF/EU standby credit line.When markets open Monday, the Hungarian forint is likely to weaken sharply, government bond yields will rise and the cost of insuring Hungarian debt could see record levels, investment bank economists said.A fallout in Hungarian assets could easily prove contagious and pull the Polish zloty and the Romanian leu to weaker levels."This [an unsuccessful IMF mission] is a very rare event, countries usually go out of their way to satisfy these missions...I think we now [will] see a period of strong negative risk, currency, equities, credit and rates selloff," said Peter Attard Montalto, economist at Nomura in London.The IMF walked away from the talks as Hungary had failed to present sustainable measures of a structural nature to attain this year's budget deficit target of 3.8% of gross domestic product, as set in its IMF/EU agreement.How much and in what way Hungary wants to reduce its budget shortfall to below 3% of GDP next year also remained an open issue, the IMF said.The EU, meanwhile, also warned that Hungary should adhere to EU regulations on central bank independence."The key here is that we now have proof that the supranational support for countries is softer and not unconditional. The IMF and the EU will not allow for moral hazard and free riders. You cannot diverge from the Brussels/Washington consensus and expect to get away with it," Nomura's Montalto added.The Hungarian currency could weaken versus the euro Monday, to HUF290 in the first round, the economists said. Levels above that could prompt central bank intervention and levels above HUF310-315 could even trigger interest rate hikes. The forint-euro closed Friday at HUF281.38.Treasury yields will likely increase, to above 8% on the long end of the yield curve from 7-7.5% in recent days, economist Janos Samu at Concorde Securities in Budapest said."To calm markets, the government should confirm their commitment to the targets of 3.8% of GDP budget deficit this year and the below-3% of GDP deficit in 2011," said economist David Nemeth at ING Bank in Budapest.The Hungarian government should outline its plans for reducing its debt--the structural reforms they plan, ING's Nemeth added.Hungary is one of the most vulnerable emerging market economies since it has the highest level of debt as a percentage of GDP in central and Eastern Europe.Hungary was the first EU country that secured IMF/EU help when hit by the global economic crisis due to its lax fiscal policy and high external debt.Market reaction could serve as a lesson for the new Hungarian government, which has tried to backtrack from its IMF commitments, claiming they were set by the previous administration."Ironically, a crisis could well be good for policy in the long run, bringing politicians back to the straight and narrow. However, we have a reactive, and not a proactive government here--one that drags its feet on these issues rather than the credible momentum on such issues the previous government had," Nomura's Montalto said.

2010/07/19 09:31=DJ FOREX WEEK AHEAD: Game Change Prompts Traders To Reassess Views
TORONTO -Investors are reassessing the assumptions that have driven currency trading since late December as signs increase that the U.S. economy is softening while concerns over the euro zone's debt problems ease. This reassessment has already benefited the euro, which gained more than 2.5% on the week to touch a high above the $1.30 mark on Friday. The dollar is also threatened by a possible decline below Y85.00, which would place it at levels not seen since 1995. Investors are divided over whether this trend will last or prove to be merely a temporary reprieve for the euro, resulting from covering massive bets against the common currency. In any event, it is not the summer doldrums in currency markets. The euro has already jumped about 9.5% from the four-year lows to which it fell back in May. The dollar on Friday touched its lowest level since December against the yen, after disappointing U.S. consumer sentiment data added to the parade of worse-than-expected economic indicators that have brought the pace of the U.S. recovery into question. After cutting their bets against the euro by nearly half in the week ended July 6, speculative investors continued to pare their anti-euro positions in the week ended Tuesday, according to a Scotia Capital analysis of the weekly Commitments of Traders report released Friday by the Commodity Futures Trading Commission. These bets against the euro, called shorts, represent only a tiny slice of the foreign-exchange market but express the sentiments of some of the most-active traders. Net euro shorts stood at 27,000, with a value of $4.3 billion in the week ended Tuesday. 'It is as if some sort of tectonic shift took place late May to early June,' Marc Chandler, global head of foreign exchange at Brown Brothers Harriman in New York, wrote Friday. 'The news stream from Europe become decidedly less negative and the U.S. news stream took a clear turn for the worse.' Concerns about U.S. economic growth have been in focus, with the Federal Reserve this week painting a less-than-rosy picture. Fed minutes noted a 'relatively modest' worsening in the U.S. economic outlook, and said further monetary stimulus could be needed if the economy showed more signs of slowing. 'Most people are probably going to start revising down their growth expectations for this year, which are going to be basically subpar. That's pretty evident,' said Sebastien Galy, currency strategist at BNP Paribas in New York. 'I think the market is already way ahead of what the economists are going to do.' Traders are expecting the euro to travel between $1.2800 and $1.3300 in the near term, and the dollar to range between Y85.00 and Y88.00. Late Friday, the euro was at $1.2927, up from $1.2900 late Thursday, according to EBS via CQG. The dollar was at Y86.61, down from Y87.46. Conditions that appeared strong in the U.S. now appear weak. And conditions that appeared weak in the euro zone, such as in debt auctions, now look strong. 'We very much see what is going on in the euro as a short-term correction,' said Thomas Harr, foreign exchange strategist for Standard Chartered Bank in London. He said there are no immediate plans to revise the bank's monthly forecasts, though some other banks are doing just that. Goldman Sachs on Wednesday called for the common currency to rebound to $1.35 in six months and $1.38 in 12 months, after a decline to $1.22 in the next three months. It was a significant bump from previous forecasts, issued in early June, which called for the euro to trade at $1.15 over the three- and six-month time frames and $1.25 over 12 months. 'The market will eventually move back and focus on the sovereign debt problems,' Harr said. 'That is not completely out of the way, not solved, yet.' Purchasing managers index data out of Germany next week could provide clues on the health of the broader economy in the European Union. Investors will be searching to see whether the German economy is holding better than expected, especially as it is supplying to the south of Europe. 'We'll be waiting to see if the German manufacturing engine is able to compensate the loss of demand in the southern Europe with the rise in demand in Asia,' Galy said. Also looming over the week will be the release of the results of the bank stress tests in Europe. Details on the exact nature of the tests remained scarce Friday. However, sources told Dow Jones Newswires that national regulators are likely to publish their aggregated and bank-by-bank results after local financial markets close next Friday, in order to allow the findings to be absorbed in relative calm over the weekend.

2010/07/19 09:08=DJ ASIA DAILY FOREX OUTLOOK: Predicted Ranges, Themes
USD/THB to be rangebound with risks skewed higher. May continue drifting cautiously, with focus on BOT intervention to support USD, ahead of Thailand's June external trade data due this week. But traders say drop toward recent lows remains likely; "I think most of the market is expecting a stronger baht in the near-term because pretty much all of the Asian economies are looking so strong," one says, anticipating BOT to buy pair at below 32.20. Dow Jones technical analysis shows immediate resistance at 32.300 (psychological), 32.550 (June 25 peak, start of latest downtrend). Support at 32.130 (2-month low hit July 15), then 32.000 (psychological).USD/IDR to be rangebound with risks skewed higher. Pair may remain trapped in recent 9,000-9,100 area as drivers for breach remain elusive, given Bank Indonesia''''s willingness to buy pair on dips around 9,000 and avoid significant corrections on upside. Still, reported Indonesian government move to revise debt issuance plans lower for remainder of 2010, following better-than-expected fiscal revenue, may be IDR positive - capping upside - to a market already anticipating pair to eventually drop below 9,000. Dow Jones technical analysis shows immediate resistance at 9,055 (Friday''''s high), above this at 9,200 (psychological). Support at 9,000, then 8,900 (both psychological).USD/HKD to be rangebound with risks skewed higher. Pair may push back away from recent lows as rising risk aversion dominates, likely hitting local stocks. Still, with HKD liquidity at more-or-less normal levels after last week's disappointing Agricultural Bank IPO, and narrow Hibor-Libor gap, upside should be limited for now. Dow Jones technicals analysis shows initial resistance at 7.7756 (10-day moving average), 7.7800 (psychological). Support at 7.7700 (psychological), 7.7631 (76.4% Fibonacci retracement of November-May rally).USD/SGD to consolidate. May correct after last week''''s drop toward 1.3700 mark as players should refrain from testing MAS'''' tolerance for further downside some distance away from April lows, given worsening sentiment in Asian markets; UOB reckons SGD NEER was trading well above mid-point Friday, when 2% limit for USD/SGD was at 1.3670. Dow Jones technical analysis shows USD/SGD immediate resistance at 1.3853 (20-day moving average), 1.3900 (psychological). Support at 1.3721 (Friday''''s low), 1.3640 (2-year low hit April 30). USD/PHP to be rangebound with risks skewed higher. May hover above key support level at 46.00 as global environment cooling on risk plays. But chances of significant rally slim; Goldman Sachs says strong May remittances - overall monthly number was highest on record, and on-month rise accelerated from April - reinforce forecast of annual 10% growth; "together with rapidly growing IT service exports, remittances are likely to give a push to private consumption, GDP growth and the PHP." Keeps 3-, 6- and 12-month USD/PHP targets at 44.5, 44.0 and 43.0 respectively. Dow Jones technical analysis shows immediate resistance at 46.59 (23% Fibonacci retracement, not breached since mid-June), followed by 47.00 (psychological). Support at 46.09 (38.2% Fibonacci retracement of April-May rally ), then 45.34 (1-month low hit June 22).