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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Dec 23, 2010.

  1. gcitrading

    gcitrading Contributing Member

    Dec 16, 2008
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    The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3080 level and was capped around the $1.3180 level. Technically, today’s intraday high was above the 23.6% retracement of the $1.3495 – 1.3070 range. North American dealers pushed the pair to intraday lows after the release of U.S. economic data. It was reported that Q3 gross domestic product expanded an annualized 2.6% q/q, up from the prior 2.5% reading but below expectations mostly on account of a pullback in personal consumption to +2.4%. The Q3 GDP price index fell to +2.1% and core PCE moderated to +0.5% q/q, also below expectations and down from the +0.8% prior reading. November existing home sales were up 5.6% m/m to an annualized 4.68 million units. Also, the October house price index was up 0.7% m/m, a reversal from the revised prior reading of -1.2% m/m. The euro will likely have a difficult time gaining much sustainable traction in the short-term on account of ongoing eurozone sovereign credit concerns. Philadelphia Fed President Plosser reported the Federal Reserve does not yet “know the answer” regarding the efficacy of quantitative easing and said inflation should be around 1.5% to 2.0% in 2011 along with economic growth of 3% to 3.5%. In eurozone news, data released today saw the German import price index up 1.2% m/m and 10.0% y/y. The European Central Bank lent €149.5 billion to banks today, an indication that stresses remain in the Eurosystem banking system. Ratings agency Fitch reported it may lower Greece’s credit rating to non-investment grade status. Fitch will conduct a review of Greece’s “fiscal sustainability” in January and there is a “heightened probability” of a downgrade. This negative sentiment impacting the euro is also being precipitated by uncertainty regarding Ireland, Portugal, and Spain. Moody’s Investors Service placed Portugal’s short-term government bond ratings on watch yesterday and warned the ratings may be reduced a notch or two on account of “sluggish” economic growth. Moody’s trimmed Ireland’s credit rating by five notches on 17 December. A German government source this week reported Germany would support the ECB if it deems more capital is required. There is market chatter that ECB President Trichet may bring up the issue of raising more capital when European Union leaders convene tomorrow. Euro bids are cited around the US$ 1.2995 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥83.40 level and was capped around the ¥83.85 level. Today’s range was again extraordinarily narrow, partially reflecting traders’ reaction to the Bank of Japan’s policy announcement yesterday. Technically, today’s intraday low was right around the 50% retracement of the ¥82.35 – 84.50 range. Bank of Japan released its Monthly Report of Recent Economic and Financial Developments overnight in which it reiterated “Japan’s economy still shows signs of a moderate recovery, but the recovery seems to be pausing,” an assessment that is very similar to its assessments in November and October. Notably, however, the central bank upgraded its assessment of the impact from its “highly accommodative” monetary policy and reported capital spending is improving. On a negative note, the central bank lowered its assessment of production. The central bank also reported that it has made ¥25 trillion in asset purchases and loans as part of its ¥30 trillion stimulus program designed to enhance economic growth and overcome deflation. As expected, Bank of Japan’s Policy Board kept monetary policy unchanged this week, leaving the overnight unsecured call rate target between 0% and 0.1% and maintaining the size of its credit programs. BoJ Governor Shirakawa reported “Volatile long-term rates can affect the economy, prices, and financial conditions by influencing borrowing costs for households and companies.” The BoJ noted “The bank will steadily purchase various financial assets and provide longer-term funds” so that “the effects of comprehensive monetary easing spread.” Data released in Japan overnight saw the November merchandise balance total decline to +¥162.8 billion from the prior total of ¥821.3 billion. Other data saw November supermarket sales off 0.5% y/y from the prior reading of 0.3% y/y. The Nikkei 225 stock index lost 0.23% to close at ¥10,346.48. 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 ¥109.55 level and was capped around the ¥110.10 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥128.85 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.90 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6520 in the over-the-counter market, down from CNY 6.6590. Most traders now expect that China will not raise interest rates before the end of the year given the apparent lack of a consensus at People’s Bank of China and ongoing reserve requirement adjustments higher. The China Banking Regulatory Commission this week tightened requirements for banks’ loan sales to other lenders to “avoid blind expansion” of off-balance-sheet credit. Notably, Chinese financial institutions have lent CNY 17 trillion over the past two years. Chinese money-market rates escalated to their highest level in more than two years this week as a result of lenders having to provision more capital as reserves. People’s Bank of China Governor Zhou last week 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 in November and PBoC has pledged it will transition to a “prudent” monetary policy stance in 2011. 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$ 1.5350 level and was capped around the US$ 1.5495 level. Cable reached its lowest level since 14 September after the previous multi-month low of $1.5435 was absorbed. Data released in the U.K. today saw Q3 total business investment up 3.1% q/q and 8.9% y/y while Q3 gross domestic product was downwardly revised to +0.7% q/q and +2.7% y/y. Also, the Q3 current account deficit widened to -£9.6 billion. Minutes from Bank of England’s December Monetary Policy Committee meeting were released today in which there was a three-way voting split again. MPC member Posen again voted to increase the BoE’s £200 billion asset purchase program by £50 billion while MPC member Sentance voted to increase interest rates for a seventh month. The other MPC members voted for no change in policy but “stood ready to change the stance of policy should the balance of risks shift materially.” BoE also reported that spare economic capacity is “substantial.” BoE released its semi-annual Financial Stability Report last week in which it warned the U.K. is only “partially insulated” from the European financial crisis. MPC member Posen last week reported policymakers should not “overreact” to inflation while BoE Deputy Governor Bean last week warned “elevated inflation” may persist in the U.K. economy. Cable bids are cited around the US$ 1.5265 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8520 level and was supported around the £0.8460 level.
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9500 figure and was capped around the CHF 0.9590 level. The pair reached its lowest level since 15 October after stops were reached below the CHF 0.9545 level. The franc continues to power higher across the board as dealers chase its safe-haven status. There was also market chatter that Swiss National Bank Chairman Hildebrand said the euro could fall to CHF 0.50 but the SNB later denied this comment. Many traders are speculating Swiss National Bank may be forced to resume the massive franc-selling intervention it conducted earlier in the year. Data released in Switzerland this week saw the November trade balance surplus narrow to CHF 1.93 billion from the revised prior reading of CHF 2.05 billion. Also, the November M3 money supply indicator climbed 6.4% y/y. Swiss National Bank member Jordan this weekend reported “There may be situations where interest rates have to be kept at a low level to ensure price stability, and where higher rates could threaten the economy.” SNB Chairman Hildebrand reported he remains concerned over the eurozone sovereign debt crisis, adding it could lead to “devastating” consequences if the euro depreciates sharply and the franc soars. The KOF Institute last week 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. Swiss National Bank’s quarterly interest rate announcement was announced last 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. The Swiss government last 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 1.2490 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.4690 level.

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