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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Dec 30, 2010.

  1. gcitrading

    gcitrading Contributing Member

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    The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3315 level and was supported around the $1.3215 level. Technically, today’s intraday high was just above the 61.8% retracement of the $1.2650 – 1.4280 range. Traders continue to lift the common currency higher at year-end as commodities prices escalate at the expense of the U.S. dollar. European Central Bank member Nowotny warned it is possible “that there will be further challenges for individual countries in the euro area” and added a “more efficient Stability and Growth Pact” is a needed reform. Improving U.S. and global economic data are increasing the demand for higher-yielding assets and decreasing demand for U.S. dollars. At the same time, safe haven assets like the Swiss franc and Japanese yen remain bid. This evidences the dynamics of the two-track global economy where emerging market economies are registering elevated rates of growth and industrialized countries where fiscal imbalances are overshadowing economic growth. The dominant theme in the eurozone remains sovereign credit woes. Ratings agencies have slashed eurozone credit ratings in recent weeks, adding to the euro’s malaise. There remains widespread speculation that Portugal and maybe other eurozone countries will be forced to accept financial assistance next year. Eurozone banks are hoarding cash at year-end to bolster their balance sheets. The European Central Bank this week 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. Data released in the eurozone this week saw German provisional consumer price inflation data for many states come 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 released today saw weekly initial jobless claims fall sharply to 388,000 from the prior reading of 422,000 while continuing jobless claims climbed to 4.128 million from the prior reading of 4.071 million. Also, December Chicago PMI climbed sharply to 68.6 from the prior reading of 62.5 and November pending home sales improved +3.5% m/m and improved to -2.4% y/y. Other data released in the U.S. this week saw the October CaseShiller home price index decline more than expected at -0.99% m/m and -0.80% y/y. Also, Dcember consumer confidence tumbled 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 ¥81.30 level and was capped around the ¥81.65 level. Technically, today’s intraday low was just above the 76.4% retracement of the ¥80.25 – 84.50 range. The pair has not been this weak since 9 November and its recent ¥3 decline has more dealers speculating Bank of Japan will decide to expand monetary policy further. Five-year Japanese government bonds appreciated by their largest amount in one year as traders tried to get ahead of possible central bank easing. The government reported it did not conduct official yen-selling intervention in December for a third consecutive month following its ¥2.12 trillion intervention actions in September. Data released in Japan overnight saw December manufacturing PMI climb to 48.3 from the prior reading of 47.3. 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. The Nikkei 225 stock index lost 1.12% to close at ¥10,228.92. 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 ¥108.30 level and was supported around the ¥107.60 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥125.55 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.00 figure. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6070 in the over-the-counter market, down from CNY 6.6245. Today’s close was the pair’s weakest showing since 1993 and traders continue to speculate People’s Bank of China will allow the yuan to appreciate at a faster pace in 2011. Data released in China overnight saw December HSBC manufacturing PMI fall to 54.4 from the prior reading of 55.3. The December business conditions survey will be released overnight and December manufacturing PMI will be released tomorrow night. People’s Bank of China raised the yield on three-month bills for the first time in seven weeks following a move in China’s benchmark seven-day repurchase rate to 6.27%, its highest level since 2007.
    £

    The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5040 level and was capped around the US$ 1.5535 level. Technically, today’s intraday high was right around the 76.4% retracement of the $1.5300 - 1.6300 range. The pair last week reached its weakest level since September. Bank of England Monetary Policy Committee Sentance reported official interest rates should “gradually” be raised to signal the U.K. economy is returning to “normal” and contend with inflation that may accelerate to double the BoE’s target in 2011. Sentance also reported the British economy “has bounced back from recession more strongly than most people were expecting.” He also warned against a wage price spiral. In contrast, MPC member Posen continues to call for additional monetary expansion. Cable bids are cited around the US$ 1.5265 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8610 level and was supported around the £0.8515 level.
    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9370 level and was capped around the CHF 0.9460 level. The pair has now lost about 23 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 this week saw the December KOF Swiss leading indicator decline to 2.10 from the revised prior reading of 2.13. Also, the November UBS consumption indicator declines to 1.630 from the revised prior reading of 1.708, still indicating an expansion in consumer spending activity. 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 1.2400 figure while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.4450 level.
     
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