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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 12, 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$ 1.3090 level and was supported around the $1.2960 level. Technically, today’s intraday high was just above the 38.2% retracement of the $1.3435 – 1.2875 range. Dealers lifted the common currency in response to Portugal’s successful €599 million ten-year bond issuance today at a yield of 6.716%, down from 6.806% on 10 November. Spain and Italy are scheduled to issue up to an agreegate €9 billion in debt tomorrow and the euro escalated on news of Portugal’s success as traders had been concerned that ongoing eurozone sovereign credit jitters would prevent the highly-indebted country from getting the deal done. Despite today’s success, Portugal still has significant financing issues and many dealers believe the country will be forced to accept a bailout from the European Financial Stability Fund. China and Japan have both verbally intervened to support the European credit markets over the past week. The common currency also gained ground after German Chancellor Merkel reported Germany will do “whatever is needed” to save the euro. Rumours swirled this week that Germany would abandon its opposition to an enlargement of the European Financial Stability Fund, perhaps a tacit acknowledgment by Berlin that more and larger bailouts are forthcoming. The ECB is not expected to alter monetary policy tomorrow when its policy decision is announced. Eurozone data released today saw November industrial production up 1.2% m/m and 7.4% y/y. Germany confirmed its economy expanded at a 3.6% rate in 2010 and its budget deficit worsened to -3.5% of gross domestic product. France reported its November current account deficit widened to -€4.2 billion. In U.S. news, MBA mortgage applications were up 2.2% while the December import price index was up 1.1% m/m and 4.8% y/y. Traders await the Fed’s Beige Book later during the North American session and expect it will report a marginal increase in business and employment activity across some Fed districts. Minneapolis Fed President Kocherlakota yesterday reported unemployment is likely to remain above 9% in 2011 with growth “closer to 3% than 4% in 2011.” 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 ¥83.45 level and was supported around the ¥82.95 level. Technically, today’s intraday high was right around the 23.6% retracement of the ¥80.25 – 84.50 range. Traders were less inclined to hold yen long for a safe haven play after Portugal successfully sold debt ahead of tomorrow’s new issuance by Spain and Italy. Japanese Finance Minister Noda this week 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 M3 money supply growth narrow to +1.8% y/y while December bank lending improved marginally to -1.8% y/y. Also, the November current account balance was off 15.7% y/y to ¥926.2 billion as the November trade surplus narrowed to ¥259.7 billion. Additionally, the December economy watchers’ survey current reading improved to 45.1 while the outlook reading improved to 43.9. November machine orders and machine tool orders data will be released overnight. 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 ¥108.75 level and was supported around the ¥107.85 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥130.65 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥85.95 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6125 in the over-the-counter market, down from CNY 6.6180. The November leading economic index will be released overnight. People’s Bank of China Deputy Governor Yi Gang reiterated “We do have confidence in European financial markets and the euro. We will be here for a very long period of time. China has been a long-term, stable investor in Europe.” Vice Premier Li Keqiang last week reported China will continue to purchase Spanish debt. Yi also said China will take “into positive consideration” investment into European financial assistance funds. PBoC today set the yuan’s reference rate at its strongest level since July 2005. Chinese President Hu visits the U.S. next week and China is sending a political message by allowing the yuan to appreciate now. It was reported this week that China’s foreign exchange reserves totaled US$ 2.847 trillion at the end of 2010.
    £

    The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5770 level and was supported around the US$ 1.5580 level. Technically, today’s intraday high was right around the 76.4% retracement of the $1.5295 – 1.6300 range. Cable rocketed higher during the North American session as traders reacted positively to Portugal’s successful debt issuance. Data released in the U.K. today saw the November total trade balance deficit widen to -£4.123 billion. November industrial production and manufacturing production data will be released tomorrow. Bank of England’s Monetary Policy Committee is not expected to change monetary policy when its decision is announced on Thursday despite ongoing elevated rates of inflation. A growing chorus of traders are questioning the central bank’s commitment to keeping inflation in check, arguing inflation may not be below 2% in two years’ time. Cable bids are cited around the US$ 1.5265 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8335 level and was supported around the £0.8300 figure.

    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9690 level and was capped around the CHF 0.9755 level. Technically, today’s intraday low was right around the 50% retracement of the CHF 1.0070 – 0.9300 range. December producer and import prices data will be released on Friday. The Swiss government’s Chief Economist, Aymo Brunetti, reported the most significant risk to the Swiss economy is an “overshoot” by the Swiss franc, adding it would “have negative effects on exports and the economic climate.” Some dealers believe Swiss National Bank will eventually be forced to resume franc-selling intervention activity. Data released in Switzerland this week saw November retail sales up a real 2.5% y/y. U.S. dollar offers are cited around the CHF 0.9810 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.2690 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5265 level.
     
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