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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Dec 29, 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$ 1.3155 level and was supported around the $1.3085 level.Technically,the pair continues to orbit the 38.2% retracement of the $1.5140–1.1880 range.Some dealers note they are confused by the signals the market is providing.On one hand,riskier assets like gold and crude oil are advancing higher,an indication the risk trade may be back on.On the other hand,the Swiss franc and Japanese yen–two traditional safe haven currencies–have been bid higher in recent trading sessions and given their relatively low yields,traders are not chasing them for positive interest rate differentials.The immense uncertainty surrounding eurozone sovereign credit concerns remains a net drag on the common currency and has prevented it from getting above key short-term technical resistance around the $1.3280 level. Ratings agencies have slashed eurozone credit ratings in recent weeks, adding to the euro’s malaise. Indications that global economic growth may be expanding are contributing to the possible resurgence for demand in riskier assets.Eurozone banks are hoarding cash at year-end to bolster their balance sheets.The European Central Bank yesterday attemped to absorb €73.5 billion of liquidity from the eurozone financial system,around the amount it has expended on the purchase of eurozone government bonds. Eurozone banks, however,offered just over €60 billion and this represents the second failure to remove liquidity and sterilize its bond purchases since the bond-buying program was started in May to support asset prices and keep a lid on market rates. EMU-16 November M3 money supply growth was up 1.9% y/y,much stronger-than-expected. German provisional consumer price inflation data for many states came in stronger than November’s levels and German headline CPI was up 1.0% m/m and 1.7% and 1.2% m/m and 1.9% y/y at the harmonized level. In U.S. news,data to be released tomorrow include weekly initial jobless claims, continuing jobless claims, the December Chicago PMI survey,and November pending home sales. U.S. data released yesterday saw the October CaseShiller home price index decline more than expected at-0.99% m/m and -0.80% y/y. These data evidenced a U.S. housing market that likely began the fourth quarter on a weak note despite strong indications the Federal Reserve would be easing monetary policy drastically.Other data released yesterday saw Dcember consumer confidence tumble to 52.5 from the prior reading of 54.3 while the December Richmond Fed manufacturing index improved to +25.Euro bids are cited around the US$ 1.2995 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥82.05 level and was capped around the ¥82.45 level.Technically,today’s intraday high was just above the 38.2% retracement of the ¥85.95–80.25 range.There remains a significant shortage of demand for funding in the Japanese money markets on account of the surplus liquidity Bank of Japan continues to ply the markets with. Bidding from financial institutions for funding pooled against collateral continues to fail to meet the central bank’s targets.Current account deposits held by the BoJ have remained above ¥20 trillion for several consecutive days, an indication that banks have a significant amount of capital on hand. Finance Minister Noda this week verbally intervened against the yen’s strength again, vowing to take “bold action when moves are excessive.”Noda added the yen’s appreciation has been “one-sided” while Economy Minister Kaieda added “abrupt yen moves must be avoided.” Japanese policymakers clearly remain preoccupied with preventing the yen’s advances from eroding exporters’ margins too much, especially after positive Japanese economic data were released overnight.On 22 December,the government released an economic growth forecast that predicts economic growth will fall to +1.5% in the fiscal year beginning 1 April,down from the estimated +3.1% rate of growth in the current fiscal year. Many data were released in Japan this week. First,the November jobless rate remained steady at 5.1%.Second, November overall household spending remained steady at -0.4%,defying expectations of an improvement.Third, December Tokyo-area consumer price inflation was off 0.2% y/y at the headline level and off 0.5% y/y at the ex-food,energy level. Fourth, November national consumer price inflation was up 0.1% y/y at the headline level and off 0.5% y/y at the ex-fresh food level, evidencing a minor uptick from October’s rate. In October, Bank of Japan’s Policy Board forecast that core prices would rise 0.1% in the fiscal year beginning 1 April and 0.6% the following fiscal year. Fifth,November industrial production improved significantly and was up 1.0% m/m and 5.8% y/y. Sixth, November retail trade was up 1.9% m/m and 1.3% y/y.Seventh, November labour cash earnings were off 0.2% y/y.The Nikkei 225 stock index climbed 0.50% to close at ¥10,344.54. 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 ¥107.65 level and was capped around the ¥108.15 level.The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥126.10 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.65 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6245 in the over-the-counter market, down from CNY 6.6250. People’s Bank of China official Sheng Songcheng reported China should accelerate the “liberalization” of interest rates “by a certain degree” to reduce inflation and said asset prices should become an “important” factor in formulating monetary policy.Notably,China’s benchmark seven-day repurchase rate raced to its highest level in three years as banks are hoarding cash at year-end.The seven-day repo rate escalated 28bps to 6.07%, its highest level since October 2007. 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.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 appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5410 level and was supported around the US$ 1.5350 level. Technically, today’s intraday high was right around the 23.6% retracement of the $1.5645-1.5345 range.Data released in the U.K. today saw Q3 Bank of England housing equity withdrawal decline to -£6.1 billion. December Nationwide house prices data will be released on Friday.The pair last week reached its weakest level since September. Data released in the U.K. earlier this week saw the December Hometrack housing survey off 0.4% m/m and off 1.6% y/y. Bank of England Monetary Policy Committee member Fisher last week warned mortgage interest rates could reach 5%.Cable bids are cited around the US$ 1.5265 level.The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8555 level and was supported around the £0.8510 level.
    The Swiss franc appreciated vis-à-vis the U.S.dollar today as the greenback tested bids around the CHF 0.9495 level and was capped around the CHF 0.9530 level.The pair has now lost about twenty big figures from its 2010 high and fell to an all-time low this week as the franc continues to sharply escalate. Data released in Switzerland today saw the December KOF Swiss leading indicator decline to 2.10 from the revised prior reading of 2.13. Despite this index’s pullback,the indicator is suggesting economic growth for the next couple of quarters should remain relatively strong. Data released in Switzerland this week saw the November UBS consumption indicator decline to 1.630 from the revised prior reading of 1.708, still indicating an expansion in consumer spending activity.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 and there is a broadening perspective the SNB may not be able to reverse the franc’s ongoing gains. 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 depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2455 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.4600 figure.

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