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Daily Market Commentary

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

  1. gcitrading

    gcitrading Contributing Member

    Dec 16, 2008
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    The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3170 level and was supported around the $1.3070 level. Technically, today’s intraday high was just above the 23.6% retracement of the $1.3790 – 1.2970 range. Dealers reported a marginal increase in Asian risk appetite following China’s interest rate hike this weekend. Despite today’s modest appreciation, negative sentiment remains a key factor impacting the common currency. The German media today reported 47% of German companies believe the breakup of the eurozone is a “realistic danger” in the “medium term.” Slovakian finance minister Ivan Miklos reported Greece and Portugal would be better off “in the long run” if they did not use the euro as a currency. Estonia will be joining the eurozone as of the New Year and this will increase the size of the bloc to seventeen members. European Central Bank member Stark was critical of the ratings agencies in comments published over the weekend, saying they have not stopped conflicts of interest that have contributed to the European debt crisis. German consumer price inflation data will be released on Wednesday and French Q3 final gross domestic product data will be released tomorrow. EMU-16 M3 money supply data will be released on Wednesday. In U.S. news, the December Dallas Fed manufacturing activity index will be released later during the North American session. October CaseShiller home price data will be released tomorrow along with December consumer confidence and the December Richmond Fed manufacturing index. Traders continue to speculate on whether the Federal Reserve will be forced to ease monetary policy further in 2011. Notably, the Dow Jones Industrial Average has risen approximately 14% since Fed Chairman Bernanke hinted at the end of August that the Fed could expand policy further, a move it made in early November by announcing it could purchase as much as US$ 600 billion in additional U.S. Treasury securities by the middle of 2011. New voting members of the Federal Open Market Committee will be casting rate-setting votes in 2011 and many Fed-watchers believe the new voting members as a whole may provide the Fed with a more hawkish bent. 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 ¥82.65 level and was capped around the ¥82.95 level. Technically, the pair continues to orbit the ¥82.85 level, representing the 38.2% retracement of the ¥80.25 – 84.50 range. The yen’s advances were partially caused by People’s Bank of China’s interest rate hike over the weekend. Minutes from Bank of Japan Policy Board’s 4-5 November meeting were released overnight and one voting member “was of the view that the effects of the measure taken (by the Federal Reserve to ease policy in early November) were highly uncertain and growth in the U.S. economy was still likely to remain low for some time.” BoJ officials also noted they needed to continue monitoring the impact of the yen’s gains on exporters with one member speculating gross domestic product growth could contract this quarter. Officials warned the yen “might exert downward pressure on Japan’s economy by negatively affecting business and household sentiment. A few members expressed the opinion that careful attention should be paid to the economy’s vulnerability to downside risks, particularly when the pace of economic improvement remained slow.” Data released in Japan overnight saw the November corporate service price index off 1.1% y/y, up from the downwardly-revised prior reading of -1.3% y/y. Also, December small business confidence ticked higher to 45.9 while November housing starts were up 6.8% to an annualized 847,000 units. Also, November construction orders were off 5.3% y/y. Many data will be released tonight including November jobs data, December consumer price inflation, November industrial production, and November retail trade. The Nikkei 225 stock index climbed 0.75% to close at ¥10,355.99. U.S. dollar offers are cited around the ¥84.60 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥109.05 level and was supported around the ¥108.40 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥127.55 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥85.85 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6313 in the over-the-counter market, up from CNY 6.6264. People’s Bank of China raised its one-year lending and deposit rates by 25bps on Saturday, its second rate hike since mid-October. The benchmark lending rate increased to 5.81% and the benchmark deposit rate increased to 2.75%. Many economists believe PBoC will front-load additional rate hikes and other monetary tightening policies in the coming months. Notably, China has raised banks’ reserve requirements six times in 2010 and reduced loan growth from record levels. These actions evidence a central bank and government that remain very concerned about elevated rates of inflation. Data released in China overnight saw November industrial profits move lower to +49.4% y/y. Other data to be released this week include the November leading index, December HSBC manufacturing PMI, December business conditions survey, and December PMI manufacturing. 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$ 1.5395 level and was capped around the US$ 1.5455 level. Cable has fallen sharply from the $1.59 handle since the middle of December as dealers have unwound long sterling positions. The pair last week reached its weakest level since September. Data released in the U.K. last night saw the December Hometrack housing survey off 0.4% m/m and off 1.6% y/y. Q3 Bank of England housing equity withdrawal data will be released on Wednesday followed by December Nationwide house prices on Friday. Bank of England Monetary Policy Committee member Fisher last week warned mortgage interest rates could reach 5%. Cable bids are cited around the US$ 1.5265 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8530 level and was supported around the £0.8480 level.
    The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9645 level and was supported around the CHF 0.9575 level. The pair has now lost about twenty big figures from its 2010 high and traders may continue to push the pair lower on speculation Swiss National Bank is less likely to conduct franc-selling intervention in 2011. The November UBS consumption indicator will be released tomorrow followed by the December KOF Swiss leading indicator on Wednesday. There is intense focus on the Swiss franc by traders now. Swiss National Bank Chairman Hildebrand has labeled the franc’s record rally a “burden” and options traders are said to more bullish on the franc over the next quarter than any other currency other than the yen. SNB incurred approximately CHF 22 billion of intervention-related losses in the first nine months of 2010 on account of its inability to halt the franc’s appreciation. SNB last week reported “Concerns about stability in the euro area have led to renewed financial market tensions. Should these tension be exacerbated and put a strain on economic developments in the euro area, this would also have a detrimental effect on the Swiss economy. If a deflation risk emerges, the SNB would take the measures necessary to ensure price stability.” The SNB’s 2012 inflation forecast was reduced to 1% from 1.2% on 16 December, just a few months after SNB Vice Chairman Jordan reported intervention is no longer necessary because the deflation threat was almost gone. Last week, the euro reached an all-time low vis-à-vis the Swiss franc. U.S. dollar offers are cited around the CHF 0.9780 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.2700 figure while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.4895 level.

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