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Yesterday, the market showed signs of recovery. As the negative impact of rumors about the downgrade of France's sovereign rating dissipated, optimism gradually accumulated. The data released yesterday by the U.S. Department of Commerce showed that the U.S. trade deficit in June unexpectedly widened and reached its highest level since October 2008, mainly due to a simultaneous decline in both exports and imports. Despite such significant depreciation of the dollar, the U.S. trade account remains in deficit, suggesting that the dollar may still weaken further in the future. The U.S. trade deficit in June increased by 4.4% to $53.07 billion, higher than the market expectation of a $48 billion deficit. The trade deficit for May was revised upwards from an initial estimate of $50.23 billion to $50.83 billion. Data also showed that U.S. exports in June fell by 2.3% to $170.86 billion, while imports dropped by 0.8% to $223.92 billion.
Due to the previous downgrade of the United States, European stock markets were nearly wiped out. Therefore, to prevent risks, the European Securities and Markets Authority (ESMA) announced yesterday that Italy, Spain, France, and Belgium will ban naked short selling starting August 12. ESMA stated it would take a tough stance against behaviors disrupting market rules and support swift actions by national regulatory agencies to stop such activities. However, as people have already bought and made profits, this policy now appears more like closing the barn door after the horse has bolted, with limited impact on speculative capital. Since such bans are time-limited, there won't be any major country downgrades happening in the near future.
Additionally, U.S. President Obama pledged to introduce more measures to help boost U.S. economic growth. He said the government would continue to roll out new economic proposals week by week to promote employment, while Congress needed to complete consultations on the deficit reduction plan. Frankly speaking, Obama has been saying these words for almost three years now, and many policies have been introduced, but few have shown tangible results. Therefore, we remain pessimistic about the future development of the U.S. economy.
Yesterday, the most volatile currency was the Swiss franc. Following comments by Swiss National Bank Deputy Governor Jordan indicating measures would be taken if necessary to curb the franc’s surge, rumors emerged again that the Swiss National Bank might increase liquidity and allow the franc to peg to the euro, leading to a near 5% plunge in the franc, losing over 400 points against the dollar. However, the possibility of pegging the franc to the euro currently remains low. Given Switzerland's very healthy fundamentals, influenced by risk aversion, the downward trend of the USD/CHF is unlikely to reverse, and it will likely continue to fluctuate at lower levels.
EUR/USD:
Poor U.S. economic data yesterday caused weakness in the dollar index, but the EUR/USD remained within the 1.41-1.43 consolidation range. Due to the generally poor U.S. data, it is suggested to buy euros below 1.425. Tonight's U.S. retail sales and consumer confidence data could again come in below expectations, making going long on dips relatively safer.
USD/JPY:
The USD/JPY continued its narrow consolidation above the recent low of 76.28. Global stock markets continued to swing sharply, leaving market direction unclear. As previously analyzed, Japan's economic fundamentals are recovering. During the economic troubles in Europe and the U.S., the Bank of Japan dare not intervene rashly in the foreign exchange market without reaching a consensus with major developed countries' central banks, especially the Federal Reserve. From various technical indicators, there is no significant pressure below the yen, and the exchange rate may still decline. Therefore, it is recommended that investors wait for direct intervention by the Bank of Japan or maintain a wait-and-see attitude.
GBP/USD:
The GBP/USD continued to rise during the American session, though the market direction remains unclear. Before a clear direction emerges, it is advisable to stick to the strategy of buying lows and selling highs. From a technical perspective, the pound rebounded near the 200-day moving average support but failed to break through the resistance of the 120-day moving average, with technical indicators showing a need for correction. Additionally, the UK's fundamentals are weak. Therefore, it is recommended to stay on the sidelines or lightly go long on dips and short on rallies between 1.61 and 1.630.
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