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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 3, 2011.

  1. gcitrading

    gcitrading Contributing Member

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    The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3250 level and was capped around the $1.3365 level. Technically, today’s intraday low was just above the 50% retracement of the $1.3050 – 1.3420 range. The pair closed 2010 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. The dominant theme for the common currency in 2011 will be ongoing eurozone sovereign credit concerns. Notably, Spain and Italy need to refinance more than €400 billion of bonds by this spring and some bond traders are skeptical these highly-indebted countries will be able to do so. Chinese Vice Premier Li today said China will continue to purchase Spanish public debt, underscoring confidence in that country. There is speculation that a speculative attack on Spain would be a severe test for the eurozone because the funds pledged to the European Financial Stability Facility for bailout measures might not be sufficient. Such an attack might force the European Central Bank to make larger-scale purchases of eurozone debt and not sterilize them, effectively rendering the ECB the investor of last resort. Dealers continue to cite talk of a possible break-up of the eurozone this year or at least one member leaving the currency bloc. Estonia joined the common currency over the weekend thus there are now seventeen eurozone members. Data released in the eurozone today saw December manufacturing PMI improve to 57.1 from the prior reading of 56.8 with Germany’s reading lower at 60.7 and France’s reading higher at 57.2. In U.S. news, data to be released today include December ISM manufacturing, December ISM prices paid, and November construction spending. Former Federal Reserve Governor Mishkin reported “The fact that the (U.S. economy) is stronger right now makes it much less likely we’re going to see (a third round of quantitative easing).” The Federal Reserve may face a stormy 2011. Representative Ron Paul, who advocates the end of the Fed, will chair the House of Representatives subcommittee that oversees the Fed while the House Oversight Committee will be chaired by Republican Darrell Issa who has called for increasing the Fed’s transparency. Additionally, the regional Fed Bank Presidents who rotated in as voters in 2011 are said to be more hawkish than their other regional counterparts who will not be voting on the Federal Open Market Committee this year. 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$ 1.3235 level.
    ¥/ CNY
    The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥81.55 level and was supported around the ¥80.90 level. Technically, today’s intraday high was right around the 23.6% retracement of the ¥85.95 – 80.25 range. The pair closed 2010 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. Japanese financial markets will reopen overnight after the New Year holiday. 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 will likely be met with major jawboning and verbal intervention from officials along with possibly more yen-selling intervention. The government last 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 last week saw December manufacturing PMI climb to 48.3 from the prior reading of 47.3. Finance Minister Noda last 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 last traded last week and 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 ¥108.80 level and was supported around the ¥107.80 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥125.75 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.25 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. The pair lost approximately 22 big figures in 2010, having closed at CNY 6.8270 one year ago. The Chinese media reported China “will likely introduce more measures to fight inflation in the first half of 2011.” Data released in China last week saw December HSBC manufacturing PMI fall to 54.4 from the prior reading of 55.3 while December PMI manufacturing fell to 53.9 from 55.2. Also, December non-manufacturing PMI improved to 56.5 from the prior reading of 53.2. People’s Bank of China Governor Zhou last week 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 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 depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5445 level and was capped around the US$ 1.5585 level. Technically, today’s intraday high was just above the 23.6% retracement of the $1.6300 - 1.5350 range. The pair closed the year about six big figures lower, having traded at an intrayear high around the $1.6455 level and an intrayear low around the $1.4230 level. U.K. financial markets will reopen tomorrow. The dominant themes in the U.K. this year will be the ongoing consolidation of fiscal spending and how Bank of England will react to significantly-elevated rates of inflation far above its inflation target. Data released in the U.K. last week saw December Nationwide house prices come in better-than-expected at +0.4% m/m and +0.4% y/y. Also, Q3 Bank of England housing equity withdrawal declined to -£6.1 billion. Additionally, the December Hometrack housing survey was off 0.4% m/m and off 1.6% y/y. Bank of England Monetary Policy Committee Sentence last week reported official interest rates should “gradually” be raised to signal the U.K. economy is returning to “normal” and contend with inflation that may accelerate to double the BoE’s target in 2011. Sentance also reported the British economy “has bounced back from recession more strongly than most people were expecting.” In contrast, MPC member Posen continues to call for additional monetary expansion. Cable bids are cited around the US$ 1.5265 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8620 level and was supported around the £0.8540 level.

    CHF
    The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9380 level and was supported around the CHF 0.9320 level. Technically, today’s intraday high was right around the 23.6% retracement of the CHF 0.9665 – 0.9300 range. The pair closed 2010 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 Swiss media reported Swiss National Bank is expected to register a fourth quarter loss of CHF 11 billion on its currency reserve holdings. Data released in Switzerland today saw the December purchasing managers index decline to 59.6 from the prior reading of 61.8. Data released in Switzerland last 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. 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. Swiss National Bank Chairman Hildebrand has labeled the franc’s record rally a “burden.” 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 1.2485 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.4455 level.
     
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