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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Dec 17, 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 offers around the US$ 1.3130 level and was capped around the $1.3360 level. Technically, today’s intraday high was just below the 23.6% retracement of the $1.2965 – 1.3500 range. The common currency was poised to finish lower on the week for the second consecutive week as traders failed to push the common currency above the $1.3505 level, a key resistance level. Moody’s Investors Service reduced Ireland’s credit rating today by five notches and this precipitated fresh concerns about the sovereign credit health of peripheral eurozone countries such as Spain and Portugal. The European Central Bank and Bank of England today established a temporary swap line to ease liquidity problems if the sovereign credit crisis worsens. The swap line would be designed to provide sterling to Irish banks if required. French President Sarkozy today said the euro will never fail because “it will be supported.” ECB member Weber said Germany has greatly benefited from the euro and warned jointly-issued eurobonds would weaken “fiscal self-responsibility and wouldn’t really strengthen confidence.” Yesterday, European Union leaders convened and agreed to establish a permanent crisis-resolution mechanism that would be active from 2013. Critics of European policymakers are complaining officials are not doing enough to address current fiscal strains. ECB member Bini Smaghi suggested Europe’s financial backstop, the European Financial Stability Fund, has sufficient liquidity. Data released in the eurozone today saw the EMU-16 October trade balance increase to +€5.2 billion from the prior reading of €2.6 billion. Also, EMU-16 October construction output was unchanged m/m and off 6.8% y/y. The German December Ifo headline business climate survey improved to 109.9 from the prior reading of 109.3. The Ifo current assessment rallied to 112.9 and the Ifo expectations component improved to 106.9 while French December business confidence indicator improved to 103. In U.S. news, November leading indicators were released today and were up 1.1%, an improvement from October’s 0.4% level. Notably, the Standard & Poors 500 Index has climbed 17% since 27 August when Federal Reserve Chairman Bernanke suggested the Fed may purchase additional securities to improve the economy. Euro bids are cited around the US$ 1.3075 level.
    ¥/ CNY
    The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥84.15 level and was supported around the ¥83.70 level. Technically, today’s intraday low was right around the 38.2% retracement of the ¥82.35 – 84.50 range. The yen was otherwise strong across the board but was poised to end the week on a weaker note. Bank of Japan reported Japanese companies accumulated a record amount of cash on their balance sheets last quarter, consistent with this week’s BoJ quarterly Tankan survey that showed a decline in business confidence among large manufacturers. Most traders expect Bank of Japan will keep monetary policy unchanged at its two-day Policy Board meeting that begins on 20 December. The central bank’s economic assessment is also likely to remain unchanged. Data released in Japan this week saw November machine tool orders up 104.2% y/y. Other data released in Japan this week saw the Q4 Bank of Japan Tankan large manufacturers’ index of corporate sentiment decline to +5 from the prior reading of +8, exceeding expectations but the first pullback since the end of the crisis. Similarly, the Q4 Tankan non-manufacturers’ index of corporate sentiment index fell to +1 from the prior reading of +2. On a negative note, the large manufacturers’ outlook worsened to -2 from the prior reading of -1, an indication the yen’s ongoing strength is reducing business confidence. Also, the Q4 large all industry capex reading improved to +2.9% from the prior level of 2.4%. Government official Yoshiyasu Ono spoke this week and said “It’s of course a right idea that the BoJ should strive with the government to lift employment. The bottom line it it’s extremely difficult for the BoJ to affect employment amid the type of slump we’re in right now. It’s more realistic that the government will create jobs, rather than forcing the BoJ to do so.” Nonetheless, it is expected the government will continue to pressure Bank of Japan to ease and expand monetary policy further. The Nikkei 225 stock index lost 0.07% to close at ¥10,303.83. 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 ¥110.45 level and was capped around the ¥111.95 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥130.10 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.60 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6640 in the over-the-counter market, down from CNY 6.6650. People’s Bank of China Governor Zhou reported global economic turbulence is limiting the central bank’s ability to raise interest rates to counter inflation. Notably, China’s inflation rate reached a 28-month high last month and PBoC has pledged it will transition to a “prudent” monetary policy stance in 2011. One week ago, the central bank raised reserve requirements for banks for the third time in five weeks. The lack of an interest rate increase suggests there may be a lack of consensus at the central bank. China is said to be targeting 8% GDP growth and 4% inflation growth in 2011 along with 16% M2 money supply growth.
    £

    The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5455 level and was capped around the US$ 1.5645 level. Stops were reached below the 1.5490 level, representing the 76.4% retracement of the $1.5300 – 1.6300 range. Cable was unable to advance past the $1.5915 level this week, right around the 38.2% retracement level of the $1.5295 – 1.6300 range. Bank of England released its semi-annual Financial Stability Report today in which it warned the U.K. is only “partially insulated” from the European financial crisis. Data released in the U.K. today saw November Nationwide consumer confidence decline to +45 from the +52 prior level. Data released in the U.K. today this week saw November retail sales up 0.3% m/m and 1.1% y/y while the ex-auto and fuel component was up 0.3% m/m and 1.8% y/y. Bank of England Monetary Policy Committee Posen reported policymakers should not “overreact” to inflation. Posen said inflation is likely to fall below 1% in two years. Bank of England Deputy Governor Bean this week warned “elevated inflation” may persist in the U.K. economy. Cable bids are cited around the US$ 1.5265 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8550 level and was supported around the £0.8465 level.
    CHF
    The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9715 level and was supported around the CHF 0.9555 level. Today’s intraday low was the pair’s weakest print since 5 November and then traders bought dollars back during the North American session. The dollar failed to gain much headway above the CHF 0.9835 level this week, representing the 38.2% retracement of the CHF 0.9460 – 1.0065 level. The KOF Institute raised its Swiss GDP growth forecast slightly for 2011 and reported Swiss National Bank is likely to raise interest rates around the middle of 2011. As expected, Swiss National Bank’s quarterly interest rate announcement was made this week in which policymakers maintained the central bank’s three-month Swiss franc Libor target rate at 0.25%. SNB’s 2011 inflation forecast was raised to 0.4% from 0.3% and its 2012 inflation forecast was reduced to 1% from the prior reading of 1.2%. SNB expects the Swiss economy to grow about 2.5% in 2010 and around 1.5% in 2011. Data released in Switzerland this week saw Q3 industrial production up 1.8% q/q and 5.8% y/y while the December ZEW survey improved to -12.5 from the prior reading of -30.9. Swiss finance minister Widmer-Schlumpf this week reported the franc will remain under upward pressure vis-à-vis the euro as eurozone debt problems continue, adding Swiss National Bank has done what it could to prevent franc appreciation. The Swiss government this week raised its GDP growth forecast for 2011 to 1.5% from the 1.2% projection it noted in September. U.S. dollar offers are cited around the CHF 1.0180 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2720 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5170 level.
     
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