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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Oct 27, 2010.

  1. gcitrading

    gcitrading Contributing Member

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    The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3770 level and was capped around the $1.3880 level. Technically, today’s intraday low was just below the 23.6% retracement of the $1.2585 – 1.4155 range. Data released in the U.S. today saw MBA mortgage applications reverse course and increase 3.2% while September headline durable goods orders exceeded expectations and were up 3.3%. The ex-transportation component, however, was off 0.8% and other sub-indices were also on the weak side. September new home sales data were up 6.6% m/m to an annualized 307,000 units. New York Fed President Dudley reported “The Great Recession has been followed by a tepid recovery. Since 2009, economic activity has grown, but not robustly. The momentum has slowed.” The dollar has gained some ground in recent sessions on speculation the Federal Reserve’s quantitative easing policies could precipitate a round of inflation. The Federal Open Market Committee convenes on 2-3 November and will likely decide to expand its balance sheet further by increasing its purchase of U.S. Treasuries securities. Some Fed-watchers expect the Fed will announce a US$ 500 billion buying binge while others expect the Fed could purchase as much as US$ 100 billion monthly for several months. The Fed is attempting to achieve multiple objectives simultaneously including an increase in consumer spending, a decrease in unemployment, and a pick-up in inflation so as to avert a format bout with deflation. The Fed has already purchased US$ 1.7 trillion in securities and Dudley reported additional unconventional stimulus is “likely to be warranted.” Speaking about exchange rates, Dudley noted there needs to be “a little more exchange rate flexibility to reflect underlying competitiveness.” In eurozone news, European Central Bank member Weber – long touted to succeed ECB President Trichet in 2011 – said he favours stricter eurozone sanction reforms than those proposed last week by EMU-16 finance ministers. Weber also said the euro has become the number two currency in the world. ECB member Mersch said the ECB may upwardly revise its economic growth forecasts in December and said final private demand is contributing to the economic recovery. Eurogroup chairman Juncker said “Europe is the victom” of global currency policies and said the “dollar is undervalued against the euro.” Eurozone data released today saw EMU-16 September M3 money supply growth decelerate to +1.0% y/y. Also, Germany consumer price inflation came in as expected at +0.1% m/m and +1.3% y/y in October and at +0.1% m/m and +1.3% y/y on a harmonized basis. French data released today saw September consumer spending up 1.5% m/m and up 1.1% y/y, exceeding expectations. Euro bids are cited around the US$ 1.3670 level.
    ¥/ CNY
    The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥81.95 level and was supported around the ¥81.30 level. Bank of Japan Deputy Governor Nishimura cautioned against too many financial reforms, saying “Balance sheet adjustments in the United States and Europe are still underway, and many advanced economies are facing the zero lower bound on short-term interest rates, as well as the need for fiscal consolidation. Under these conditions, it is essential for us to be especially wary that the regulatory reforms currently under discussion do not undermine the recovery of the global economy as a whole.” BoJ will hold a one-day Policy Board meeting on Thursday and publish its semiannual outlook on the economy and prices. Many traders believe the central bank will keep monetary policy unchanged following its decision to drive the overnight call rate to zero per cent and pledge to purchase ¥5 trillion in financial assets at its most recent meeting. The central bank is also expected to reduce its economic growth forecast for the fiscal year to March 2012 to around 1.5% from the current 1.9% estimate. Intervention jitters continue to limit the pair’s downside following the government’s massive yen-selling intervention several weeks ago. Nikkei reported this week that the BoJ may keep its overnight call rate unchanged for at least two years on account of an estimate that consumer prices could remain below 1% through fiscal year 2012. Data released in Japan overnight saw October small business confidence move lower to 46.4 from the prior reading of 47.3. The Nikkei 225 stock climbed 0.10% to close at ¥9,387.03. U.S. dollar offers are cited around the ¥84.60 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥112.50 level and was capped around the ¥113.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥129.60 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.45 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.6805 in the over-the-counter market, up from CNY 6.6625. People’s Bank of China warned inflationary pressures in 2011 may originate from grain and other commodity prices. China reported new property loans were up 32.9% in the first nine months of 2010 to CNY 1.72 trillion. China this week reported its national trade surplus will “definitely” be reduced and this led to a decline in yuan forwards as speculation increased that appreciation pressures will wane. People’s Bank of China researcher Wang Yong this week said China should resist pressure to allow the yuan to appreciate to discourage “hot money” inflows. People’s Bank of China adviser Xia Bin reported there is ongoing pressure to raise interest rates further.
    £
    The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5755 level and was capped around the US$ 1.5865 level. Technically, today’s intraday low was right around the 23.6% retracement of the $1.6105 – 1.5650 range. Bank of England Deputy Governor Bean today reported investment “has indeed fallen sharply” while MPC member Posen reported economic fundamentals “are sound.” Sterling rocketed higher yesterday after it was reported that Q3 gross domestic product came in stronger-than-expected at +0.8% q/q and +2.8% y/y. The quarterly increase was twice what was expected and sterling appreciated sharply on the news as traders speculated Prime Minister Cameron’s fiscal austerity measures did not have much of a negative output on overall economic output last quarter. Cable bids are cited around the US$ 1.5645 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8710 level and was capped around the £0.8750 level.
    CHF
    The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9915 level and was supported around the CHF 0.9835 level. Technically, today’s intraday high was just above the 38.2% retracement of the CHF 1.0625 – 0.9460 range. Data released in Switzerland yesterday saw the September UBS consumption indicator decline to 1.698 from the revised prior reading of 1.945. This represented the index’s lowest print in six months and indicates the Swiss economic recovery may be facing headwinds. UBS reported “Low interest rates and an improvement in the labour market, as we all as the ongoing strong increase in the permanent resident population, should continue to support private consumption.” UBS recently predicted Swiss National Bank will begin lifting its benchmark interest rate in Q1 2011. U.S. dollar offers are cited around the CHF 0.9925 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3700 figure while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5690 level.
     
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