FX Report 25 April 2016

The Euro continued to move lower on Friday with further initial disappointment at the failed rally on Thursday.  Euro-zone April flash PMI data offered no support with manufacturing edging lower and services making no impression. There were concerns surrounding the French outlook and disappointment that aggressive ECB action failed to have a more positive impact.  The US Markit flash PMI manufacturing index fell to 50.8 in April from 51.5 previously and the lowest reading since September 2009 with subdued readings for output and orders and slower growth in employment for the month. There will be fresh doubts surrounding the manufacturing sector, especially after a disappointing Philadelphia Fed index. The latest CFTC data recorded a net short speculative dollar position in the latest week for the first time in close to 2 years and the overall positioning should lessen the potential for US currency selling with Euro shorts continuing to decline slightly. Greek debt talks remained a focus as liquidity has tightened further and new funding will be required to meet forthcoming debt payments, The Eurogroup has requested that the Greek government agrees another raft of savings measures which would not be enacted for now and implemented only of needed in the future to reach fiscal targets. Overall, the Euro drifted lower during the day with lows just below 1.1220 as the dollar overall pushed higher before a limited correction on Monday and rise back towards 1.1250 as uncertainty increased ahead of Wednesday’s Fed statement.
JPY  The yen continued to weaken sharply on Friday following reports that the Bank of Japan could consider introducing negative rates on loans to financial institutions.  Given that negative rates triggered criticism from the banking sector, there was further speculation that a move to negative rates on loans would be introduced in tandem with a cut in interest rates deeper into negative territory to help soothe concerns within the financial sector. US yields moved higher despite the disappointing manufacturing PMI data with 10-year yields rising to near 1.90% and the highest level for April. In response, the dollar moved sharply higher to 3-week highs above 111.70 in the New York session. The latest CFTC data recorded a further increase in long yen positions to record levels, maintaining the threat of a sharp squeeze on short dollar positions. There were reports on Monday that Bank of Japan officials want the government to do more for growth and this may dampen expectations of aggressive monetary policy action to some extent. The dollar was also hit by profit taking after Friday’s substantial gains and dipped back towards the 111.00 level.
GBP  Sterling continued to move stronger against the Euro on Friday with a move through the 0.7800 level helping to trigger a onemonth high against single currency. The UK currency also continued to prove resistance above 1.4400 against the dollar.   Overall risk conditions were firm which provided some net Sterling support, especially with oil prices rallying during the day. Sterling gained support from confidence that the remains side was gaining support in the EU referendum with US President Obama’s high-profile visit and call for the UK to remain in the EU a potentially significant factor, at least on market sentiment.   Bank of England MPC member Vlieghe stated that the bank would have to weigh carefully the impact of negative interest rates and that rates could go slightly below zero, although the overall impact was limited. Sterling hit six-week highs near 0.7750 against the Euro in Asia on Monday and above 1.4450 a
gainst the dollar before being hit by profit taking.
Regards All.

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