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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Dec 31, 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$ 1.3390 level and was supported around the $1.3285 level. Technically, today’s intraday high was right around the 76.4% retracement of the $1.3500 – 1.3055 range. The pair was poised to close the year about ten big figures lower, having traded at an intrayear high around the $1.4580 level and an intrayear low around the $1.1875 level. Despite finishing December with positive gains, the dominant theme for the common currency will be ongoing eurozone sovereign credit concerns. Both Greece and Ireland received financial assistance and bailouts this year and their problems have certainly not been finalized. Dealers cite probable additional financial stresses in Portugal and Spain with the former likely to be the country that receives the next bailout. Italy is noted to be a major eurozone country with a significant debt level but economists note France’s debt levels are higher with possibly a more inflexible labour market. Another important theme to monitor involves the European Union’s ability to pass much-needed legislation and treaty amendments that would give it more capabilities to deal with fiscal problems. Moreover, traders must pay attention to Germany’s involvement in resolving eurozone fiscal problems. German central bankers and politicians are clearly angered that smaller eurozone countries are receiving financial bailouts even though automatic sanctions were not levied on them when they exceeded fiscal imbalance limits. Much in the same way, the European Central Bank does not want to be forced to expand monetary policy further to subsidize the fiscal largesse of many countries. There were no major economic data released in the eurozone today. The eurozone will be expanded by one member to seventeen member states this weekend when Estonia joins the bloc. In U.S. news, data to be released on Monday include December ISM manufacturing, December ISM prices paid, and November construction spending. A couple of key themes will emerge in the U.S. in 2011. First, traders will ponder whether the US$ 600 billion monetary expansion announced by the Federal Reserve in early November will suffice and whether the Fed’s purchase of U.S. Treasury securities will keep a sufficient lid on market interest rates. Another important theme is how the federal government and state governments will deal with looming bankruptcies. There are predictions of widespread local bankruptcies across the U.S. in 2011 and traders are questioning how the State of California and others can continue operations with massive budget shortfalls and debt loads that aggregate hundreds of billions of U.S. dollars. Euro bids are cited around the US$ 1.3280 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥81.25 level and was capped around the ¥81.55 level. Technically, today’s intraday low was right around the 76.4% retracement of the ¥80.25 – 84.50 range. The pair was poised to close the year about eleven big figures lower, having traded at an intrayear high around the ¥95.00 figure and an intrayear low around the ¥80.25 level. The dominant theme at the beginning of 2011 will be whether or not Bank of Japan will expand monetary policy further to counter the yen’s strength. A move below the psychologically-important ¥80 figure would likely be met with major jawboning and verbal intervention from officials along with possibly more yen-selling intervention. The government this week 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 this week 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.” The Nikkei 225 stock index yesterday 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 ¥108.85 level and was supported around the ¥108.25 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥126.30 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.65 level. In Chinese news, the U.S. dollar was unchanged vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6070 in the over-the-counter market. This 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. On an intraday basis, the pair fell below the CNY 6.6 level for the first time since 1993. The pair lost approximately 22 big figures in 2010, having closed at CNY 6.8270 one year ago. Data released in China this week saw December HSBC manufacturing PMI fall to 54.4 from the prior reading of 55.3 and December PMI and non-manufacturing PMI data will be released this weekend. People’s Bank of China Governor today reaffirmed a shift to a “prudent” monetary policy stance in 2011 from a “moderately loose” stance. In contrast, Zhou one year ago said his 2010 objective was “defeating the international financial crisis.” 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$ 1.5545 level and was supported around the US$ 1.5425 level. Technically, today’s intraday high was just above the 76.4% retracement of the $1.5300 - 1.6300 range. The pair was poised to close the year just under six big figures lower, having traded at an intrayear high around the $1.6455 level and an intrayear low around the $1.4230 level. The dominant themes in the U.K. next year will be the ongoing consolidation of fiscal spending and how Bank of England will react to significantly-elevated rates of inflation far above its inflation target. Data released in the U.K. overnight saw December Nationwide house prices come in better-than-expected at +0.4% m/m and +0.4% y/y. Bank of England Monetary Policy Committee Sentence this week reported official interest rates should “gradually” be raised to signal the U.K. economy is returning to “normal” and contend with inflation that may accelerate to double the BoE’s target in 2011. Sentance also reported the British economy “has bounced back from recession more strongly than most people were expecting.” In contrast, MPC member Posen continues to call for additional monetary expansion. Data released in the U.K. this week saw Q3 Bank of England housing equity withdrawal decline to -£6.1 billion. Also, the December Hometrack housing survey was off 0.4% m/m and off 1.6% y/y. Bank of England Monetary Policy Committee member Fisher last week warned mortgage interest rates could reach 5%. Cable bids are cited around the US$ 1.5265 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8605 level and was capped around the £0.8645 level.

    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9330 level and was capped around the CHF 0.9395 level. The pair was poised to close the year about ten big figures lower, having traded at an intrayear high around the CHF 1.1730 level and an intrayear low around the CHF 0.9330 level. The dominant theme in Switzerland in 2011 will be whether or not Swiss National Bank restarts its franc-selling intervention operations, or even has the war chest do so to prevent exporters’ margins from eroding. 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. 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 declined to 1.630 from the revised prior reading of 1.708, still indicating an expansion in consumer spending activity. 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. 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 1.2540 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.4555 level.
     
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