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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Dec 7, 2010.

  1. gcitrading

    gcitrading Contributing Member

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    The euro depreciated sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3250 level and was capped around the $1.3420 level. The common currency gave back many of the gains its realized on Friday and dealers chased the pair below the US$ 1.3255 level, representing the 38.2% retracement of the $1.2970 – 1.3440 range. Traders were focused on two major issues over the weekend. First, there was much discussion as to whether the European Union should increase the size of its €750 billion aid fund and introduce joint bond sales to help finance the bailout of some highly indebted eurozone member countries and prevent market rates from escalating too much. EU ministers are convening in Brussels today and German Chancellor Merkel voiced her opposition to increase the size of the bailout fund, a proposal that was championed by Belgian finance minister Reynders this weekend. Merkel also noted European Union treaties currently do not allow joint bond sales and it is clear Merkel does not want German borrowing costs – currently the lowest in the eurozone – to increase. Yields on Portuguese and Spanish debt moved higher today on account of the political disagreement. Dealers are also focusing on Greece again amid speculation that country will have to restructure some of its debt. The lack of political agreement at the ministerial level in the EU renders its more likely the European Central Bank will have to assume a larger role by expanding its various assistance programs. Belgian debt came under attack in the market last week, one reason why Belgian officials including Reynders are seeking an increase in bailout facilities. The joint bond initiative would have an “E-bond” issued to support eurozone members and some officials called for issuance size to cover as much as half of the borrowing costs of EMU-16 governments. Merkel said the eurozone “will always do everything” to ensure the strong euro. Second, Federal Reserve Chairman Bernanke spoke in a television interview last night and said it could be at least four or five years before the U.S. unemployment rate declines substantially. Moreover, Bernanke vociferously defended the Fed’s latest easing measures, saying they do not amount to “printing money” and adding speculation that inflation would move sharply higher are overdone. Bernanke also said the Fed could increase the size of of its easing facility in the future if required. Data to be released in the U.S. this week include October consumer credit, weekly initial jobless claims, October wholesale inventories, the October trade balance, and the December University of Michigan consumer sentiment indicator. In eurozone news, data released today saw the EMU-16 December Sentix investor confidence measure decline to 9.7 from the prior reading of 14.0. German October factory orders data will be released tomorrow. Euro bids are cited around the US$ 1.3075 level.
    ¥/ CNY
    The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥83.00 figure and was supported around the ¥82.65 level. The pair reclaimed some of the ground it lost last week and today’s intraday high was right around the 23.6% retracement of the ¥84.40 – 82.50 range. Speculation was renewed that Bank of Japan will adopt an easier monetary policy, especially after Federal Reserve Chairman Bernanke was quoted as saying the Fed could expand its latest US$ 600 billion asset purchase plan further if need be. Many dealers believe the BoJ does not want the exchange rate to decline below ¥80 and could expand its own asset purchase programs if required. On 5 October, BoJ reduced its key overnight unsecured call rate to a range of 0% to 0.1% and announced it will purchase government and corporate debt to reduce borrowing costs. Data to be released in Japan overnight include November official reserve assets, the Q1 Japan manpower survey, the October coincident index, and the October leading index. The Nikkei 225 stock index lost 0.11% to close at ¥10,167.23. 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 ¥109.65 level and was capped around the ¥111.05 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.65 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥83.95 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.6487 in the over-the-counter market, down from CNY 6.6627. The pair lost major ground on a day when People’s Bank of China injected funds into the financial system to ease a shortage of cash after banks in November set aside additional money as reserves. China will likely hold its annual conference to discuss monetary and fiscal policies for 2011 on 10-12 December. Many traders expect PBoC will lift interest rates multiple times next year as China moves policy to a “prudent” level from a “moderately loose” stance. The Q1 China manpower survey will be released overnight and data to be released this week include the November trade balance and November property prices. PBoC adviser Xia Bin said he expects new loan targets in 2011 will be around ¥7.1 trillion, a reduction partially designed to reduce inflationary pressures in the economy.
    £

    The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5655 level and was capped around the US$ 1.5775 level. Stops were reached below the $1.5670 level, representing the 38.2% retracement of the $1.5485 - $1.5790 range. Data to be released in the U.K. tomorrow include the BRC November retail sales monitor, October industrial production, and October manufacturing production. The British Chamber of Commerce reported Bank of England will be forced to increase its asset purchase plan by the middle of 2011 on account of the risks of a “setback” to economic growth. Cable bids are cited around the US$ 1.5295 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8455 level and was capped around the £0.8510 level.
    CHF
    The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9875 level and was supported around the CHF 0.9725 level. Technically, today’s intraday high was right around the 50.0% retracement of the CHF 1.0275 – 0.9460 range. Data released in Switzerland today saw November foreign currency reserves climb to CHF 212.4 billion from the prior level of CHF 211.9 billion. The November unemployment rate will be released tomorrow and is expected to tick higher to 3.6% from the prior level of 3.5%. Swiss National Bank is expected to keep monetary policy unchanged when its next rate decision is announced later this month. U.S. dollar offers are cited around the CHF 1.0180 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3095 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5460 level.
     
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