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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 7, 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$ 1.2935 level and was capped around the $1.3020 level. Stops were reached below the $1.2970 level and pushed the pair to its lowest level since 14 September 2010. Traders reduced demand for higher-yielding currencies like the euro after the release of weaker-than-expected U.S. December non-farm payrolls data that saw gains of +103,000, up from a revised +71,000 in November but well below expectations. Private payrolls expanded +113,000, up from a revised +79,000, while the December unemployment rate moved lower to +9.4%, well below forecasts. The sharper-than-expected decline in the unemployment rate is not necessarily positive because it suggests more frustrated unemployed workers are leaving the labour market. Related data saw December average hourly earnings up 0.1% m/m and 1.8% y/y while December average hours worked remained steady at 34.3. Data to be released later in the U.S. session include November consumer credit. Collectively, these data evidence a very modest uptick in the labour market, but not enough to satisfy economic policymakers. Federal Reserve Chairman Bernanke today testified that “It could take four to five more years for the job market to normalize fully.” Bernanke also called for the “prompt adoption” of policies to reduce the federal budget deficit and said the outlook for inflation is “to remain unusually low.” Federal Reserve Governor Duke reported the reason why long-term interest rates have recently risen is because market of a “strengthening in market participants’ outlook for the economy and a corresponding decrease in the market’s expectation for future accommodation.” In eurozone news, data released today saw Q3 gross domestic product climb 0.3% m/m and 1.9% y/y and the EMU-16 November unemployment rate remained steady at 10.1%. German retail sales were off 2.4% m/m and up 2.0% y/y while the November trade surplus declined to +€12.9 billion. Also, EMU-16 November industrial production was off 0.7% m/m and 11.1% y/y. European Central Bank President Trichet called for more fiscal reforms, saying “Monetary policy responsibility cannot substitute for government irresponsibility. Europe cannot afford to rest halfway. We need to be more ambitious.” Euro bids are cited around the US$ 1.2740 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥82.95 level and was capped around the ¥83.65 level. Technically, today’s intraday low was right around the 38.2% retracement of the ¥80.25 – 84.50 range. Bank of Japan Governor Shirakawa will attend the upcoming Bank for International Settlements meeting in Basel and any remarks he makes about Japanese monetary policy or the economy will be closely scrutinized. Data to be released in Japan next week include the November coincident index, November leading index, December bank lending, November current account, December economy watchers survey, and the December domestic corporate goods price index. Data released in Japan this week saw the December monetary base climb +7.0% y/y, down from the prior reading of +7.6% y/y. 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 climbed 0.11% to close at ¥10,541.04. 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 ¥107.75 level and was capped around the ¥108.55 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥129.40 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.05 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6320 in the over-the-counter market, up from CNY 6.6254. The Chinese government continues to talk the euro up. People’s Bank of China Deputy Governor Yi Gang reported “The euro and the European financial markets are an important part of the global financial system and were, are, and will be one of the most important investment areas for China’s foreign exchange reserves.” The State Administration of Foreign Exchange this week reported it will continue to crack down on “hot money” inflows into China this year. PBoC today reiterated it will give a higher priority to curbing inflation in 2011, likely including additional “prudent” monetary tightening measures through it. PBoC also reported it will enhance the flexibility of the yuan. Data released this week in China saw December HSBC services PMI remain unchanged at 53.1. People’s Bank of China Governor Zhou this week hawkishly reported “Monetary easing policies in the U.S. and other major economies are leading to abundant liquidity in international markets, intensifying imported inflationary pressure.” 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$ 1.5570 level and was supported around the US$ 1.5405 level. Technically, today’s intraday high was right around the 23.6% retracement of the $1.6300 – 1.5350 range. Bank of England’s Q4 credit conditions survey was released yesterday in which it noted credit availability is “broadly unchanged,” adding demand for mortgages declined “markedly.” Data released in the U.K. this week saw December services PMI decline to 49.7 from the prior reading of 53.0. Also, December PMI construction weakened to 49.8 from the prior reading of 51.8 and December manufacturing PMI improved to 58.3 from the revised prior reading of 57.5. November net consumer credit fell -£100 million. November net lending secured on dwellings climbed £800 million. November mortgage approvals were up 48,000 from the revised prior total of 47,300. The November M3 money supply was off 0.8% m/m and off 1.4% y/y. The dominant themes in the U.K. this year will be the ongoing consolidation of fiscal spending and how Bank of England will react to significantly-elevated rates of inflation far above its inflation target. Bank of England Monetary Policy Committee Sentence last week reported official interest rates should “gradually” be raised to signal the U.K. economy is returning to “normal” and contend with inflation that may accelerate to double the BoE’s target in 2011. Sentance also reported the British economy “has bounced back from recession more strongly than most people were expecting. Cable bids are cited around the US$ 1.5265 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8335 level and was capped around the £0.8425 level.

    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9600 figure and was capped around the CHF 0.9690 level. Technically, today’s intraday high was right around the 23.6% retracement of the CHF 1.1730 – 0.9300 range. Data released in Switzerland today saw the December unemployment rate climb to 3.8% from the November tally of 3.6%. November retail sales data will be released on Monday. Data released in Switzerland this week saw December consumer price inflation up 0.0% m/m and 0.5% y/y. Swiss National Bank reported its foreign currency holdings fell to CHF 202.6 billion in December. Swiss National Bank this week confirmed that it will no longer accept bonds issued by Ireland and some of its financial institutions as collateral for liquidity operations following recent credit rating downgrades. The Swiss media this week 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 this week saw the December purchasing managers index decline to 59.6 from the prior reading of 61.8. 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 depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2480 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5005 level.
     
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