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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 11, 2011.

  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$ 1.2990 level and was supported around the $1.2910 level. Technically, today’s intraday low was right around the 38.2% retracement of the $1.4230 – 1.6300 range. The common currency gained ground after Japan revealed plans to purchase eurozone bonds designed to raise funds for bailouts, additional Asian multilateral support that is lending a bid to the pair and possibly an indication that the European Financial Stability Fund will need to increase in size. Media reports swirled this weekend that the German government may drop opposition to a plan that would see the EFSF increase in size. Some dealers interpreted this as a tacit admission by Germany that additional bailouts will be necessary. There was chatter earlier this week that Germany and France are pushing Portugal to accept a bailout but the European Union later denied this report. If traders push yields higher on Portuguese debt, Portugal may be forced to accept a market bailout regardless of its ability to refinance maturing debt in the first quarter. Portugal is scheduled to issue new 10-year bonds tomorrow followed by Spain and Italy on Thursday. The European Commission in December reported that it plans to raise as much as €34.1 billion for Ireland in 2011 and €14.9 billion in 2012 through financial aid funds for distressed governments. Data released in the eurozone today saw Bank of France December business sentiment climb to +108 from the prior reading of +107. The European Parliament today proposed additional automatic sanctions on high-deficit eurozone countries, supporting a European Central Bank inititative to toughen Europe’s fiscal rules. Spanish Prime Minister Zapatero reported Spain met its 2010 deficit target “comfortably,” adding its 2011 target is “unquestionable.” Many traders anticipate at least one default and debt restructuring in the eurozone this year with Ireland, Greece, and Portugal being the top candidates. Belgium is now on traders’ radar, a country that has the third highest public debt-to-GDP ratio in the eurozone. In U.S. news, data released today saw December NFIB Small Business Optimism moderate to 92.6 from the prior reading of 93.2 while November wholesale inventories were off 0.2%, down from the revised prior reading of 1.7%. Philadelphia Fed President Plosser optimistically reported “If the economy begins to grow more quickly and the sustainability of this recovery continues to gain traction, then the purchase program (of US$ 600 billion in Treasuries by the Fed) will need to be reconsidered.” Plosser also warned “5% to 6% unemployment may be several years away” and said the Fed’s balance sheet has “got to shrink.” Fed Vice Chairman President Yellen spoke this weekend and said the Fed’s balance sheet could stay “elevated” for two years after completing its large-scale U.S. Treasuries purchases within a year, and then return to its pre-crisis size over five years. Chicago Fed President Evans reported changing the size of the Fed’s US$ 600 billion quantitative easing program would be a “pretty high hurdle.” Euro bids are cited around the US$ 1.2740 level.
    ¥/ CNY
    The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥83.15 level and was supported around the ¥82.65 level. Technically, today’s intraday high was right around the 61.8% retracement of the ¥84.50 – 80.90 level. Japanese Finance Minister Noda reported his country plans to purchase euro-denominated bonds to support Ireland, taking a page out of China’s recent playbook when it announced it would be purchasing Spanish and other eurozone bonds. Bank of Japan Governor Shirakawa was elected Vice Chairman of the Bank for International Settlements, succeeding Hans Tietmeyer. Bank of Japan Deputy Governor Nishimura this week reported the central bank needs to “avoid creating an impression of the monetization of government debt. Otherwise, purchases may lead to a substantial and lasting ratcheting-up of long-term rates which would pose a serious problem for economic recovery and the financial position of the government.” Nishmura also warned an increase in long-term rates could create a “serious problem.” Data released in Japan overnight saw December official reserve assets climb to US$ 1.096 trillion from the prior level of US$ 1.101 trillion. Also, the November coincident index rallied to 102.1 from the revised prior reading of 100.7 and the November leading index improved to 101.0 from the revised prior reading of 97.7. The Nikkei 225 stock index lost 0.29% to close at ¥10,510.68. 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 ¥107.85 level and was supported around the ¥107.05 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥129.50 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥85.90 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6180 in the over-the-counter market, down from CNY 6.6350. Data released in China overnight saw the December M2 money supply climb 19.7% y/y while December foreign exchange reserves came in stronger-than-expected at US$ 2.847 trillion. Also, December new yuan loans moderated to CNY 480.7 billion. There is speculation China may fail to keep inflation at or below its 4% target for 2011. The US$ 199 billion quarterly gain in China’s foreign reserves was the largest since data began in 1996. Total yuan-denominated lending came in above target at CNY 7.95 trillion in 2010, a level that has People’s Bank of China enacting policies to reduce credit growth. The yuan’s gains today were the largest in two weeks as the government wanted to evidence progress on the yuan appreciation issue before Chinese President Hu visits the U.S. later this week. PBoC Deputy Governor Yi Gang reiterated China will enhance the flexibility of the yuan’s exchange rate this year.
    £

    The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5590 level and was supported around the US$ 1.5510 level. Technically, today’s intraday high was right around the 38.2% retracement of the $1.4230 – 1.6300 range. Bank of England’s Monetary Policy Committee is not expected to change monetary policy when its decision is announced on Thursday despite ongoing elevated rates of inflation. A growing chorus of traders are questioning the central bank’s commitment to keeping inflation in check, arguing inflation may not be below 2% in two years’ time. Bank of England official Bailey yesterday said the European debt crisis’s threat on the U.K. has been “limited” as banks have “refinanced debt at longer maturities and raised their buffers of capital.” Cable bids are cited around the US$ 1.5265 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8305 level and was capped around the £0.8335 level.
     
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