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Daily Market Commentary -3/2/2009

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Feb 3, 2009.

  1. gcitrading

    gcitrading Contributing Member

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    EURO
    The euro gained ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2995 level and was supported around the $1.2800 figure. Some traders believe European Central Bank could move rates lower on Thursday on account of a significant pullback in wholesale and retail price pressures while most dealers believe March – Trichet’s “important rendezvous” – remains the most likely time for an easing. EMU-15 December producer prices fell 1.3% m/m and were up 1.8% y/y, below expectations and the latest evidence of disinflationary pressures in the eurozone. Traders are awaiting German December manufacturing orders and industrial output data with many expecting the data to evidenced an unprecedented decline. German government officials are convening tomorrow to discuss a possible market stabilization law that could be circulated as early as next week. German data saw December retail sales decline 0.2% m/m and 0.3% y/y. In U.S. news, the effective average interest rate on U.S. federal funds reached a two-year high at 0.24% yesterday. Data released in the U.S. today saw December pending home sales increase 6.3% to 87.7, beating expectations of a pullback. Euro bids are cited around the US$ 1.2475 level.

    JPN/CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.90 level and was capped around the ¥89.95 level. Bank of Japan announced a scheme overnight to purchase US$ 11 billion in equities owned by Japanese banks to mitigate some of their exposure to the financial markets. Bank of Japan Governor Shirakawa reported “If you look at what kind of risks big Japanese banks have now, the biggest risk is not credit risk. It's volatility in share prices. Share prices fluctuate on various factors, not just domestic factors. Right now international markets are not stable and Japanese share prices are falling. Those banks always have to consider such risks. That's the reality." BoJ’s new shares scheme will probably start at the end of February and many traders are skeptical it will have an impact on the real economy. Another idea being floated is the possibility of the government issuing money and not just Bank of Japan. Data released in Japan overnight saw December overtime pay decline by its largest annual amount in nearly sixteen years. Also, the January monetary base was up 3.9% y/y. The Nikkei 225 stock index lost 0.62% to close at ¥7,825.51. U.S. dollar offers are cited around the ¥104.15 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥116.05 level and was supported around the ¥114.35 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥128.25 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥77.95 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 6.8399 in the over-the-counter market, down from CNY 6.8490. China is preparing to spend CNY 130 billion from the second tranche of its stimulus package.

    STERLING
    The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.4445 level and was supported around the $1.4155 level. Most traders believe Bank of England’s Monetary Policy Committee will reduce interest rates by 50bps on Thursday to 1.0%. The big question on traders’ minds is how far below 1.0% U.K. interest rates may decline. There is currently about 300bps of monetary stimulus in the pipeline along with the recent significant depreciation in sterling and these factors could ease the pace with which BoE’s MPC reduces interest rates in the future. Traders are also paying close attention to any indication that Bank of England is closer to instituting quantitative easing. The central bank reported 32 different financial institutions borrowed ₤185 billion under the BoE’s special liquidity scheme. Data released in the U.K. today saw the CIPS construction PMI index rose to 34.5 from 29.3 in December. Chancellor Darling verbally intervened today saying “We've seen extraordinary volatility in markets generally and in the currency markets in the last few months. This (volatility) will warrant a good discussion at the Group of Seven because everyone is concerned about this.” Cable offers are cited around the $1.4720 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9080 level and was supported around the ₤0.8990 level.
     
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