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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 14, 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$ 1.3375 level and was supported around the $1.3090 level. Stops were reached above the $1.3275 level, representing the 61.8% retracement of the $1.2650 – 1.4280 range. As expected, the European Central Bank kept its main refinancing rate target unchanged at 1.00% and will release its next rate decision on 3 February. ECB President Trichet warned inflation pressures in the eurozone may “move to the upside” and added the central bank is “never pre-committed” not to act. Trichet continues to send a signal that the next change in rates is likely to be higher even as the eurozone sovereign credit crisis continues. The common currency gained ground today after Spain and Italy successfully debt, following Portugal’s successful debt placement yesterday. Traders were also encouraged by comments from German Finance Minister Schaeuble who reported the European Union will create a “comprehensive package” to address the debt crisis by March. This follows comments from German Chancellor Merkel earlier this week who revealed she would do “whatever is needed” to save the euro. Eurozone finance ministers will convene in Brussels next week to discuss solutions to the eurozone credit crisis. ECB member Mersch reported price stability is of “paramount” importance and said the ECB will stop purchasing bonds “when markets function again.” December eurozone consumer price inflation data will be released tomorrow along with the November eurozone trade balance. Germany December wholesale price inflation data released today were up 1.8% m/m and 9.5% y/y. French December headline consumer price inflation was up 0.5% m/m and 1.8% y/y and up 0.5% m/m and 2.0% y/y at the harmonized level. In U.S. news, weekly initial jobless claims jumped to 445,000 from the revised prior reading of 410,000 while continuing jobless claims fell sharply to 3.879 million. December producer price inflation was up 1.1% m/m and 4.0% y/y while the ex-food and energy core rate was up 0.2% m/m and 1.3% y/y. Also, the November trade deficit ticked lower to –US$ 38.3 billion from the prior reading of –US$ 38.4 billion. The Fed’s Beige Book was released yesterday and reported all areas of the country improved at the end of 2010 but warned declining home prices and millions of foreclosures are impacting the economy. Euro bids are cited around the US$ 1.3220 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥82.55 level and was capped around the ¥83.15 level. Technically, today’s intraday high was right around the 61.8% retracement of the ¥84.50 – 80.90 range. Data released in Japan overnight saw November machine orders off 3.0% m/m and up 11.6% y/y while December machine tool orders growth moderated to +63.5% y/y. The domestic corporate goods price index will be released overnight. The yen was otherwise weaker across the board as traders reacted to Spain’s and Italy’s debt placements following Portugal’s successful debt auction yesterday. 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.” The Nikkei 225 stock index climbed 0.73% to close at ¥10,589.76. 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 ¥110.20 level and was supported around the ¥108.65 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥131.20 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.00 figure. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.5990 in the over-the-counter market, down from CNY 6.6125. China continues to steer the yuan higher of President Hu’s visit to the U.S. next week. Chinese interest rate swaps climbed the most in one week as traders speculated policymakers will soon raise official borrowing costs. Bank of Korea surprised the markets today by lifting its benchmark rate by 25bps to 2.75% and this may give People’s Bank of China more scope to be more aggressive in raising rates to curb inflation. U.S. Treasury Secretary Geithner reported China needs to strengthen its “substantially undervalued” yuan. People’s Bank of China Deputy Governor Yi Gang this week 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.

    £

    The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5885 level and was supported around the US$ 1.5715 level. Stops were reached above the $1.5825 level, representing the 50% retracement of the $1.6300 – 1.5345 range. Sterling moved higher following Spain’s and Italy’s successful debt issuances. As expected, Bank of England’s Monetary Policy Committee kept its benchmark Bank Rate unchanged at 0.50% today and kept its asset purchase target rate unchanged at £200 billion. Despite the central bank’s decision to keep rates steady, many dealers believe the BoE is falling behind the inflation curve as inflation remains above-target. This may ultimately render it difficult for Prime Minister Cameron to reduce the record U.K. budget deficit further. Data released in the U.K. today saw November industrial production up 0.4% m/m and 3.3% y/y while November manufacturing production was up 0.6% m/m and 5.6% y/y. December producer price inflation data will be released tomorrow. Cable bids are cited around the US$ 1.5695 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8410 level and was supported around the £0.8310 level.

    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9610 level and was capped around the CHF 0.9765 level. Technically, today’s intraday high was just below the 61.8% retracement of the CHF 1.0065 – 0.9300 range. Swiss National Bank Vice Chairman Jordan verbally intervened, saying “The franc appreciation has worsened over the past months,” adding “volatility has strongly increased.” Jordan did not indicate if the SNB is considering another round of franc-selling intervention and many dealers do not believe the SNB will resume its intervention activity. December producer and import prices data will be released tomorrow. The Swiss government’s Chief Economist, Aymo Brunetti, this week 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 1.2885 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5370 level.
     
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